10.3 Retail value and volume of the market

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10.1 The global tobacco manufacturing industry

10.2 The manufacturing industry in Australia

10.3 Retail value and volume of the market

10.4 The tobacco companies operating in Australia

10.5 Major importers operating in the Australian market

10.6 Market share and brand share

10.7 Trends in products and packaging

10.8 The tobacco growing industry

10.9 The tobacco industry and the illegal tobacco market

10.10 The tobacco industry exposed: tobacco industry document repositories

10.11 Corporate responsibility and the birth of good corporate citizenship

10.12 The tobacco industry's revised stance on health issues

10.13 Encouraging young people not to smoke

10.14 The environmental impact of tobacco production

10.15 Ethical farming issues

10.16 The environmental impact of tobacco use

10.17 The tobacco industry's response to tobacco litter

10.18 Corporate links with charities and social causes

10.19 Tobacco industry lobbying—overview

10.20 Tobacco industry lobbying—the tools

10.21 Tobacco industry lobbying—the targets

10.22 Donations to political parties

10.23 Public attitudes to the tobacco industry

10.24 The future of the tobacco industry

Acknowledgments

References

Note: a key reference for this section is a report prepared by PricewaterhouseCoopers (PwC) for British American Tobacco Australia, Sales of Cigarettes and Tobacco Products by Type of Retail Business. This report was subsequently tabled by BATA as an appendix to their Submission to the Joint Select Committee Inquiry into Tobacco Smoking in New South Wales, and is available online
from the Parliamentary website.[7] Data reported by PwC relates to 2004. Other data published by
trade magazines Australian Convenience Store News and Retail World are more recent, but limited in scope.

In 2004, sales of cigarettes and other tobacco products accounted for about 4.7% of all retail sales in Australia. The total retail value of the Australian tobacco market was estimated at about $9.3 billion, and tobacco products could be purchased from about 35,000 retail outlets.12 About half of all tobacco sales occurred through supermarkets and grocery stores (51%). A further fifth (19%) of sales were made by tobacconists, and 13% were from convenience stores.[8] Remaining sales took place through mixed businesses (9%), hotels and clubs (3%), liquor stores and petrol stations.12

Despite falling tobacco consumption and lower sales volumes (see Chapter 3), the value of tobacco sales has increased over the years, due to price increases caused in part by taxation increases. The taxation component accounts for about 70% of the final recommended retail price of a packet of cigarettes.13 However profitability has increased as well, and sales of tobacco products represent a lucrative market for retailers, and (except in the case of tobacconists) offer a strong return on relatively little floor space. In the period between 1997?98 and 2004 the value of retail sales increased by 32%, and at the same time, the average gross margin earned by tobacco retailers increased from 7% to about 13%.12 However different retail outlets generally set different profit margins on tobacco products. For example, convenience stores set an estimated 30% gross margin[9] per pack. At the other end of the scale, supermarkets/grocers and tobacconists, which rely more heavily on larger sales volumes and discounted sales by the carton, have an average margin of 8% and 6% respectively. Tobacconist stores are declining in numbers, especially in locations close to supermarkets where they find it harder to compete.12

The number of outlets selling tobacco products declined by 13% between 1999 and 2004, mainly because of a decline in numbers of smaller mixed grocers and tobacconists and a consumer trend towards convenience stores and supermarkets.12 Convenience stores anticipate an added boost to tobacco sales because sales from venues such as pubs and clubs are restricted.14

In 2004, tobacco sales accounted for about one third of all sales (by value) from convenience stores and petrol stations, 20% of total sales by mixed businesses, and 7% of sales from supermarkets and grocers. Although supermarkets and groceries reported a sales value of tobacco far in excess of all other types of retail outlets, because these businesses sell so many different types of goods, the overall percentage of retail sales due to tobacco is comparatively small. Not surprisingly, tobacconists are most dependent on tobacco sales, which contribute 95% of total retails sales in this sector (Table 10.2).

More recent data are available for the grocery and supermarket sector and convenience stores. Data for these retail categories are presented below.

10.3.1 Comparison of tobacco sales with sales of other product categories from Australian supermarkets, grocers and convenience outlets

In 2007, consumers spent about $4 billion on cigarettes in the Australian grocery industry,15 up from $3.8 in the year before.16 Tobacco ranked second only to dairy produce in sales value, and the total sales value of tobacco products was earned at least twice as much as from the frozen foods, bread and confectionery categories (Table 10.3).

Tobacco is even more important to route traders and convenience store traders.[10] Data from AC Neilsen Reports,17 annual industry reviews that compile information on market size and brand share of products sold through convenience outlets, show that cigarettes are their leading source of sales revenue, bringing in more than a third of total sales value in 2007, and more than twice the amount spent on the next strongest category, carbonated soft drinks (Table 10.4). Taking into account other tobacco products (such as roll-your-own tobacco and cigars) which ranked ninth, tobacco brought in almost 40% of sales revenue.17

Breaking the market down still further, cigarette brands are among the top selling names of all grocery brands in Australia. In 2007, Winfield was the top-ranking of all brands available in the Australian grocery and supermarket sector, generating sales in excess of $750 million.18 Cigarette brands accounted for six of the top 10 brands measured in terms of sales revenue, and of the top 100 brands, 13 were cigarette or roll-your-own tobacco products (Table 10.5).