Asian Trader's George McCracken reports on his trip to Australia and reveals what is really going on down under for tobacco retailers.
Australia is beautiful country with clear blue skies and a buoyant economy thanks to their natural resources and minerals. However there are dark clouds on the skies for independent retailers down under who try to earn a living selling tobacco.
I had heard a lot about the tobacco sales restrictions in Australia from various sources, the tobacco companies in the UK have raised their concerns many times. I read the the KPMG/Roy Morgan report with great interest, there were some interesting facts and statistics, and I had also read The London Economics report about smoking prevalence in Australia, but there is nothing like seeing a situation first hand.
So with that in mind I travelled to Australia to get an idea of what our readers might expect if the UK Government decides to follow the Australian example.
I travelled to Perth in Western Australia which is the 4th largest city in the country with a population of 1.9 million. I wanted to know how tobacco retailing works and I wanted to speak to consumers as well as retailers.
It was a very warm evening when I arrived in Perth and the best way I thought to meet and speak to smokers was to go to a bar near were I stayed in a nice suburb of Perth called Duncraig The local watering hole was called the Carine which had a lovely beer garden equipped with fine mist sprays to keep the customers cool while they enjoyed a cigarette or a cold beer.
The locals were young and affluent and I began to chat to a few of them and asking about the new tobacco restrictions that were introduced by the Australian Government the previous year.
The most common answer I got was “it's an absolute joke”, and one customer took me to the vending machine by the bar and pointed out the situation, I had to smile as the vending machine was just plain white buttons with small black text to identify the brands.
As I studied the tobacco vending machine a Geordie accent came from behind and I turned to see an English member of staff telling me that she did not have the keys for the machine if I make an incorrect choice. I asked her if that happens a lot, “all the time” came her reply.
One trend I did start hearing about in the Carine is that smokers were switching to cheaper brands, well the packs all looked the same so I could understand the logic behind that.
Next morning I headed to the Carine shopping mall next where I found an IGA store which I would say would be the equivalent of a Tesco Express. I spoke to Mike the manager and explained that I worked for the UK's largest retail trade magazine and I was keen to hear his thoughts on the tobacco sales restrictions.
Mike was a company man with his name embroidered on his smart black polo shirt, he told me all was well and that one of the tobacco companies helped set up the display behind the white doors, tobacco was still selling well in his view as people were always going to smoke anyway.
Mike also thought that the tobacco companies were painting a doom and gloom picture, but his customers knew where their brands were behind the screens. I took the opportunity to ask Mike about the illicit trade, and smuggling.
Mike was aware of it but he did not want to talk to much he know the company had a growing problem with it. As I listened to Mike I saw my first tobacco purchase in Australia. A British tourist asked the girl behind the counter for a pack of Silk Cut, the girl told the customer that they did not have that brand , so he asked her what she had.
The girl pointed to an A4 piece of paper with a black and white printed list of brands and pack sizes. The customer was struggling to read the list from the other side of the counter so he asked to see the display.
The IGA girl opened the screen and a wall of pictures appeared, the British tourist customer was conscious that he was now holding up other customers so he said to the girl give me a pack of them and randomly pointed at the middle of the display. The girl took a pack from roughly were he pointed and took his payment.
I broke off from speaking to Mike the store manager to ask the frustrated customer what he had bought, “I don't know” came the reply. I asked to see the pack and Mike was able to identify from the small white text on the lid the he had in fact purchased a pack of Dunhill Red 25.
The customer was unhappy with that choice as this was a stronger tar strength than he wanted. Mike asked the girl to change the purchase to Winfield and refund the difference.
Well this had been my first tobacco purchase that I had witnessed and it had gone wrong for both the retailer and the customer.
Over the next few days I visited quite a few retailers in Central Perth and forecourt outlets. Most of the retailers or the staff I spoke to were saying the same things.
The transaction of buying cigarettes takes longer, and even then customers come back as they have got it wrong. The most common thing I heard customers saying is “what is your cheapest smokes?” there was no doubt that brand loyalty was taking a hit and value was the name of the game.
In some stores I saw that staff had no idea where the brands where and in fact would ask the customers if they knew which door their brand was behind.
I hadn't expected this, this was not in any of the reports I read. One other area of the business I thought about was the delivery of products and how they are placed on shelves and I found my answer when I witnessed a retailer just off the main shopping district in Perth receiving a Tobacco delivery.
The retailer insisted on checking every packet of cigarettes much the delivery guy's frustration as he had parked were he shouldn't have.
