Legal tobacco sales have dropped sharply, hitting supermarket operators hard. Illegal, untaxed cigarettes are flooding the Australian market, with billions of dollars now moving into organised crime groups. Tighter regulations and higher prices for legal tobacco have pushed more consumers to the black market, which faces none of the same restrictions. This shift has created a clear economic and public health concern.
Metcash, a wholesale distributor that supplies IGA, Foodland and many convenience stores, sits at the core of the issue. Since new packaging rules were introduced in July, Metcash has recorded a sharp fall in legal tobacco sales across its network of nearly 2,000 stores. From a high of about $3.1 billion in yearly wholesale tobacco sales in 2020–21, current figures have dropped to below $1 billion. Legal stores are reporting losses while black-market sellers continue to thrive, often operating just across the street.
Industry data shows Metcash’s tobacco sales dropped 32.1% in the 18 weeks to 31 August. Some regional areas have seen falls as high as 45%. Major supermarket chains are also being affected. Woolworths expects a full-year earnings hit of up to $100 million. Coles has seen a 30% drop in tobacco volumes. Illegal cigarettes typically cost under $15 per pack, compared to $40 to $50 for legal brands, due to avoided taxes.
The problem extends beyond financial losses for retailers. There is growing concern among analysts and retailers that anti-smoking policies might be having the opposite effect. With illegal tobacco easier to access, progress in reducing smoking may be stalling or reversing. Surveys of discarded cigarette packs suggest up to 50% of the market may now be illegal. Some retailers say smoking rates are rising again, which has alarmed health advocates.
At the same time, falling demand for tobacco is hitting other parts of retailers’ businesses. Reduced foot traffic has led to fewer sales of papers, bread and impulse purchases, putting further financial strain on store owners. As a result, many are questioning whether current regulations are unintentionally supporting the black market while failing to bring down smoking rates.
