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.