I asked the delivery guy if the new restrictions had affected his job. He told me “too right” and explained he still was expected by his bosses to make the same deliveries as before the packaging changes.
He explained that before his customers (retailers) would just count the cases and sign his delivery note, but because of costly mistakes and the packs all looking the same everyone counts the packs to double check before signing the delivery note which can now take up to 4 times longer than before.
The retailers I spoke to told me that the screens came in about 3 years ago and although that was difficult the brand packs meant that they could learn their tobacco fixture and know where products where behind each screen to serve customers.
Last year without any consultation with the retailing industry the Australian government rushed through the plain pictorial packaging, and this has was described by the retailers I spoke to as “expensive chaos.”
Retailers explained that they have to deal with open pack refund returns, training staff, lost customers who can't be bothered waiting while they are trying to find a tobacco brand, and delivery mistakes.
One year on and the viewpoint I was getting is that people in Australia were still smoking, tobacco sales on the whole were the same, people were just switching to cheaper brands, oh and the rise of smuggling and illicit products.
Some retailers did not want to talk about the illicit market. However a few admitted they had been offered illicit brands like Manchester and some had been offered the loose bags of “chop chop” rolling tobacco. Manchester and “chop chop” seemed to have more of a foothold in Melbourne and Sydney from what I was told but it was on the increase in Western Australia, especially in out of town markets and events.
To get a bigger picture of what was going on across Australia I decided to talk to Jeff Rogut in Melbourne. Jeff is the Chief Executive Officer of the Australasian Association of Convenience Stores. I called Jeff and he was pleased that I had got in touch. I told Jeff about my findings so far and asked him if that was a fair “snapshot” of how things were across Australia.
Jeff told me that the situation was not great, his retailers were struggling to cope with the extra time and costs involved with some retailers giving up completely. The main problems were that the customer experience of purchasing tobacco a legal product had changed completely.
The biggest problem is returns with up to a 1/3 of all purchases being returned as it was incorrect. This was a huge figure and to be fair backed up what the retailers I had spoke to said. Jeff also told me that staff training costs were expensive.
There are a lot of casual staff who work 8 hour shifts in stores who nee to be trained up on the legal aspects of the job and learn how to deal with tobacco customers.
This was one aspect that I had not thought about before I arrived in Australia, and again another cost dumped on the retailers.
I told Jeff about what I had seen in stores and the trend of moving from Premium to Value packs and he agreed that this was happening right across the country.
Prior to the Plain pictorial packs Marlboro and Dunhill were massive brands for retailers, and smokers were keen to show their brand, but more and more customers were now just asking for the cheapest cigarettes.
Jeff told me about the logistics problems of delivering tobacco products too and again prior to arriving in Oz I had not ranked this as one of the main problems but it is.
My earlier chat with the delivery guy confirmed what Jeff was telling me. If retailers get it wrong and sign for incorrect products, tough, they shoulder the cost. Retailers check every pack almost which takes 3–4 times longer than it did before.
Retailers had even told me that bar-codes had been logged incorrectly by the delivery company and I have to admit looking at the packs for a long period does blur your vision, and judgement so mistakes will be made and once again the retailer seems to take the hit financially, which is wrong.
Jeff told me that while decent retailers were struggling, there had been a huge rise in illicit sales. I had heard of the illicit brand Manchester and Jeff told me it is now credited with almost 3% of the Market, bringing it to the attention of the counterfeiters who were planning to bring a version in from China!
That is just crazy. “Chop chop” bags of loose tobacco were on the increase too and openly sold at markets, festivals and events. RYO is not as big in Australia as it is in the UK but “chop chop” could change that.
Jeff talked a lot of sense and he genuinely wanted to help save retailers in the UK from the ridiculous situation that exists in Australia.
He also put me in touch with a retailer/wholesaler in Perth called Bob Stanton and recommended that I speak to him. Jeff concluded by telling me the bottom line facts since the plain packs were introduced the previous year.
I contacted Bob Stanton and I arranged to meet him at his store in Myaree. That evening I called into a Woolworth's forecourt and met Sam (Raj) who's family run this busy 24 hour forecourt off one of Perth's busy dual carageways. I asked him how things were with his tobacco sales, and he laughed.
Raj told me “it's just crazy and perhaps the people who put the laws in place should come and work behind this counter for a shift, they will see what really goes on.”
Sadly, listening to Raj I was no longer surprised by his feedback of customers getting annoyed unable to see the products when they purchase and then expecting Raj to exchange packs once opened.
