RESEARCH CONFIRMS RETAILERS’ PLAIN PACKAGING FEARS – Update

March 28th, 2013

New research from internationally recognised research house Roy Morgan has confirmed what retailers feared: plain packaging is taking a bite out of their bottom line. Increased administrative and labour costs are combining with negative impacts on the ability of stores to serve non-tobacco customers, all of which is adding to the cost burden felt by retailers.

“Despite repeated attempts to open a dialogue, Government consistently refused to consider the impacts of plain packaging on retailers selling a legal product in a responsible manner to adult customers” says Mr Jeff Rogut, Chief Executive Officer of the Australasian Association of Convenience Stores (AACS).

The Impact of Plain Packaging on Small Retailers research report from Roy Morgan commissioned by Philip Morris and with AACS support, is the first major comprehensive review of the actual retail impacts of tobacco plain packaging across 450 retail outlets. The findings largely echo the concerns retailers held leading up to the introduction of the legislation.

Importantly, it also debunks other hastily produced and fundamentally flawed theoretical ‘research’ quoted by government, that argued plain packaging actually improves transaction times and efficiency.

It is also concerning to read comments from Ms Deborah Arnott, chief executive of ASH, who said “Australia has proved that introducing standardised packaging is easy to implement and causes no problems for retailers.” These comments do not accurately reflect the Australian experience to date. Retailers are in the main very unhappy with the new plain packaging legislation.

Some of the findings of the Roy Morgan research into small retailers included:

• 90% of small retailers experienced increases in time taken to serve tobacco customers and 75% report additional time is spent communicating with these customers about tobacco products.

• 73% faced increased frustration from adult tobacco customers and 59% have seen an increase in the frequency of staff supplying the wrong products primarily due to difficulty in recognising and distinguishing between brands.

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

• The large majority of small retailers find it takes more time to order stock and around 80% have experienced an increase in the occurrence of out of stocks since the transition.

• The majority of small retailers reported that their staff now has a heavier workload.

• Almost two-thirds of small retailers have spent additional time training staff as a result of the changeover while 40% have faced additional costs from training staff members.

• Two-thirds of small retailers do not perceive that Government considers the needs of small businesses at all in its tobacco legislation while the same amount report their feelings towards the Government are now less favourable as a result of the plain packaging legislation.

• 77% of small retailers said plain packaging is having a negative impact on their business overall.

• Small retailers are concerned that plain packaging will result in an increase in illicit trade.

• Couriers delivering stock face longer waiting times in store, resulting in a loss of productivity and potentially increased costs for retailers.

“It was clear that, while not impacting the volume of tobacco consumed, plain packaging was going to encourage some tobacco customers to change their purchasing habits. It was also obvious that retailers would need to invest significant time and money in re-training staff, preparing for stock deliveries and implementing new inventory management procedures” Mr Rogut says.

“Indeed, in addition to the Roy Morgan research, recent comments from Australian Convenience retailers highlight that:
• Since the introduction of plain packaging, customers are down trading into the value segments, which in turn places pressure on retailer’s margins and profitability (tobacco accounts for over 30% of typical convenience stores sales – the majority of these being small businesses).

• Customers are less brand loyal, so although dollar sales are down in some areas, actual units per store are either the same as they were prior to plain packaging, or in some cases higher as customers are now buying increased quantities of less expensive brands.

• Deliveries are taking over 30 minutes longer to check due to the difficulty in identifying particular brands, placing added pressure or store staff and couriers who deliver the stock to stores.

• There is customer frustration when staff unfamiliar with the new packs cannot quickly identify the products they have requested.

• Illicit cigarette packs are becoming more prevalent as illegal products are imported into the country.

“The stated government objective of reducing tobacco consumption through plain packaging is certainly not evident in the first four months of the new regulations coming into force. If anything, lack of distinct branding encourages customers to seek greater value rather than just brand image, and may in fact encourage a greater frequency of smoking due to improved affordability.

The issue for retailers, who are still responsibly selling a legal product to those customers who choose to smoke, is reduced income and profitability that may in fact affect the viability of many small retailers, who are also voters.

Nothing trumps education in terms of improving health outcomes in society and we would encourage an increased recognition of this rather than simplistic solutions that fail to recognise the consequences for those down the line who have to carry out government policy,” Mr Rogut said.

Jeff Rogut
Chief Executive Officer
Australasian Association of Convenience Stores
Ph: +61 467 873 789