The sales shift from supermarkets to illegal tobacco operators is worsening: Ritchies boss
Legal retailers of tobacco such as Woolworths, Coles and the independent supermarkets are being hobbled and their earnings shredded as organised crime rules the cigarette trade.
Fred Harrison can walk out of any of his Ritchies supermarkets stores and see the illegal tobacco trade in action: dodgy and dank shops with bars on the windows selling counterfeit or untaxed imported cigarettes to anyone.
At prices sometimes 80 per cent cheaper than the legal and taxed cigarette packs he sells at his 78 stores across Victoria, NSW and Queensland, who can blame smokers for crossing the street.
“We have basically gone from four years ago, $300m in tobacco sales down to probably now around $60m,” he told The Australian. Last November, Mr Harrison said his Ritchies chain, the nation’s largest independent supermarkets group, was losing about $50m a year.
“It is getting worse,” he said.
Mr Harrison would be the first to cheer if tobacco consumption in Australia was falling, delivering a huge health benefit to the economy, but this isn’t the case.
“If people stopped smoking, you’d say, ‘yes that’s great’. But when total tobacco consumption is significantly higher than it was five years ago, purely on the back of illicit tobacco this is where you’ve got to question government action or government inaction and allow it to just run rampant and out of control.
“It’s going to be a lot harder to bring it back from here.”
An investigation by The Australian found a $5bn-a-year tobacco black market and related underworld war is raging, fuelled by years of hikes in the tax charged on cigarettes. It has lured a criminal industry with global reach.
The scourge of the illegal tobacco trade is shaving sales and profits from the nation’s largest retailers of legal tobacco, Woolworths and Coles.
At the supermarket giant’s full-year result in August, Woolworths chief executive Amanda Bardwell highlighted the financial pain: “We have a more stable operating environment, but we’re still navigating some near-term challenges, particularly the material reduction in tobacco sales. It has been well discussed by others that the decline in tobacco sales is accelerating and the current regulatory settings and continued illegal sales is evident in our performance,” she said.
The group has witnessed a “material acceleration” expected to cost Woolworths $80m to $100m in foregone pre-tax earnings this financial year.
It comes on top of a 19 per cent decline in tobacco sales for Woolworths in financial 2024 and a 16 per cent decline in 2023.
At Coles, CEO Leah Weckert revealed tobacco sales now represented less than 3 per cent of total Coles supermarket sales down from a peak of more than 8 per cent in fiscal 2019.
“So, we’ve been on a real journey with tobacco. It’s been something that’s been in double-digit decline for us for a few years now,” Ms Weckert said. “We have sought to really navigate that decline through the strength of the volume growth that we’ve had from our other categories. What we have seen over the last few months is that the change in the legislation around the pack size and the types of cigarettes that can be sold has meant that decline has been exacerbated, and we’ve seen a more significant decline.”
Coles reported a 30 per cent volume decline in tobacco sales in fiscal 2025.
She was asked if it still made sense for Coles to keep selling tobacco given collapsing sales and profits.
“I would say that we’re really in the business of providing customers with choice and options on products that are legal products in Australia, and tobacco still remains in that category,” Ms Weckert said.
“Even around 2 per cent to 3 per cent of our sales, it’s still a significant category for us, and so what we are doing at the moment is continuing to service that category and those needs that those customers have.
“I think it’s probably some time away before we would consider a complete exit.”
Viva Energy, the fuels and energy company that also operates a network of more than 1,300 petrol stations and convenience stores, last month revealed that its first-half convenience sales dived by 10 per cent, mostly driven by a 27 per cent drop in tobacco sales.
It blamed this on new packaging laws which have accelerated the shift to illicit tobacco. The collapse in tobacco sales also contributed to a decision to impair the value of its retail sites by $245m, which shredded its profitability in the first half.
Originally published as The sales shift from supermarkets to illegal tobacco operators is worsening: Ritchies boss
