Stuart Alexander
Executive Summary
This submission has three key points:
- A template approach to plain packaging has essentially copied the draft regulations for cigarettes and applied them to non-cigarette tobacco products, including cigars. This approach is impractical and could lead to labeling that is difficult to read and easy to forge.
- The proposed regulations will compromise anti-counterfeiting measures, which could adversely impact both the health of smokers and the Federal Government’s future tobacco excise revenue.
- The proposed implementation timeframe is impractical for non-cigarette tobacco products like cigars. These products are sold in much smaller volumes and therefore experience inventory cycles that are significantly longer in duration when compared to cigarettes.
Introduction
Stuart Alexander is a sales, marketing and logistics company in the fast moving consumer goods (FMCG) sector. For over 125 years, Stuart Alexander has provided services to clients across the globe. The company currently markets and distributes some of the best known brands in Australia, including Guylian chocolates, Fisherman’s Friend, Mentos, Tabasco Sauce and Chupa Chups. Stuart Alexander also markets and distributes a range of cigar products and is Australia’s largest distributor of cigars.
Over many years, Stuart Alexander has gained a deep understanding of how the Australian retail sector operates and the behaviour of Australian consumers. Stuart Alexander’s team is regularly engaged with a range of contacts across the spectrum of Australia’s retail sector. Small and large retailers, vendors, sales representatives and consumers across the country interact with Stuart Alexander every day. This experience, when combined with Stuart Alexander’s corporate memory and strong, geographically diverse networks, provide the company with a percipient perspective on issues relating to Australia’s retail sector.
Stuart Alexander takes a keen interest in public policy development relating to the Australian retail sector and believes it is important that policy makers obtain practical feedback regarding the best ways to achieve desired policy outcomes. In 2010, Stuart Alexander made a submission to the Senate Community Affairs Legislation Committee regarding the Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009. That submission contained practical industry feedback on a range of important issues regarding plain packaging, some of which is very relevant to this consultation process. As part of our keen interest in public policy development, Stuart Alexander welcomes the opportunity to engage in the consultation process on plain packaging of non-cigarette tobacco products.
This consultation process pre-empts Parliamentary approval for the Tobacco Plain Packaging Bill 2011 (the Bill) and associated Trade Marks Amendment (Tobacco Plain Packaging) Bill 2011, which has passed the House of Representatives and is currently before the Senate. Stuart Alexander notes the tight timeframe for implementation of the plain packaging regulations, which are yet to be specified in the Tobacco Plain Packaging Regulations 2011 and in the Trade Practices (Consumer Protection Information Standards) (Tobacco) Regulations 2004 under the Australian Consumer Law.
After carefully considering the proposed approach to plain packaging of non-cigarette tobacco products, Stuart Alexander believes there is scope for improvements that deliver a more practical set of regulations and enhanced consistency. The feedback contained in this submission is contextualised by an acknowledgement of the likely passage of the Bill and the intent behind this piece of legislation. This legislative initiative represents an ambitious set of aspirations, particularly given the lack of any reliable offshore precedents. Stuart Alexander notes that the 2010 National Drug Strategy Annual Survey shows that cost (44.1%) and fitness (25%) were the overwhelming factors that motivated smokers to change their behaviour, whilst only 15.2% of smokers indicated health warnings on cigarette packets were a motivating factor.1 Stuart Alexander therefore sees merit in policy makers rigorously and frequently testing the underlying assumptions behind the Bill once the related regulations have been implemented. A template approach for a disparate and small component of the market
The proposed approach to plain packaging of non-cigarette tobacco products essentially overlays the proposed approach for cigarette products across all tobacco products. The vast majority of cigarettes consumed in Australia are sold in packets of similar dimensions. Therefore, packaging regulations can be implemented with some confidence in the delivery of a consistent packaging outcome. Given the composition of the Australian tobacco market, the focus by policy makers on packaging for cigarettes is understandable.
1 2010 National Drug Strategy Household Survey, Report, p. 42.
Chart One2
Sales of Tobacco in Australia in 2008:
The chart below shows the volume comparison of Cigarettes, Cigars and Smoking Tobacco sales in Australia in 2008
Cigarettes (22,300 million sticks)
Cigars (70.3 million units)
Smoking tobacco (1,669.9 tonnes)
Stuart Alexander is concerned that the draft regulations for non-cigarette tobacco products have been developed as an afterthought to cigarette packaging. The proposed regulations for cigars fail to adequately accommodate the diversity in packaging of the cigar market. There are five primary formats for cigarette packets (20, 25, 30, outers of 200, 250), while there are approximately 130 types of packaging for non-cigarette tobacco products. As seen in Appendix A, cigar products in Australia are sold in a myriad of different packaging types, including:
- Packets of varying dimensions;
- Tubes of varying dimensions;
- Tubs of varying dimensions;
- Tins of varying dimensions; and
- Individually wrapped cigars.
2 Official Statistics, trade associations, trade press, company research, store checks, trade interviews, Euro monitor International Estimates.
