Australia’s Illicit Tobacco Market Continues to Worsen

Law-abiding retailers are being hit harder than ever before.

December 03, 2014

MELBOURNE – New independent research from KPMG LLP in the United Kingdom shows that the use of black market illegal tobacco in Australia has reached levels never before experienced and, according to the Australasian Association of Convenience Stores (AACS), it’s not just honest retailers who are feeling the effects.

AACS CEO Jeff Rogut said the rampant market for illicit tobacco robs honest retailers of legal sales, while increasing the risk of tobacco ending up in the hands of minors. Increased use of black market tobacco also prevents the government from collecting tax revenue.

The latest KPMG research, “Illicit Tobacco in Australia,” shows that illegal tobacco use in the last 12 months has increased from 13.5% to 14.3% of the country’s total tobacco consumption. One in every seven cigarettes consumed in Australia is illegal.

“Gangs are profiting from the illegal tobacco market in Australia more than ever before and this criminal behavior is spiraling out of control,” Rogut said. “This is largely due to our regulatory environment, as endless tax hikes and policies like plain packaging are contributing to Australia’s growing reputation as one of the world’s most lucrative markets for illegal tobacco.”

The increased illegal sales cause responsible retailers to miss out on critical tobacco product sales, which generally account for about 36% of sales in a typical convenience store, many of which are small business owners who operate as franchisees or licensees.

“It also raises serious questions about quality control for illegal tobacco products and where these products end up. Criminals are not responsible retailers and they have no issue with selling illegal tobacco to minors,” Rogut cautioned. “The ramifications of a growing illegal tobacco market are wide ranging and very damaging.”

The KPMG research shows that if the amount of illegal tobacco consumed in Australia in the last 12 months had been sold legally, it would have generated an extra $1.2 billion in tax revenue for the Australian Government. The awareness of illicit tobacco products is very high among small retailers, and both the perceived impact on business and the actual incidence of customers seeking to purchase illicit tobacco are cause for concern.

Research from leading international research company Roy Morgan, released earlier in the year, shows that 33% of small retailers reported customers inquiring about purchasing illicit tobacco since the introduction of plain packaging, and 43% of retailers believe that the illicit trade of tobacco has negatively impacted their business.

To learn more about this issue, read Rogut’s article, “Tobacco Down Under,” in the December issue of NACS Magazine.

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