High streets are likely to be hit hard by plain packaging for cigarettes and tobacco products and 6,400 convenience stores could shut down.
That’s according to a new report commissioned by Philip Morris, which looks at the potential impact of the proposed plain packaging policy for cigarettes on the retail sector.
Survey evidence and simulation exercises conclude tobacco purchases will migrate to illegal street vendors, larger stores and purchases from abroad, researchers found. Cebr estimates there will be a loss of revenue from both tobacco sales and from associated purchases of over £300m from small independent retailers – a reduction of 19%. With retailing already under pressure from squeezed disposable incomes, it is inevitable businesses would shut down, said researchers. Cebr estimates this could lead to a further 6,400 closures of convenience stores.
Douglas McWilliams, Cebr executive chairman and co-author of the report, said: “Convenience stores depend heavily on tobacco sales and the associated spending by those who drop in to buy cigarettes. All the survey evidence and simulation exercises available suggest plain packaging would cause spending to move to illegal street vendors, larger stores and purchases from abroad. If this is replicated in real life, high streets up and down the country would be dealt a body blow.”
The report looks at other implications of the potential introduction of plain packaging.
Consumer expenditure on legal tobacco products is expected to drop by between £0.9bn and £1.6bn, as a result of lower prices and reduced barriers to entry despite possible volume increases of 3% and 7% in legal and overall (legal and illicit) tobacco purchases, respectively.
This in turn is expected to have a number of impacts.
- This includes the loss of between 2,250 and 3,850 full-time equivalent (FTE) jobs through the direct impact on the tobacco manufacturing industry and the resulting multiplier impacts on the wider economy, despite a boost to tobacco manufacturing’s supply chain as a result of increased tobacco consumption
- A reduction in the direct contribution of tobacco to UK GDP from 0.84% to between 0.78% and 0.81%
- A reduction in tobacco’s aggregate annual contribution to the Exchequer of between £219m and £348m. This is in addition to any compensation that the Exchequer might be forced to pay to tobacco manufacturers for the loss of brand value – which city analysts have estimated to have a potential cost of between £4 billion and £5.5bn
- These impacts would all come at a time the Government is reviewing costs in line with their spending review
Retail Times’ readers can download the full report here http://www.cebr.com/reports/