Killing the corner store: $2bn lost to black market tobacco after ‘ludicrous’ government reforms
Convenience stores have declared a $2bn collapse in legal tobacco sales, saying the Albanese government’s ‘ludicrous’ reforms have handed the market to criminals.
The nation’s peak body for convenience stores has declared a $2bn collapse in legal tobacco sales, saying the Albanese government’s “ludicrous” reforms have handed the market to criminals and left the legacy of Health Minister Mark Butler “in ashes”.
An analysis conducted by the Australian Association of Convenience Stores, which represents almost 7500 retailers and 120 tobacco suppliers nationwide, has recorded the largest ever drop in legal cigarette sales, with a 50 per cent wipeout in the first two months of the 2025-26 fiscal year.
There has been a $2bn drop in legal tobacco sales over the past four years, with the pace of decline accelerating dramatically as more smokers turn to the illicit market for cheap, non-taxed products.
That collapse has already stripped small service station retailers of half their cigarette trade in just three months this year, with warnings the government’s “ill-conceived” policies will wipe about $80,000 from the average store’s gross margin.
As part of The Australian’s investigation into the lucrative underground tobacco trade, it can also be revealed that criminal operators now dominate online search results as they spruik bulk deals and “discreet packaging” while funnelling payments through PayPal or direct deposit – a set-up ripe for fraud.
Under strict advertising laws and online sale restrictions, promoting and distributing illicit cigarettes is banned in Australia, but search results showing 13 of the top 20 hits for “cheap cigarettes Australia” are for illicit operators, compared to just four legal retailers and only one government information page, which ranks 19th.
Ranking first on Google’s search engine is an Australian registered website for “CheapSmokes”, which sells 10-pack cartons of illicit cigarettes for as little as $189, meaning each packet would cost only $18.90.
The site sells popular brands including Pall Mall, Choice, Holiday, Winfield and Marlboro and a range of other illicit products that are later packaged and sent to consumers via Australia Post. They did not respond when approached for comment.
The findings come after The Australian revealed how major Chinese vaping juggernauts are also operating illegally online in Australia, despite laws restricting the sale of nicotine vapes. That investigation sparked a snap inquiry by the federal government but the sites remain active.
The Australian Association of Convenience Stores, which also represents the three biggest tobacco wholesalers in the country, has said the legacy of Mr Butler will be defined by his failure to protect everyday consumers from fraud and financial scams.
With the latest excise hike pushing the lowest price of a legal packet of cigarettes to nearly $40, AACS chief executive Theo Foukkare said criminals had seized control of the market.
The AACS claims illicit operators now control more than half of the national tobacco market, with projections suggesting that could soar to 80 per cent by 2027.
Mr Foukkare said the government’s approach, spearheaded by Mr Butler and Home Affairs Minister Tony Burke, had backfired.
“Mark Butler has been honourably waging war on tobacco since 2011 when, as a junior minister, he backed Nicola Roxon’s plain packaging laws. More than a decade later, he tried to etch his own legacy by ramping up tobacco excise, pushing legal packs of cigarettes to nearly $40 and mandating new warning labels on cigarette sticks,” he said.
“This, combined with the failed pharmacy model on vaping products, has seen tobacco and nicotine control go out the window along with his legacy looking like it will go up in ashes.
“Mark Butler promised stronger tobacco control but his legacy will be the opposite – cheap smokes, colourful packs with no health warnings, excise revenue plummeting, and Australians left exposed to bank fraud and financial scams.”
Mr Foukkare said retailers had already lost $2bn in legal tobacco sales over the past four years with the pace of decline accelerating dramatically: down 20 per cent three years ago, 30 per cent last year, and a staggering 50 per cent in the first two months of the current financial year.
Internal industry analysis shows tobacco sales have slumped from a total of 40.6 per cent in 2020 to now being 19.6 per cent in the first half of 2025. These results were not due to nicotine usage declining, but because more people were going to the illegal market.
“The growth in the decline rate is effectively doubling in half the time frame,” Mr Foukkare said. “That is the seismic impact of the shift that is happening.”
He blames the collapse on a series of government reforms that took effect on July 1, including forcing packs down to 20 cigarettes, banning menthol and crushball products, and hiking excise on roll-your-own tobacco to eliminate its price advantage.
“All of those factors have been lumped onto the illegal market. They’ve just sucked up all of this trade,” Mr Foukkare said.
The AACS also raised concerns that the majority of Australia’s vaping market was now run by organised crime groups, with children able to easily order cigarettes and vapes online using parents’ credit cards, with no age verification checks by sellers.
The association has repeatedly urged the federal government to crack down on illegal websites and social media sales but said its warnings have fallen on deaf ears.
“I’ve written to the previous communications minister (Michelle Rowland) with a list of websites and we haven’t had any response or action,” Mr Foukkare said. “The fact that out of the top 20 hits when you search for illegal tobacco or cheap smokes, the majority are places you can simply buy from and have it delivered to your door is absolutely ludicrous.”
Mr Foukkare argued the government already had the powers to force action but had failed to use them.
“They could shut down these websites. They could force social media companies to block promotions. Instead, we just hear announcements – $355m to tackle this, $750m to tackle that – but the reality is you can still walk into communities across the country and in plain sight see shops advertising cheap smokes or vapes. Or you can order them online and have them delivered to your door.”
He accused the Health Minister of being “stuck in academia, not the real world”, arguing that the government’s approach was blind to the way illicit operators had already captured the bulk of the market.
Victorian petrol retailer Robert Anderson says the Albanese government’s tobacco reforms have wiped out half of his cigarette trade in just three months this year, slashing revenue so sharply it was the equivalent of closing three service stations.
Mr Anderson, the co-director of APCO, which operates 30 service station convenience stores across Victoria and NSW, said the new rules forcing retailers to only sell packs of 20 had accelerated an already steep decline in legal tobacco sales.
The family-owned business is projecting a decline of more than $8.5m this year as a direct result of the government's tobacco reforms. “Up until June we were down about 25 per cent year on year, which was tough but manageable,” Mr Anderson said. “Since July, sales have collapsed by 50 per cent. (It’s) equivalent to shutting down three stores.”
He said the average APCO outlet faced a projected $80,000 hit to gross margin this year alone.
“It’s literally like saying to a small business operator, I’m going to cut your pay by 35 per cent.”
Mr Anderson said he had personally raised his concerns with Deputy Prime Minister Richard Marles, who represents his local Geelong electorate, but “it fell on deaf ears”.
“This is not just a business issue, it’s a national issue. By doing nothing, the government has created a billion-dollar organised crime industry that is so sophisticated they have their own electronic services – it’s just absolutely absurd.”
He also blamed Mr Butler for creating an “ill conceived” generational crime problem and an unsafe environment for concerned retail workers. “The government are just putting their heads in the sand and wanting to ignore this problem,” Mr Anderson said.
The AACS has urged the government to act on three fronts. First, it wants a freeze on tobacco excise – and eventually a rollback to 2018 levels – to bring the cost of a legal pack down to about $25, in the hope of clawing back demand from the black market.
Second, it is pushing for a tightly regulated but legal retail model for vaping, with licensed sellers, plain packaging and limits on flavours and displays. And third, it has called for a national enforcement agency, led by the AFP, with the power to raid and shut down illicit storefronts and warehouses without lengthy warrants.
The AACS is a membership-based organisation that represents the interests of all major national petrol and convenience stores.
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