Tobacco troubles: what's bad for brands is good for Manchester ...

Tobacco troubles. Illicit Tobacco in Australia is the title of a half-year report commissioned by three major players in the tobacco industry from consultancy KPMG. It's 79 pages long and packed with data, both in terms of its findings and its methodology.  According to a press release from Philip Morris, drawn to this Kat's attention by Katharine Stephens (Bird & Bird):
"Australia’s illegal tobacco market has risen to around 13% since the introduction of plain packaging just under a year ago, costing the Australian Government up to AUD1bn in lost excise revenue ...

The KPMG study ... found consumption of tobacco has not decreased since plain packaging took effect in December 2012. This was the first time since 2009 that consumption did not decline year over year with more and more turning to the illicit trade and to branded illegal products.  Branded illegal cigarettes, which often have no health warnings, are being sold in Australia for as low as AUD6 (£3.50) per pack, less than one third of the price of some legal brands. One illegal brand, “Manchester,” has registered such explosive growth that in just one year its market share has grown from 0.3% to 1.3% of total manufactured cigarette consumption, higher than that of legal brands such as Camel or Kent. ..."
Other Key findings of the report ... include:
• The level of illegal consumption of tobacco reached record levels, growing from 11.8% to 13.3% from June 2012 to June 2013.

• The key driver of this growth has been a large increase in the consumption of illegal, branded cigarettes, primarily in the form of contraband. Consumption of counterfeit cigarettes has also increased.

• The 154% increase in black market branded cigarettes has come at the same time volumes of illicit unbranded tobacco, known as “chop chop” in Australia have declined by 40%.

• If these black market purchases had been made in the legal market, the government would have collected AUD1.0 billion in additional excise tax revenue. ...
“For the first time since the implementation of Australia’s plain packaging experiment we now have data to replace the anecdotes and predictions about its true impact, and the data shows that since the introduction of this measure the black market has grown while consumption of tobacco overall has not declined. This report shows that smugglers and counterfeiters have been the big winners in Australia since the implementation of plain packaging at a great loss to the treasury.”
Says this Kat (disclaimer: passionate non-smoker but plain-packaging sceptic): It's early days yet and it may be too soon to discern whether these results are an awkward snapshot or a depiction of a trend.  It's also important to look carefully at the manner in which this research has been composed and executed, and its results analysed.  However, if it turns out that plain packaging is not having the desired effect of making smoking less attractive and weaning people off it, there would appear to be little justification for persisting with it.
Tobacco troubles: what's bad for brands is good for Manchester ... Tobacco troubles: what's bad for brands is good for Manchester ... Reviewed by Jeremy on Friday, November 08, 2013 Rating: 5


  1. Does the Kat know anything about if/how this piece of KMPG work will be used in the various EU jurisdictions considering similar plain packaging initiatives on tobacco - or even on other unhealthy goods.....

  2. Personally, I'd trust anything sponsored by the tobacco industry roughly as far as I could throw the Eiffel Tower. And who cares about the loss in revenue? Surely the object of the exercise is TO
    ELIMINATE THAT REVENUE STREAM COMPLETELY, i.e., by eliminating cancer sticks. Ideally they should be banned and the manufacturers treated to long jail terms, as per those who pedal other nasty substances. However, we are stuck with them because it was a long time between ol' Walt Raleigh and the Royal College of Surgeons' 1960s' report. So, until that great and glorious day when the CEO of Philip Morris has his head handed to him on a platter, everything should be done to diminish the attraction of the foul weed - including plain packaging.

  3. Hello fellow passionate non-smoker but plain-packaging sceptic. I am doing my thesis for University on Plain Packaging Legislation. Where would it be possible to attain a copy of the KPMG report?

    Thanks a million

  4. @Anonymous (14:29)

    It was funded by the tobacco industry yes but as the report makes abundantly clear:

    “KPMG LLP had final decisions on all the methodologies and messages contained in [the] report.”

    Are you therefore questioning the credibility of KPMG? Good luck with that!

  5. Anonymous@14.57

    KPMG and similar dens of thieves and con-artists have credibility? Well I never!

  6. I think that the very steep rise in the (already high) tax on cigarettes would explain almost all of the rise in contra-band cigarette sales, most tobacco addicts are not well off- the hip pocket is much more sensitive than the optic nerve, for an addict. I would be very surprised if the plain packaging has had much impact, either way.

    And one other caution on this study is that because taxes on tobacco have been high for quite a long time levels of contra band tobacco have been rising for quite a while, this report is provably the first time somebody has measured it, thats all.

  7. It seems a little disingenuous to link black market tobacco consumption and plain packaging.

    The (continuing?) rise of illegal tobacco is likely related to the increase in excise. Smokers, although loyal to their brand, are first and foremost addicts. They will always seek a cheaper option, if they cannot sustain their habits legally they will resort to illegal methods such as seeking supply from the black market. Fortunately as the products are still legal, the price isn’t so high that the have to resort to crime to fund their habits (as is the case with other illegal drugs).

    Plain packaging (of which I am little sceptical) was introduced primarily not to stop people smoking, but to stop people from picking up the habit. It was designed to prevent new consumers (specifically adolescents and young adults) being lured in by branding and developing the typical brand loyalty (which is acknowledged by such market gurus as Warren Buffett). Additionally it would serve to break the brand loyalty of addicts and decrease the “coolness” of the packaging (which theoretically should make quitting easier).

    Unfortunately for those in favour of the regulation, the media attention that plain packaging has received has resulted in cigarettes (in general) getting considerably more exposure than they otherwise would have been able to legally get and in forums that they have been excluded from for years (i.e. effectively free advertising in prime time and on the front page).

    Plain packaging seems like it might be the best thing ever. Politicians get to sound and look concerned, they get to be seen do something (although highly populist), the government gets to keep collecting the (vast amount) of tax, smokers get to keep on smoking, anti-smoking proponents get the warm fuzzy glow that comes from feeling morally superior after achieving a “big win” against tobacco companies, and the tobacco companies get to keep selling cigarettes.

  8. Anonymous I completely agree that price sensitivity, not packaging is the driver here.


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