3 2010 National Drug Strategy Household Survey, Report, p. 41.
Even within each packaging type lies a myriad of varying dimensions. Table One illustrates the diversity that exists in packaging dimensions within one brand of cigars sold in Australia.
Table One4
Diversity within one packaging type
The table below shows the size and packaging differences between four Henri Winterman's brands.
| Brand | Size | Outer Packaging Height (mm) | Outer Packaging Width (mm) | Outer Packaging Depth (mm) |
|---|---|---|---|---|
| Henri Wintermans Short Pantella 5s | 5 cigars | 266 | 310 | 510 |
| Henri Wintermans Long Pantella 5s | 5 cigars | 275 | 330 | 590 |
| Henri Wintermans Carona 5s | 5 cigars | 315 | 325 | 385 |
| Henri Wintermans De Luxe 10s | 10 cigars | 245 | 368 | 490 |
The proposed guidelines for other types of cigar packaging will also fail the legibility test. Writing on tubes and cylindrical tins is typically harder to read due to their curved surfaces, particularly at the point of sale. This challenge will be compounded by the application of the suggested pre-printed adhesive labels, which will likely require hand written brand and variant names. Such labels could prove impractical due to the lack of adhesiveness associated with some packaging, particularly tin packaging.
Stuart Alexander has grave concerns that important information about the brand, variant and health information may not be easily legible for Australian consumers of cigar products under the current proposals. Australia should not pursue a regulatory framework that leaves important labeling information reliant on inconsistent variables such as adhesive labels and hand written brands and variants.
Such an outcome would disadvantage consumers of cigars and be inconsistent with public policy objectives, most recently articulated in the food labeling arena. The Labeling Logic Report aspires to deliver “a more strategic, transparent and informative food labelling system, which instills confidence in Australian and New Zealand consumers. 5The proposed approach to plain packaging for cigars lacks flexibility and will ultimately lead to labeling outcomes that significantly vary in terms of legibility at the point of sale. Australian consumers should not be deprived of important brand, variant and health information for legal products they are free to consume.
4 Stuart Alexander.
5 Labelling Logic, Executive Summary, p. v.
Compromising anti-counterfeiting
Stuart Alexander is concerned about the ability of cigar manufacturers and distributors to simultaneously accommodate both the mandatory health warnings and anti-counterfeiting measures, particularly in relation to those cigars sold in small packaging or individually. Illicit tobacco products are a dangerous and growing threat to Australian smokers and the broader community. Due to its nature, the size and scale of Australia’s illicit tobacco market is difficult to quantify. However, a 2002 Australian National Audit Office report into the Administration of Tobacco Excise noted that hundreds of millions of dollars worth of excise is forgone every year due to illicit tobacco product sales6
In December 2007, Australian Customs announced it had detected “unprecedented quantities of smuggled cigarettes and tobacco” over the previous year, foiling 40 separate attempts to smuggle 95 million cigarettes and 236 tonnes of tobacco into Australia.7 The 2010 National Drug Strategy Household Survey showed that 25.1% of Australian smokers were aware of counterfeit cigarettes and 21.2% of Australian smokers believe they may have purchased counterfeit cigarettes.8 Stuart Alexander’s own research indicates that the illicit trade of tobacco accounts for between three and four per cent of the total Australian cigarette market and a growing percentage of the Australian cigar market. 9
Illicit tobacco distribution and consumption has meaningful and negative public health and public finance ramifications. Illicit cigarettes typically have sub-standard filters, weakening their effectiveness. Illicit cigars are typically produced using a range of cheaper foreign bodies, including dried grass, in lieu of tobacco that adheres to key industry benchmarks. Anecdotal reports indicate that the flammability of illicit cigars is significantly elevated when compared to legitimate products. Stuart Alexander recognises that policy makers view all tobacco products, legal and otherwise, as being detrimental to positive public health outcomes. However, illicit tobacco products trigger a marked increase in the risks associated with smoking. Furthermore, their increased presence in Australia could have financial ramifications for the Federal Government. Using the 2010 National Drug Strategy Household survey numbers, observers can assume that 21.2% of Australian smokers are likely to have purchased illicit tobacco products during any given year. Given the Commonwealth receives approximately $7.5 billion in revenue per annum from the tobacco excise, the potential loss to Australian public finances due to the prevalence of the illicit tobacco trade could be significant. 10
6 Australian National Audit Office, Administration of Tobacco Excise, p.16.
7 Customs Media Release, Customs Stems Unprecedented Flood of Smuggled Cigarettes and Tobacco, 19/12/07.
8 2010 National Drug Strategy Household Survey, Report, p. 39.
9 Official
10 Treasury, Website, http://www.treasury.gov.au/documents/2086/PDF/Document_51.pdf( link active at time of submission)viewed 19/10/11.
