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Black Market Cigarettes Killing Canada's C-stores

MONTREAL, Canada -- An increasing number of Canada's convenience stores are closing because they simply can't compete in a market rife with black-market, cut-rate cigarettes, according to the Canadian Convenience Stores Association (CCSA).

More than 2,300 corner stores -- six a day, or roughly 10 percent of the total number of locations across the country -- closed last year, as contraband tobacco sales siphoned off more than $2.5 billion in sales and $260 million in profits during that time, the Globe & Mail reported, citing a study released by the association this week.

The profitability of convenience stores is "barely holding" at approximately 1 percent, and the sector faces a tough business environment in the future, according to the industry-sponsored report, whose research partners included PricewaterhouseCoopers, the Desjardins financial group and the business school, HEC Montréal.

The impact of contraband tobacco sales has been compounded by high credit card transaction fees and the effects of the recession as consumers tightened their belts, said Michel Gadbois, executive vice president of the CCSA.

"The contraband situation has been building up over the past five years, with sales taxes on legal cigarettes continuing to rise," he said. "The industry is slowly being killed off."

High sales tax on cigarettes continues to push cash-strapped smokers into doing business with suppliers of much cheaper black-market smokes, Gadbois added.

The CCSA estimates about 40 percent of Quebec's cigarette sales and about half of Ontario's are on the black market. The industry group has been urging the government to cut taxes on legal cigarettes to reduce the unfair advantage of illegal tobacco.

Convenience stores are heavily dependent on the sale of tobacco products and, in Quebec, beer and wine. About 75 percent of the 2,300 store closings last year were in Ontario and Quebec, the two principal markets for contraband cigarettes, the report said.

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