Illegal tobacco, rising cigarette prices dent supermarket profits

afr.com:

Australian supermarket sales are being squeezed by the growing illicit tobacco trade with independent stores, led by Metcash’s IGA network, describing the “huge problem” as their single biggest issue.

Tobacco is somewhat inconspicuous in supermarkets, but it has had a meaningful impact on sales and margins given demand has dropped significantly in the past year.

Australian Border Force says illicit tobacco is a growing industry for organised crime groups. 

Australians are smoking less, for health reasons and due to soaring costs, with a packet of 25 cigarettes going up inprice from September 1 to nearly $50 as a result of higher taxes on tobacco products. Others switching to vapes and illicit tobacco importation are also major problems explaining why the $20 billion-plus a year industry is declining.

Master Grocers Association chief executive David Inall said illicit tobacco was a significant concern for its 2700 members, which are mostly independent grocery and liquor stores, including the IGA chain.

“There’s no doubt that the biggest issue that we are currently facing in terms of downward pressure on store owners nationally is illegal tobacco. It seems to be probably more significant up and down the East Coast,” Mr Inall said.

“It is causing in some individual stores thousands of dollars of loss a week. It’s costing our members, in total, hundreds of millions of dollars a year, not only in tobacco sales, but also reduced foot traffic.

“People who would come in and buy a basket of bread, milk and eggs going somewhere else because of illicit tobacco. It’s a huge problem. It’s something that successive governments have known about for some time.”

Metcash faces the biggest headwind given tobacco could account for 15 per