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Plain Crazy – Why UK retailers must fight plans for plain packaging

Why UK retailers must fight plans for plain packaging

At a recent conference in London organized by Philip Morris, Jeff Rogut, a store owner and chief executive of the Australasian Association of Convenience Stores, talked about the impact of plain packaging in Australia, which became the first country to introduce the measure last year. In this extract from his speech, he spells out how the move has done nothing to deter smoking but is having a hugely negative impact on retailers and advises colleagues in the UK to step up the campaign against plain packaging being introduced here.

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As a retailer, my task is to offer customers what they want at a fair price as conveniently as possible. And the (Australian) government
has made this increasingly difficult over recent years. We have a display bans so when you walk into a store all you’ll see is a blank covered door with a small sign which says ‘Smoking Kills’ and that we don’t sell tobacco to somebody under 18.

And you might see a menu board in a certain font size and type that you won’t easily be able to read. It will just have a description and a price. That’s all there is in terms of tobacco. That’s all that is allowed. No colored point of sales, nothing.

So if you walked into a store and you’d just dropped in from out of space, you wouldn’t know where the tobacco is or indeed what it is. So we’ve had that for a number of years and retailers have coped with that.
Sales trends have fluctuated. But our sales in tobacco actually increased last year, something like 6%. So people still chose to smoke and chose to come into convenience to buy their products as they need them.
Plain packaging came in on 1st December 2012. From a UK point of view, it’s important that retailers try to get to the point of not having plain packaging rather than go through the pain. So as of 1st December, it became illegal to sell a tobacco product with a brand. The fine for a retailer for doing that was many thousands of dollars for each offense.

There was an enormous amount of work for retailers to clear out the old stock. Some stock was taken back and some retailers chose to dump the stock. So the small retailers were really acting as the implementers of government policy.

It was not easy – the staff turnover in our industry is about 40%, that’s a lot of change in the people going through the stores. Most of our stores operate 24 hours a day as well, and over 90% of our stores happen to be forecourt sites so they are busy sites selling petrol.
I spoke to a number of retailers to give me some open and honest feedback on what’s happened in the last five months.

The most telling comment from retailers was that customers are actually starting to trade down. Now the average price of a pack of cigarettes in Australia is about 17 dollars.

There are obviously cheaper brands available. So when the brand image goes out of the product and it becomes a commodity, people are saying ‘why should I pay 17 dollars when i can pay 12 or 13 dollars? Nobody’s going to judge me in terms of what brand I’m smoking – I might as well smoke the cheaper brand.’

So what’s happened is that people are trading down and actual unit sales are up. People are buying more cigarettes more frequently.

The danger for UK retailers is that the margins are lower on the lower value products – in Australia, our average margin in about 20% – so yes a drop of 1% is going to make a difference but it’s not going to put people out of business. With the margins here much lower, a 1 or 1.5% drop in margin could put people out of business. And I think that realisation needs to come through.

If you track the journey of the product from the time it arrives, it comes in a huge palet. Before they could just check the stock, it was all segregated and they could tick that it was all there and get on with it. What they have to do now is physically inspect every outer because the branding is tiny. You can’t really easily see what it is.

So that’s taking an enormous amount of extra manpower, it’s creating a lot of angst because in some cases, they’re waiting an extra half an hour for the delivery to be checked off. And given that tobacco is 35% of sales, that’s a lot of product being bought each week.

They then have to put the stock away, which has again caused enormous angst in terms of layouts in the stores. Remember they are behind closed doors already, they then have to open the doors and where do they put the packs?

Previously you used to have the best sellers in the middle, easy to reach and easy to identify. Now we’ve had to think through – do we do it by brand, alphabetically, by company? How do we make it easier for our people to serve? And that decision has really not been made – every store is working through finding the most efficient way to get their staff to recognize the product.

So it’s taking longer for staff to identify the product and the location in store. Remember that I said 90% of our stores happen to be forecourt stores, so there’s a security issue.

Generally you have one person behind the counter and they have to physically turn their back to the customer to look for the product. In that time, a car could have filled up and driven off, somebody could have pulled out a knife, a gun or a baseball bat. It really is a security issue for our industry.

About 59% of the products being given to customers are actually incorrect because staff are confused. Fortunately when they scan it, it recognises it’s not a Windfield Blue but happens to be a Windfield Red – the feedback is that there has been a high incidence of that.

Recording of the stock was easy before – you could see it was a Red, Blue or Green. Now they physically have to read it using a hand scanner to make sure that they have the right stock in store.

Training of staff is another issue. We are having to constantly train new staff on what the brands are, where they are located and how to serve customers better.

There is additional cost to all of that. It gets pretty pricey to start bringing in additional staff to cover these issues. So there are a lot of additional costs that retailers are faced with as a result of plain packaging.

Has it done anything to smoking rates or the tobacco sales? Nothing at all. Our sales have been steady. After five months there has been no noticeable reduction in people smoking or buying cigarettes.

So where to from here? Is plain packaging inevitable in the UK? My answer to that is that it’s not – if retailers actually mobilise and address the issue, work through the ACS and talk to the politicians and make sure they understand the real impact of what’s happened, and not just the supposed studies which they keep quoting and bringing up.

For example, Lady Deborah Arnott, Chief Executive of Ash, who obviously doesn’t like tobacco, said: “Australia has proved that introducing standardised packaging is easy to implement and causes no problems for retailers.” I don’t know where she got that, I don’t know who she spoke to but that kind of thing is clearly misleading.

So that’s the scene at the moment – where will it end? Smokers have told us plain packaging is not going to change where they buy the products unless there is a major impact on price, which obviously will impact the smaller retailer most with the customers going to the supermarkets.

So if the market becomes just all about value and all about cheaper products and not about quality and the brand, the danger for smaller retailers is that they’ll lose another group of customers.

Have any new products been launched in the tobacco market since plain packaging or is it just impossible?
From what I can gather, the lines that have come in have tended to be more in the value end and it tends to have been through word of mouth. Of course our people are actually very wary of actually talking to customers now.

One of the big operators in Australia got fined massively when one of their counter staff spoke to a customer and recommended they bought one brand at the expense of another. That has made a lot of people not even want to talk about tobacco which makes it really tough from their point of view.

Some of our retailers who have tried to make it easier for their staff have put colored dots next to their products but the health department came round telling them that this was illegal. It goes to ridiculous degrees in terms of trying to achieve something that’s impossible.