10.3 Retail value and volume of the market

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The three major tobacco companies operating in Australia are not required to report retail sales data to government. Tobacco sales data would be extremely valuable in monitoring trends in tobacco use and in evaluating the effectiveness of tobacco control interventions. Because of the low level of illicit trade in Australia, retail data are likely to provide a reasonably accurate estimate of total tobacco consumption in Australia and would provide an unbiased benchmark against which self-reported tobacco consumption survey data could be evaluated.1 Some sales data are collected by market research companies and are available for purchase at a high cost, although some researchers have been denied access to this data despite being willing to purchase it.1 Accordingly, much of the information reported in this and the following sections is drawn from market research reports that cannot be independently verified.

In 2009, the total grocery value of cigarettes in Australia was $4.84 billion, which is an increase in value of 5.6% from the previous year. This increase in value is despite a decrease in volume of 2.1%, representing a total of 10.6 billion cigarettes sold at supermarkets alone.2 According to Euromonitor, although no precise data are provided, supermarkets gained actual volume share in cigarette in 2009, due to smokers switching from purchasing products from higher-priced convenience stores.3 A total of 21.9 billion cigarettes were sold in Australia in 2009,3 suggesting that about half of all readymade cigarettes were purchased at supermarkets.

Despite falling tobacco consumption and lower sales volumes (see Chapter 2), the value of tobacco sales has increased over the years, due to price increases caused in part by taxation increases. In 2009,i the taxation component ranged from about half of the retail price of premium brand cigarettes to up to around 70% of the retail price of economy brand cigarettes.3 Manufacturers of cigarettes receive 18–37% of the retail price, with manufacturers obtaining a higher margin from premium brands. 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. Different retail outlets generally set different profit margins on tobacco products, with the average margin being 14.5%.3 For example, convenience stores set an estimated 30% gross marginii 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.4 An Australian study of smoker purchasing patterns suggests that the lower prices charged by tobacconists and supermarkets results in larger average purchase sizes, and this potentially leads to higher tobacco consumption.5

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

In 2010, consumers spent $4.84 billion on cigarettes, down 2.1% on the previous year.2 Tobacco ranked second only to dairy produce in sales value, and the total sales value of tobacco products earned at least twice as much as from the frozen foods, bread and confectionary categories (Table 10.3.1).

Table 10.3.1
Ranking by sales value of leading product categories in Australian groceries and supermarkets, 2010

Rank

Product category

Sales value ($ billion)

1

Dairy case

5.75

2

Cigarettes

4.84

3

Cold beverages

4.08

4

Frozen foods

2.85

5

Health and beauty

2.59

6

Confectionary

2.27

7

Bread, rolls and hotplate

1.9

8

Pet needs

1.76

9

Paper, plastics, foil

1.7

10

Hot beverages

1.29

Source: Retail World2

Tobacco sales are even more important to convenience and impulse retailers. Data from annual Nielsen reportsiii of the convenience sector,6–9 which compiles information on market size and brand share of products sold through convenience outlets, shows that tobacco is the leading source of sales revenue. Tobacco, which includes cigarettes, tobacco and smoking accessories, consistently brings in close to 40% of all sales, over twice the amount spent on the next strongest category, ready to drink beverages (see Table 10.3.2). Convenience retailers generally work on higher margins on tobacco than supermarkets, with consumers trading off price for greater convenience. Due to these higher margins, consumers who purchase in convenience stores are thought to be less price sensitive, and more likely to choose premium brands.9

Table 10.3.2
Ranking by % of sales value of leading product categories in Australian convenience retail outlets, 2007–2009

Rank

Product category

20076

20086

20097

1

Total Tobacco

39.4

38.8

39.0

2

Ready to drink

18.0

18.5

19.0*

3

Communications

13.9

14.0

14.0*

4

Confectionary

8.6

8.7

8.6*

5

Milks

7.2

7.6

7.6*

6

Magazines/newspapers

5.4

5.0

4.9*

7

Ice cream

2.7

2.6

2.7*

8

Snack Foods

2.7

2.6

2.5

9

Bread

1.3

1.3

1.2

10

Defined grocery

.8

.8

.9*

* Numbers are approximate

Source: 2009 Nielsen report7

The 2010 Nielsen report8 (as of 14/01/2010) shows an overall growth of 3.3% in total value of convenience sector sales. The total per cent value share of top ranked category products was not provided in the 2010 report so instead the per cent value change from 2009 is reported. See Table 10.3.3. As the 2010 data show, cigarette and tobacco sales increased in terms of total per cent value of all convenience sales, 3.9% and 8.7% respectively, over and above the total growth of 3.3% in the total convenience sector.