Ironically as we spoke a customer came back to say he had got the wrong pack, Raj smiled and exchanged packs and I managed to capture the moment on my camera. They are not always as pleasant as that Raj told me.
I asked Raj about illicit products, and he told me that he does not get offered products in store as there are camera's everywhere, but he knows other retailers who have been offered illicit and fake cigarettes.
My last retailer visit in Australia was my meet up with Bob Stanton who describes his store as a tobacconist, but in fact sells everything you would expect in a convenience store from flowers to hot food to take away, well everything apart from alcohol as that is only sold out of bottle shops.
Bob was an experience retailer, and had been one for 27 years his store was in a busy shopping mall. Bob is in fact a wholesaler too and buys large amounts of tobacco to then supply smaller out of town retailers, although he did tell me that quite a few have now gone out of business due to the restrictions put on retailers to sell a legal product.
Bob told me that customer brand loyalty had gone, and I could see from the amount of tobacco stock Bob had that he knew what he was talking about. Previously premium brands that sold very well like B&H, Winfield and Dunhill had taken a hit for the less expensive value brands.
This was surprises as Australia is not in a recession, in fact far from it, consumers have plenty of disposable income, but the point Bob was making was if all the packs look the same then why pay extra for a brand that no one can see.
So getting my head round what I was being told, people are still smoking, no change there, they are just smoking cheaper cigarettes, which means the tobacco company is losing revenue, the retailer is losing revenue from his bottom line, and the government is loosing tax revenue through legal sales.
Bob did make me smile as he noticed that there is some brand loyalty in that some of the young ladies smoke cheap brands during the week but opt for premium ones at the weekend even thought they are in the same packs.
I asked about the illegal side of things and Bob said he had not seen much of the illicit white brands like Manchester but had seen plenty of “chop chop”, he also told me that tobacco is grown in Australia and some of that ends up as “chop chop.”
He also told me that he would be happy to come to the UK to tell retailers about what to expect and warn them to stand up against these ridiculous restrictions on a legal product.
Bob sells a lot of tobacco through his store and to other smaller stores. In the last year since plain packs his volume sales has remained the same, people are still smoking.
Talking to Bob and looking at the low res images printed on cheap card that the cigarette packs are made off you can't help but think that even the most amateur of counterfeiters would have no problem copying these packs.
On returning from Australia I had more questions than answers in that who thought of agreed and rushed through these legislations without any consultation and that retailers were still left to deal with the mess and absorb the expense and costs.
Back in the office at Asian Trader, there were a number of emails and reports to look at and one document from the Australian Customs and Border Protection Service made for some very interesting reading.
The Australian customs confirm that since the plain packs have been introduced organised crime has seen the huge opportunity presented to them.
Now if they can smuggle into Australia with the logistics that involves, we will have no chance preventing it in the UK.
Now it is funny that everyone I spoke to or heard from seems to tell the same story. Smokers do not begin smoking by visiting a convenience store in the high street where a shiny pack from behind the retailer urges you to start smoking.
To believe this is simply nonsense. Young smokers are more likely to copy parents, older siblings, friends or their idols on silly reality TV shows.
One year on from plain packaging and there has been no drop in the number of people smoking in Australia. Tobacco sales in volume have remained the same.
Retailers have had to endure the grief and absorb the expense. Illicit tobacco sales are on the rise, counterfeit is on the increase, the Australian government is loosing millions of dollars in lost duty and tax and that is just what they now about. Counterfeiters are even copying illicit cigarettes.
My advice to all retailers who read this article is that having visited Australia and seen first hand what retailers there have to deal with, please take serious note.
Do not think for a minute this will all go away, or it is not my problem, it is it is your business that could be at risk here.
Although our government had previously stated that plain packaging was put on hold, there has been an almighty U-turn and certain health lobby groups are trying to push this through without your consultation. Do not let that happen.
We want to campaign for a consultation that will include retailers, the same small businesses that the Prime Minister had promised to help.
I am a non-smoker who believes that if adults chose to smoke knowing the dangers then that is their choice and that should be respected.
Tobacco is a legal product and the British Government receives billions of pounds of tax and duty from the sale of tobacco products.
To introduce the Australian tobacco restrictions here in the UK will only drive sales underground and into the hands of organised crime, who will not be paying duty or tax into the government coffers.
I am also convinced that if we follow the tobacco restrictions from “down under” then retailers here will “go under.”