The illicit tobacco market has become one of the biggest challenges facing Britain's convenience retailers, with many store owners warning that criminal operators are eroding legitimate sales while often escaping meaningful enforcement.
While responsible convenience retailers face rising compliance costs and stricter regulations, many say their biggest competitor remains the illicit tobacco trade.
In this exclusive interview, Tolga Kilic, Managing Director of BAT UK, shares his views on the scale of the illicit trade, the shortcomings of enforcement, the implications of the Tobacco and Vapes Bill, and why stronger action is needed to create a level playing field for responsible retailers.
Asian Trader: Convenience retailers say illicit tobacco traders are now their biggest competitor. From what you’re seeing, how widespread is the problem?
Tolga Kilic: The problem of illicit trade is widespread and growing, due to several factors. It is already extremely well-established and although increasing taxes are often designed to reduce consumption, where demand remains, it instead contributes to growth in illicit activity. Meanwhile, underfunding enforcement and border-control problems create the perfect conditions for illicit trade.
A pack of illicit cigarettes can be sold at a fraction of the legal price while still delivering significant profits to smugglers and counterfeiters. Also, large quantities can be moved quickly across borders or hidden within legitimate freight, lowering the risk compared to drugs or weapons. And make no mistake, it is not small-time criminals behind this but large organisations often involved in other crimes, too.
BAT UK is now learning increasingly of counterfeit vapour and nicotine pouches being sold. Mostly, consumers are unaware that these products are fake – with little to no idea of what exactly is in them. Illicit supply chains are sophisticated and expanding into new areas.
In one operation, Trading Standards seized 46 million cigarettes and over 12,500 kg of hand-rolling tobacco across a three-year period, yet, illicit tobacco continues to grow significantly, with official estimates failing to capture the true scale.
AT: Many retailers tell us they know exactly which shops are selling illicit but nothing happens when they report it. What pressure is BAT putting on Government to properly resource enforcement?
TK: As an industry leader, we can spot illicit nicotine products as well as anybody. Where possible, we have tried to educate law enforcement agencies on these products and the potential dangers of them. And through our world-class R&D facility in Southampton, we can support work on testing product samples to better understand what is actually in them.
But for too long, there has been a gap between policy intent and enforcement. We know enforcement officers do an excellent job but there are growing demands and resources are more stretched than ever. We have long-called for increased resources for UK Border Force and Trading Standards funded by excise and increased fines.
AT: The Tobacco and Vapes Bill will place significant new compliance burdens on c-stores in terms of age checks. Honest retailers will follow the rules but will illicit traders? In your opinion, what will be the consequences of the Bill?
TK: We support the Government’s ambition to prevent children from ever starting smoking but we also remain concerned that a generational ban will be extremely difficult for retailers to enforce and could in turn lead to an increased sale and use of illicit products.
We do not anticipate that rogue traders will follow the rule and believe raising the legal age of sale for cigarettes to 21 would have been a more sensible solution.
We do however hope that the retail licensing system will help crack down on illicit activity and discourage cigarette sales to underage.
AT: A legitimate retailer pays full duty on every pack of cigarettes and every vape they sell. An illicit trader pays nothing and undercuts them on price. For a small convenience store owner with tight margins, that's an existential threat. What is BAT doing to support the law-abiding retailers and give them a level that playing field?
TK: When criminal operators undercut on price, it not only impacts legitimate retailers but undermines the integrity of the entire category.
That is why we believe it is our duty to support law-abiding retailers. First, we actively work with enforcement agencies, sharing intelligence and insights to help identify illicit products and disrupt supply chains. We also support testing and verification of suspicious products.
Secondly, we invest in retailer education – helping store owners and staff identify counterfeit or non-compliant products, understand evolving regulations, and ensure they remain compliant in a changing landscape.
AT: What is your single most important piece of advice to a retailer who wants to protect their business, stay compliant, and compete against illicit traders?
First and foremost, keep doing the right thing. We understand how frustrating it is to see irresponsible actors profit from illicit activities. In future, age verification and underage access prevention will become increasingly important. With an upcoming retail licensing system, it is crucial that stores know the rules, have the right controls in place and ensure staff are fully trained in this area. Otherwise, stores risk fines and even potentially losing their licenses. We appreciate this is a big change but we hope the licencing scheme will help stamp out irresponsible actors and bring more credibility.
And of course, if you do suspect any rogue traders, please do make sure to contact your local Trading Standards and raise this with them.
AT: what’s your message for government and policy makers?
TK: Let’s work together, listen to retailers and listen to industry. We all want to put a stop to illicit trade and this can only be achieved through co-operation. The ways of the past have failed; now is the time for a change in approach, otherwise only the criminals will continue to benefit.
The new legislation is currently too weak to make a significant difference. Take retail licensing for example. For a long time, we campaigned for the introduction of such a scheme to deter unscrupulous retailers selling to minors and selling illicit products. But the fines proposed by the Government are far too lenient – there is no incentive to comply.
Higher fines for retailers must also be matched by strong enforcement in other areas, such as more resources and powers for Trading Standards, along with mandatory pre-market testing for nicotine products shipped to the UK. Without this kind of enforcement across the board, illicit supply chains will continue to strengthen.