The Real Story of Australia’s Plain Tobacco Packaging
MELBOURNE, Australia — As has been widely reported on an international basis, Australia is the only country in which standardized or “plain” packaging of tobacco products has become law. This has had dramatic impacts on convenience stores in terms of their ability to compete with the larger supermarket chains.
Adding to the burden is the coordinated campaign of misinformation from health lobbyists that seeks to dismiss the genuine concerns of convenience stores, even accusing the industry of being lackeys for Big Tobacco, making the operating environment for small retailers even more challenging.
Almost on a daily basis, the Australian media is reporting the findings of some new survey purporting to “prove” that plain packaging is working; that the number of smokers is declining as a direct result of the legislation.
Actual sales as reported by retailers tell a different story, one the health lobby finds very inconvenient.
Since December 2012, legal tobacco products in Australia have been sold in plain packaging. In this time, the amount of tobacco sold has remained stable compared to before the introduction of plain packaging. We’ll get to the issue of illegal tobacco later.
It is interesting that those driving the plain packaging agenda are seeking to focus on the initiative’s apparent short-term success when the legislation was introduced in Australia as a “long-term solution." Nevertheless, the claim that smoking has declined in Australia as a result of plain packaging is totally unfounded.
A trend analysis of tobacco sales data since the introduction of plain packaging in Australia continues to demonstrate that price is now the leading factor in driving tobacco sales as products have become commoditized. There has been no overall decline in sales as a result of plain packaging, but a shift in the way consumers are buying products has occurred.
According to AZTEC, which gathers and measures data across channels and categories, the total value of tobacco sales in the convenience sector in Australia for the 12 months ended June 2014 showed strong growth at 7.3 percent. Driving this growth in tobacco consumption was the sub-value or “cheaper” segment, which grew in total sales by 61.7 percent over the course of the year. Total sales in the roll-your-own segment grew 29.1 percent in the same period.
Sales in the premium tobacco segment have declined considerably. With all packs now looking the same, price has become the key driver.
This is where the legislation has inadvertently given a free kick to the major supermarket chains. With their bulk buying power and ability to offset tighter margins against their many other product categories, supermarkets have picked up additional market share.
As a product category, tobacco accounts for 35.5 percent of sales in convenience stores, on average. Tobacco sales in stores increased 5.4 percent in Australia in calendar year 2013, representing an extra $120 million over the previous year.
Those in the retail sector were always best positioned to understand the implications of plain packaging. Legislation introduced with no evidential basis, driven by emotion for the purposes of politics always has consequences.
Regrettably, too often it is retailers who bear the brunt. Despite the increase in tobacco sales, the significant cost burden of plain packaging has impacted retailers — small businesses in particular — with no demonstrable outcomes for community health.
Indeed, retailers have seen a dramatic shift to cheaper tobacco products as brands are devalued. In 2013, there was a dramatic 58-percent increase in the sub-value segment. These are sales to consumers, not wholesale sales to retailers.
The extra financial costs for retailers as a direct result of plain packaging are associated with additional staff training, labor, product handling errors, increased inventory management procedures and increased customer frustration. These have been absorbed entirely at retailers’ expense.
THE ILLEGAL MARKET
Compounding this burden is the explosion of the illegal tobacco market.
Awareness of illicit tobacco products is very high among small retailers, and both the perceived impact on business and the actual incidence of customers inquiring about purchasing illicit tobacco are a dangerous byproduct of plain packaging.
There is no other way to look at it: Australia has become a highly lucrative international market for illegal tobacco traffickers. Numerous recent high-profile police busts prove the point.
KPMG research found that in calendar year 2013, the level of illicit tobacco consumption increased to 13.9 percent of total consumption in Australia. This is the highest level ever recorded and an increase from 11.8 percent in 2012. If all of this tobacco had been consumed in the legal market, it would have represented $1.1 billion in tax revenue collected by the Australian government.
The truth is, no one knows whether over the long term plain packaging will have any impact on the incidence of smoking or not. It is likely it will never be known given the natural decrease that has been occurring in smoking rates.
Should governments focus their efforts on educating younger people not to smoke, in an unemotional and factual way, positive health outcomes may materialize.
Doubtless those who campaigned for plain packaging will be eager to claim responsibility. However, nearly two years after the introduction of plain packaging, more and more people are realizing the whole exercise was little more than politicking.
The debate still rages. For retailers — those who have borne the financial brunt — the most disappointing aspect has been the failure of plain packaging to have any positive impact on health outcomes. Indeed, price is now the main driver of tobacco sales.
Editor's note: The opinions expressed in this article are the author's and do not necessarily reflect the views of Convenience Store News.