Despite the clear danger illicit tobacco products pose to the Australian public, the Consultation Paper offers no support for cigar manufacturers and distributors to help protect Australian consumers. Stuart Alexander has identified a number of cigar products whose packaging simply will not be able to accommodate the size and scale of the mandatory health warnings, brand name, variant name and an alphanumeric code marking of sufficient size to prevent counterfeit activities. When adhesive labels and hand written brand and variant names are also considered, the effective use of anti-counterfeit measures is further undermined. Market feedback to Stuart Alexander suggests that anti-counterfeit measures must reach a threshold, typically linked to legibility and authenticity, to act as a sufficient deterrent to those who seek to sell illegal tobacco products. The Consultation Paper expressly notes that the Australian Government does not endorse tobacco products and will not be providing any industry assistance for the production of codes, consumer phone lines or websites that may assist with the fight against illicit tobacco products. Given the scale of the concessions being asked of cigar manufacturers and distributors who continue to facilitate the sale of a legal product, this approach is both disappointing and potentially dangerous for Australian consumers.
Unrealistic expectations on implementation
The one-size- fits-all approach applied to packaging for both cigarette and non-cigarette tobacco products has been replicated in terms of the implementation of the proposed regulations. The proposed timetable for implementation allows a seven month window between the finalisation of regulations on 1 January 2012 and full implementation by 1 July 2012. This timetable again assumes all tobacco products have similar inventory and distribution timeframes and fails to consider the differences that exist with these important variables between different components of the overall tobacco market. Given this is the first initiative of its type in the world, the proposed timetable leaves no margin for error, which seems unnecessarily reckless given the scale of the changes proposed.
The statistics in Chart One demonstrate the small scale of the cigar market in comparison to the cigarette market. More contemporary figures suggest that 76.61 million cigars had been sold in Australia between 1 January 2011 and 18 October 2011,
which had an average price of $1.26/stick.11 By comparison, it is estimated that around 6.3 billion cigars were consumed within the European Union in 2010.
11 Stuart Alexander, October Market Update, p.7.
The small scale of the Australian cigar market means distributors are forced to hold significant quantities of stock to secure shipments from manufacturers. This is caused by the fact that suppliers typically have stringent minimum order requirements to manufacture for the relatively small Australian market. For Stuart Alexander, this means that some individual lines of cigars are held in inventory for over six months. When the entire supply chain is considered, Stuart Alexander estimates that the total time some cigars spend between arriving in Australia and reaching a consumer can be at least eight months. In addition, Stuart Alexander has received feedback from one supplier that the lag time between notification of new artwork to actual production of the product will likely be four months.
The Australian cigar market does not have the high turnover of inventory seen in the Australian cigarette market. Therefore, Stuart Alexander believes a more practical approach, as specified in the recommendations at the end of this submission, would be a doubling of the implementation timeframe for non-cigarette tobacco products to enable manufacturers and distributors to manage their existing inventories and accommodate the new plain packaging arrangements without forcing wastage and commercial losses. In the absence of such an extension, it is likely any gap in supply will be filled at least in part by an expanded presence of illicit tobacco products.
Conclusion and recommendations
Stuart Alexander is one distributor of cigar products and has avoided providing its own prescriptive recommendations on each product line in this submission. Stuart Alexander believes a template approach has been employed in the drafting of plain packaging regulations for non-cigarette tobacco products, which will ultimately not work for cigars. While the Consultation Paper represents an attempt to obtain industry feedback, input is being sought just eight weeks before the proposed finalisation of the regulations.
Through this process, industry is being asked to provide feedback on a highly prescriptive set of draft regulations that drastically limits the scope of possible input. Mandatory requirements for health warning sizes and brand and variant names will simply not work across all product lines. The prominence of individually sold cigars has simply been overlooked by the proposed regulatory framework. Stuart Alexander believes this inflexibility will compromise legibility and anti-counterfeit measures. Furthermore, the proposed implementation schedule is impractical and treats the tobacco sector as a homogenous market with uniform supply arrangements. Stuart Alexander believes these issues can be addressed through the following initiatives:
- Stuart Alexander advocates the creation of an industry working group for the implementation of plain packaging for non-cigarette products, with representatives from both suppliers and distributors of cigar and loose leaf tobacco products providing practical input on how the Federal Government’s plain packaging requirements can be accommodated. The establishment and involvement of this working group may necessitate an alternative date for finalisation of regulations being identified;
- A separate anti-counterfeit industry working group be established, comprised of representatives from the tobacco industry, distributors, health officials and law enforcement agencies to monitor the impact of plain packaging on the prevalence of illicit tobacco products in Australia; and
- The doubling of the implementation timeframe for the plain packaging regulations for non-cigarette tobacco products.
Appendix A
A selection of visual examples of current cigar packaging
Altadis
Café Creme
King Edward
Mac Baren
Old Port
Schimmelpennick
Henri Wintermans
Ritmeester
LEVEL 3, 1-3 SMAIL STREET ULTIMO NSW 2007 PO BOX 950 ULTIMO NSW 2007 AUSTRALIA
TELEPHONE 61 2 9282 7700
FACSIMILIE 61 2 9282 6700
www.stuartalexander.com.au
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