Tobacco plain packaging – one year on…..

November 2013
By Australasian Association of Convenience Stores (AACS) CEO Jeff Rogut

One year on from the introduction of tobacco plain packaging in Australia and the evidence to date validates what retailers were afraid of: that their businesses would suffer as a result of illicit trade, product handling errors and increased labour and inventory management costs.

All the while the actual volume of tobacco sold by convenience stores in Australia remains stable, with some AACS members reporting an increase in tobacco sales.

When it comes to plain packaging, from the retailers’ perspective there is little consolation in being able to say “we told you so”. The fact is, retailers’ bottom lines have been hit for no gain. While sales remain unaffected, training and labour costs have risen, the illicit trade of tobacco is flourishing and the spotlight again shines – predictably – on education as the most important and effective way to reduce the incidence of smoking.

Recently released research from leading international research company Roy Morgan entitled The Impact of Plain Packaging on Australian Small Retailers, commissioned by Philip Morris, shows that awareness among small retailers of illicit tobacco is high and has increased since the introduction of plain packaging.

More than four in ten retailers perceive illicit trade to be having a negative impact on their business, and a third report having had customers enquire about purchasing illicit tobacco. Recent large scale busts in Australia highlight the demand for, and prevalence of, illegal tobacco.

The huge growth in illicit tobacco sales is concerning for all. Police in Australia have made major seizures of illicit tobacco and worryingly it is quite easy, as some newspapers reporters have found, to buy non-compliant tobacco. This impacts honest retailers who sell tobacco responsibly and legally as well as the Government, which experiences a significant loss of revenue because the sale of illicit tobacco circumvents the tax otherwise payable on legal tobacco products.

In another key finding of the Roy Morgan research, tobacco’s importance as a product category for convenience stores was reaffirmed, with 95% of stores rating tobacco as important to their bottom line.

So we have the financial stability of small businesses which responsibly sell a legal product being undermined by a policy which has encouraged black market trade.

The research also confirms retailers’ fears of rising costs associated with increased transaction times, customer frustration, inventory management delays, as well as heavier staff workloads and training requirements.

Convenience stores, taxpayers themselves and a vital cog in so many local communities, have faced no other choice but to absorb these costs at their own expense, placing undue pressure on their bottom line.

There also seems to be a shift by customers to cheaper brands however the excessive taxes on tobacco products in Australia has impacted this too.

The negative impacts of plain packaging for small retailers were always obvious to those in the industry. It’s what happens when policy is made after the consideration of only one perspective, one agenda.

The AACS was outspoken about the need for a broader perspective leading up to the introduction of plain packaging; about the need to implement policy based on genuine evidence and consultation with all stakeholders.

Unfortunately there was an absolute lack of consultation with the retail sector. Small business concerns didn’t seem to rate.

One point repeatedly overlooked when it comes to the plain packaging debate, and a point that in the context of a free and democratic society is so critical, is the need for those adults who choose to smoke a legal product to be treated with dignity.

It has become the norm for those with an agenda to demonise smokers as second class citizens.

The convenience industry is committed and proud to treat every customer we serve with respect. In Australia, plain packaging has compounded an endless series of tobacco excise hikes which has compromised the dignity of those adults who choose to smoke.

One sub-sector of the community is relentlessly targeted, time and again, to patch over budget shortcomings. The word discrimination actually seems inadequate.

It is with a sense of déjà vu that retailers in Australia watch the plain packaging debate unfold in New Zealand, as the health lobby flexes its muscle to dominate headlines while the business case is dismissed as self serving and retailers at the coal face have almost no voice at all.

The New Zealand Parliament has the opportunity to take a different, more respectful and ultimately more effective path to meeting its desired health outcomes. Small businesses everywhere in New Zealand are depending on it.

Key findings of the Roy Morgan research into the impact of plain packaging on small retailers in Australia include:

• Two-thirds of small retailers claim plain packaging has negatively impacted their business.

• 78% experienced an increase in the time taken to serve adult smoker customers and 62% report additional time is spent communicating with these customers about tobacco products.

• 62% of small retailers have faced increased frustration from adult smoker customers and 65% have seen an increase in the frequency of staff giving the wrong products to customers (primarily due to difficulty in recognising/distinguishing between brands).

• 34% of retailers have experienced increased frequency of attempted product returns predominantly due to customers being given a product they did not ask for.

• 44% of small retailers consider that plain packaging has negatively affected the level of service they are able to provide to their non-tobacco customers.

• 75% of small retailers find it takes more time to order stock. 45% claim it takes much more time.

• The accuracy of the ordering process has also been impacted, with 46% of small retailers facing an increase in the frequency of incorrect orders placed.

• 58% of small retailers noted an increase in the time taken to receipt stock while the courier is on site (also resulting in courier frustration), and 83% now take longer to process stock once the courier has left, including 57% reporting it now takes much more time.

• While 28% of small retailers overall had increased the number of staffing hours, 63% reported their staff now have a heavier workload since the introduction of plain packaging.

• Around a third of small retailers indicated being concerned about store or staff safety issues as a result of staff members facing the storefront less since the introduction of plain packaging.

• 66% of small retailers have spent additional time training part-time, casual or transient staff as a result of the changeover to plain packaging, while 44% have faced additional costs from training staff members as a result of the changeover.

• 65% do not perceive that the Australian Government considers the needs of small businesses at all in its tobacco legislation.

• 65% of retailers reported that their feelings towards the Government are less favourable as a result of the plain packaging legislation.

• 83% perceive that the Government has negatively affected the ability of small retailers to compete with larger chains.

• 43% of retailers perceive illicit trade to have a moderate or major impact on their business.

• 33% of small retailers reported having had customers enquire about purchasing illicit tobacco since the introduction of plain packaging.