Table 10.3.3
Convenience growth performance by category, 2010

Total convenience sector

3.3

Cigarettes

3.9

Carbonated beverages

9.6

Communications

-4.2

Milks

2.5

Confectionery

4.4

Magazines/newspapers

-6.9

Ice cream

5.5

Snack foods

5.8

Tobacco

8.7

Health/beauty

2.1

Bread

-0.5

Fruit juice/drinks

-6.9

Cereal

17.5

Biscuits

1.8

Nutritious snacks

8

Cordials

2.4

Source: 2010 Nielsen report8

i This pricing data was collected prior to the significant tax increase in April 2010.

ii Gross margin is defined as 'the difference between the price for which a business purchases goods and the price for which these goods are sold': Pricewaterhouse Coopers

iii Nielsen's ScanTrack Convenience service is a continuous census based scan measure representing over 1900 outlets across seven retailers including Caltex, Coles Express, 7-Eleven, BP, Mobil, Night Owl and Gull. Data for sales are based on 15 defined categories, which include tobacco (cigarettes, tobacco and accessories), beverages (carbonated beverages and fruit juice), confectionery, salty snacks (snack foods and nutritious snacks), ice cream, grocery (biscuits, cereal, bread, milk, cordial), communications and publications.

10.3.2 Sales by retail channel type

Euromonitor International publishes data on sales of tobacco products by retail distribution channel. The figures for cigarettes in 2012 and 2013 are set out in Table 10.3.4.

Table 10.3.4
Percentage of sales of cigarettes from each retail channel, 2013 compared to 2012

 

2012
%

2013
%

Supermarkets & other grocery outlets

54.2

54.2

Convenience stores

11.7

11.7

Small independent grocers and food/drink specialists

7.1

7.1

Tobacconists

17.4

17.3

Petrol stations

6.4

6.4

Other (newsagent, vending machines, bars & hotels)

1.6

1.5

Internet

0.6

0.7

Total

100

100

Source: Euromonitor International, http://www.euromonitor.com/tobacco data provided to Cancer Council Victoria.

References

1. Gartner CE, Chapman SF, Hall WD and Wakefield MA. Why we need tobacco sales data for good tobacco control. Medical Journal of Australia 2010;192(1):3-4. Available from: http://www.mja.com.au/public/issues/192_01_040110/gar11174_fm.html

2. Annual report, Market sizes & shares Retail World 2010;63(23):50.

3. Euromonitor International. Tobacco-Australia, September. London: Euromonitor International, 2010, [viewed 30 June 2011] . Available from: http://www.euromonitor.com/tobacco

4. PricewaterhouseCoopers. Sales of cigarettes and tobacco products by type of retail business. An analysis of sales of cigarettes and tobacco products to tobacco retailers in Australia. Document tabled as part of a formal submission (no. 46) made by British American Tobacco Australia in relation to the Inquiry into Tobacco Smoking in New South Wales in 2006. Sydney: PricewaterhouseCoopers, 2005. Available from: http://www.parliament.nsw.gov.au/prod/parlment/committee.nsf/0/2b14b998dda58536ca2571620017ecd2/$FILE/Sub%2046%20BATA%20-%20Attachment%202.pdf

5. Heuler S, Burton S and Clark L. Retail tobacco outlets: variation by usage segment. Australian and New Zealand Marketing Academy Conference. Sydney, Australia: 2009, [viewed 3 July 2011]. Available from: http://www.researchonline.mq.edu.au/vital/access/manager/Repository/mq:8740?f0=type%3A%22conference+paper%22

6. Convenience & Impulse Retailing. Nielsen convenience report. Macquarie Park: Nielsen, 2008, viewed 1 July 2011. Available from: http://www.c-store.com.au/industry/acn/acn2008.pdf

7. Convenience & Impulse Retailing. Nielsen convenience and impulse sales report. Balmain, NSW: Berg Bennett, 2009, [viewed 1 July 2011]. Available from: http://www.c-store.com.au/industry/acn/acn2009.pdf

8. Convenience & Impulse Retailing. Nielsen convenience and impulse report. Macquarie Park, NSW: Nielsen, 2010, [viewed 1 July 2011]. Available from: http://www.c-store.com.au/industry/acn/Nielsen_Report_10.pdf

9. Convenience & Impulse Retailing. Tobacco challenge. Balmain, New South Wales: Berg Bennett, 2010, [viewed 2 July 2011] . Available from: http://www.c-store.com.au/magazine/article.php?id=503

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