The introduction of new smoking products has seen a radical shift in the way people are purchasing and consuming nicotine, but how will the industry react?
Over the past few years, Australia, and the global community, has witnessed a change in the way consumers are enjoying tobacco, with the introduction of e-cigarettes or vapes.
While other countries embraced the change and regulated the new products, the Morrison Government’s response was to ban such products being sold in Australia, leading to a highly profitable black market, or money being forced out of the local economy and being spent overseas as consumers legally imported products.
Theo Foukkare, CEO of the Australian Association of Convenience Stores (AACS), says that the effect of policy failings across the board in containing and eliminating both illicit tobacco and illicit e-cigarettes is having a negative effect on population health and the degeneration of legitimate retailers.
“The illegal sale of illicit tobacco and nicotine vapes continues to add downward pressure on tobacco sales and the associated loss of bundled purchases by the tobacco consumer.
“A recent KPMG report on illicit tobacco has the current rate of sales at 19.3 per cent, an increase from 2020 of 2.4 per cent (16.9 per cent). The black market for nicotine containing e-cigarettes has exploded since prohibition was put in place in October 2021.
“Products are readily available in illegitimate retail outlets, taking away valuable foot traffic from legitimate retailers, therefore decreasing overall basket sizes, and having a major impact on all categories, just not tobacco sales.”
Foukkare says that a recent Roy Morgan study released by AACS estimates there is now 1.1 million adult nicotine vapers in Australia, and that the illegal nicotine vaping industry could be worth upwards of $1.5 billion per annum in Australia.
The impact is being felt across the board, with Pradeep Kumar, Director of TabSol Australia stating that the prevalence of illicit tobacco and nicotine vapes is the biggest challenge facing the industry right now.
“The widespread availability of illicit tobacco and nicotine vape products is impacting the whole industry. Due to the lack of enforcement of regulations and control at our borders nicotine vapes and illicit tobacco products are hitting our streets at an alarming rate. Nicotine vapes are so easily obtainable, consumers and the illegal traders are treating it as normal and acceptable.”
TabSol, which wholesales zero-nicotine Tribal Spirit Vapes, has always followed the legislation that has been in place and ensure they only distribute legal non-nicotine vapes.
“We have commissioned independent tests to ensure the there is no nicotine nor any banned chemicals. It is the lack of enforcement of the legislation by the authorities that is concerning and impacting all law-abiding businesses.”
Kumar says that unless the authorities take serious action to control the illegal nicotine vape sales, legal suppliers such as TabSol will suffer.
“Our distribution of TSVo- Tribal Spirit Vapes (Zero Nicotine) has slowed down due to the widespread availability of nicotine vapes. Due to the flood of nicotine vapes, the only legal alternative – zero nicotine vapes, sales are slowing down.”
P&C is pivotal
Despite the current challenges facing the industry, the P&C and independent grocery channels are still of great importance to many brands in the category.
Phoebe Tacon, National Business Manager P&C at Imperial Brands, whose portfolio includes JPS, Davidoff, and L&B, says that the two channels combined represent more than 8,500 single and multi-store operators across Australia.
“Most of these stores provide a comprehensive range of tobacco products and accessories to consumers, with great customer service at competitive price points.
“Shoppers are responding positively to the category offer in independents and convenience and share of trade has been strong. Grocery independent has grown from 14.3 per cent in 2019 to a high of 17.0 per cent in 2022, whilst P&C has remained solid at 11.5 per cent. This means almost one in every three tobacco sales in Australia are made in these channels.”
For the independent grocery channel, Tacon believes their share of trade will be challenged by the tobacconist and grocery organised channels once return to work has normalised and shopper behaviours return to pre-Covid routines.
“However, this also provides a great opportunity for Independents and Convenience to continue the improvement and consistency of the shopper experience they have delivered to date.
“Imperial Brands is committed to partnering with Retailers to develop solutions that drive footfall and category penetration in your stores.”
The P&C channel is one of the priority channels for TabSol, explains Kumar, as the convenience channel tends to over-index on tobacco and associated goods sales compared to some other channels.
“Tabsol offers quality tobacco and e-cigarette products at value for money prices, therefore convenience stores are a focus. The sheer number of stores, their national coverage, and their mostly organised nature makes the convenience channel good and easier to deal with.”
What the future holds
Recognising the role that Imperial Brands play in reducing the harm caused by combustible tobacco products, Gary Dickson, Regulatory and Legal Compliance Manager at Imperial Brands, says they understand society’s concerns about the health risks of smoking and as a result, are increasing their attention on nicotine alternatives.
“Imperial Brands Australasia does not currently market or sell any Next Generation Products (NGPs) in Australia. We are committed to making a meaningful contribution to tobacco harm reduction and our global portfolio includes a range of NGPs including vapour, heated tobacco, and oral nicotine.
“Many regulators and public health bodies have concluded that NGPs, including vape products, are less harmful alternatives to smoking, and therefore have a positive role to play in reducing smoking-related disease. We encourage the Government to recognise the reduced risk potential of NGPs and to develop balanced regulation and fiscal policies that support tobacco harm reduction.”
Foukkare says that AACS is calling for a National Summit on the issues that have developed since the current prescription model policy was introduced by the Therapeutic Goods Administration (TGA), which includes designing cost-effective enforcement measures, abolishing the prescription scheme which is not being accessed by consumers, and identifying ways to disrupt the unruly syndicates that are driving black market trade.
“AACS would also like to see the TGA support immediate age limits on sales, the implementation of a national licencing scheme for all retailer sellers of vaping products, underpinned by a national product accountability tracking scheme, and to limit sales of nicotine vaping products to licensed, responsible retailers.”
Kumar believes the in-action by authorities is making Australia a sanctuary for criminals who engage in illegal nicotine and tobacco trade.
“The tough regulations on tobacco products as well as vapes has made the illegal trade quite lucrative.
“The in-ability by authorities to enforce the regulations is cultivating a culture of acceptance of the illicit trade. Retailers overwhelmed by the widespread availability of illicit tobacco and vape products are succumbing to the high demand and huge profits and engaging in the retail of illicit cigarettes, tobacco and vape products.”
Dickson echoes Foukkare’s belief that the current prescription model has failed and does not provide adult smokers with an effective transition path away from combustible cigarettes.
“The burgeoning illicit disposal vape market highlights the urgent need for more effective regulation which strikes a better balance, encouraging NGP uptake by adult smokers and limiting the ability of minors to access nicotine products.
“Products available on the illicit market are entirely unregulated, meaning that there are no product standards and are often sold to underage consumers. Legitimate manufacturers, retailers, and the Government are deprived of what could be legitimate revenue.”
This article was written for the October/November issue of C&I Retailing magazine.