More than a third (36%) of convenience store turnover consists of tobacco sales.
So it’s no wonder the industry took a keen interest in the plain packaging reforms that required all cigarettes be sold in ugly olive-green packages, in a bid to make them less attractive to young smokers.
A year on, the chief executive of the Australasian Association of Convenience Stores (AACS), Jeff Rogut, says it’s been a huge challenge for the industry.
However, the claims are contested by a university professor, who says shopkeepers just memorise where the common brands are kept on the shelf, and so are able to find them without looking at the packaging.
The AACS has represented the organised convenience store sector (franchise 7/11, BP and Caltex stores, as well as some of the larger independents) since 1990 and counts 6000 such outlets among its membership, who together made $6 billion in sales last year.
Some of the large wholesalers to such stores, including big tobacco, are also among its membership. However, Rogut says he’s heard complaints from all sectors of his industry.
“Tobacco is a destination category for our stores. People don’t buy it on impulse – it’s a planned purchase. But when they’re in there, they buy chewing gum, confectionery and drinks. It’s an important contributor to our profitability.
“Obviously cigarettes damage people’s health. But what we’ve seen is that since the plain packaging came in, sales have remained stable.”
Rogut cites figures from Roy Morgan research, sponsored by tobacco company Philip Morris, to support this. SmartCompany looked, but could find no independent research on the subject, with most public health experts saying it is too early to tell. Major tobacco companies deny a drop in tobacco sales.
Rogut says the new laws have created headaches for convenience store owners, who are forced to invest more time and training into selling cigarettes, with a lot of unintended consequences as well.
“Before, it was very easy for store operators to see where the product was displayed. Now everything looks the same. And stores have to battle to find ways of displaying the tobacco that make it easy for staff to recognise.
The convenience store industry has very high turnover, with generally one in three staff members leaving a role in the industry every year as they get better jobs, or graduate (many staff members are students). “So what that means is that this training has to be done over and over again. And it’s a real challenge,” Rogut says.
Stock management has also become more difficult. “When stock is delivered, you could have thousands of dollars’ worth of goods coming in. You have to verify you’re getting what you paid for. And now, everything looks the same. It takes double the time to check.”
The profitability of tobacco is beginning to be affected too, Rogut says.
“The product mix is changing. Whereas people used to be wedded to their brands, more and more, people are asking, ‘what’s the cheapest smokes’. Many are down-trading. And the margins on those cheaper packets are slimmer.”
But many of Rogut’s claims are disputed by Curtin University’s Dr Owen Carter, at the Centre for Behavioural Research in Cancer Control.
He’s been studying the effect of plain packaging on retailers, and says it takes them no extra time to find the right packet.
Before the laws were enacted, he conducted an experiment where 52 participants were faced with a wall of 50 plain packs of cigarettes. He measured the time it took them to find the package, and found the plain package wall was easier to navigate after a while than the branded package control group, as the plain package group had to memorise the location.
“Rather than plain packaging requiring an additional 45 seconds per transaction, our results suggest that it will, if anything, modestly decrease transaction times and selection errors,” the study concluded.
And in another more recent study, conducted both before and after the introduction of plain packets, he timed the speeds of convenience store workers at finding cigarette packets with or without coloured packaging.
“There was clearly no difference whatsoever,” he tells SmartCompany.
“A retailer might be selling 100 packs of cigarettes a day. By the 4th or 5th time, you’ve memorised where that packet is.
“And if you’re now organising them alphabetically, as many have, you don’t even need to have sold a pack before to know where to look.”
Rogut disagrees, saying that the Roy Morgan research, which surveyed 450 convenience store owners in its first wave and 150 in its second, found that it had become more difficult to sell tobacco. “They’re not academics or theorists – they live with it every day. To dispute their day-to-day experiences based on one study isn’t credible.”
Carter says there’s a political reason retailers and politicians focus on the difficulty of selling plain packaging. “To admit plain packaging was actually hurting their sales would mean plain packaging is working,” he says.
“So they have to come up with another, socially acceptable reason to object to plain packaging.”
“The average smoker smokes 15 cigarettes a day. That’s slightly less than a back a day. And so they have to keep going back and buying. It’s a great business model really. And is extremely profitable because of that.”
Owens says he’s spoken to many retailers who genuinely believed plain packaging would make things more difficult for them.
“But when you go back and speak to their employees, they say it hasn’t made any difference. They just memorise where the packs are.”
Plain packaging looks like it’ll spread to other countries. Australia’s pioneering position could soon be adopted in New Zealand and the United Kingdom.
Rogut says the increasing regulation of the sector doesn’t come as a surprise.
“We’ve known for 20 years that it’s not a sustainable category in the long term.”
Recently, Rogut and 43 convenience store owners went on a study tour to America. Rogut says he and his group were inspired by how American convenience stores had managed to diversify their offering away from tobacco.
“Tobacco’s not as highly regulated over there. But they’ve totally changed their model towards more of a serviced-food focus.
“You can go in and get quality meals – whether it’s breakfast, lunch, or something quick after work.
“That’s the future for our industry – we’ll continue to sell tobacco while we can, but we’re also looking at other opportunities that address our customer’s needs.”
Regardless, Rogut says he’s disillusioned with the government’s handling of the tobacco issue. He says illicit brands are growing, to the extent that stores have customers coming in and asking for illegal brands. A recent Deloitte study found the government lost out on $1 billion in excise a year from the growth of such brands.
“Governments around the world generally haven’t done a great job on the war on drugs. They’ve spent countless millions combating it, and dare I say drugs are just as available.
“So what’s the next stage? Ban tobacco, put it underground, and make it more desirable? We know all young people have some sort of rebellious streak – they’ll seek out these sorts of things. That’s why the focus always should be on more education. Instead, the government put retailers, who sell a legal product, at the forefront of implementing this flawed policy.”
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
