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Rush to increase tobacco excise unwarranted

Don’t get me wrong, I am not against an increase in the tobacco excise as a mechanism for reducing tobacco consumption – as long as it is a mechanism which works. The cynic inside me wonders if the move to increase tobacco excise by 25% at midnight yesterday is about more that the health of Australians.

My real issue with the announcement is the short notice of this. Retailers need to plan for such a price change – even if they have good software tools which make the change straightforward.

I spoke with one newsagent employee last night who didn’t know what to do about existing stock since the owner was overseas an uncontactable. I spoke with another who lost business yesterday because the supermarket a few doors away had plenty of cartons for sale at the ‘old’ price.

While any change is bound to have challenges, it is the rushed nature of this which will lead to mistakes for which business will ultimately pay a price.

The rush reminded me of the other rushes of this government: the ETS, the plasma and poker machine stimulus package, the home insulation program and the problematic schools building program.

Okay maybe some people were stocking up because of an expected price increase. I’d suggest that that is less of a problem than the one presented by the government yesterday in its announcement of a new price regime which is in effect today.

I know we were inundated with calls at my newsagency software company about to handle the change – thankfully it’s pretty easy (advice sheet G38). This significant increase in call traffic became a barrier to getting to more important calls from our customers.

The government needs to understand that rushing things leads to mistakes.

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  1. Luke

    We noticed a decline in lotto sales yesterday as people were rushing out to get cheap cartons, other sales were even if not up but lotto was down.
    It might just be my demographics but they seem to need cigs more then the chance at $30 million.
    The sudden nature of the rise is the only problem I am having with it, it made last night a long one with the $30 million draw and then the rise.
    But now that it is all done we will wait and see if it effects smokers. We have planned for a phase out of cigs in July when the smokes need to be hidden from view so it only moves a few things forward.

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  2. Michael

    On topic sorta…(How the govt stuffs up things). Has any noticed Officeworks selling newspapers? So now I don’t think new mediums will kill newspapers, I think newspapers will kill themselves with their actions.

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  3. Brett

    The small tobacconist in our centre is yet to open this morning – he has a sign up saying that he is recalculating prices, meanwhile Woolies is selling to a long queue. The price I guess of not having a POS system.

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  4. Helen

    We changed our prices last night thanks to the bulk price change utility. The tobacco shop nearby is still not selling todacco at 10am today because of the price change work they have to do. Our range is about 50% of theirs.

    I agree with you mark though, they have rushed this.

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  5. Y&G

    We’ve already paid the old tax on existing stock. Why do we need to charge as if we’ve paid the new tax rate on this stock?
    We hadn’t planned to charge the extra until we were selling the new stock ordered post-rise. We’re prepared for this when the new stock is being sold.
    Is it a big extra cash-grab in the meantime, or (surely not!) are servos and supermarkets not paying on delivery for their stock?

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  6. Jeff C

    Sorry, but have I missed something here, firstly how can we put prices up because of a tax that hasn’t been applied to a product that we have on our shelves and secondly, can anyone tell be what formula to use to incease the price when it is the tax that has gone up by 25% not the price itself?

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  7. Angelo

    Mark,
    Agree on the fact about rushing this or any tax change in as errors and misinformation almost always result.
    Like Y & G I am not comfortable to make a money grab for old stock no matter how stupid or naieve I am be. I’ve had keen eyed customers in my shop this morning who have noted what stock I had on hand last night and come in early this morning to see if I lifted my prices. The Woolies next to me have lifted theirs but I am not sure how this is justified unless they receive stock before billing. (?) If not then perhaps some can explain to me how they may have purchased their stock at 1201 this morning, received deliver and have them on sale at opening time this morning at 7am at the higher price.
    The money grab is perhaps not something that everyone wants to talk about or admit to but I don’t believe the customer is so stupid as to not know what is going on.

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  8. Hemi

    We are just following thier RRP as published on thier pricelist as of 30/04/10

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  9. Hemi

    both Philip Morris & Imperial delivered this morning. so BAT increased as well

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  10. Angelo

    Hemi,
    The customer knows we the new RRP as of 30.4 but also knows we haven’t paid the new rate and are simply lifting prices. I don’t believe we should hide behind a price increase for the perhaps naieve reason I mentiond in my earlier post and take the risk of appearing greedy. There’s no halo over my head by any means but I think the risk of appearing greedy may not be worth it.

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  11. Shayne

    No different to servos putting their retail fuel price up 12c a litre when they purchased the fuel days ago. Having said that, I would not be comfortable putting smokes up until stock was delivered at the new price.

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  12. Y&G

    Jeff, your ciggy wholesaler should provide you with a revised RRP list. Unfortunately this is all we have to go on, in terms of our margin. There isn’t a revised list of wholesale prices, which I think is a bit off, really, considering the changing tax components.
    We have to go thru invoices, or wait until we’ve bought something for a current rate on a new invoice, for that information.
    So, you’re correct, it’s impossible to work out, when all we have (unless you want to go through a gazillion invoices) is previous supplier lists, if you remember where you put them LOL.

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  13. Mark

    If I sold tobacco I would have estimated the rise and applied it last night and then followed up with an adjustment once I had the details.

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  14. Y&G

    Mark, may I clarify – are you saying you would have put prices up on existing stock?

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  15. PETER

    i put my prices up first thing this morning. the media has been telling customers they will be paying the new price from open today, so yeah i took the money grab on the stock we have in store already.
    if i knew the price rise was coming, and i was able to order more stock at the old price, i would have.,…
    i love my customers too, even the smokers, but the bank loves my mortage payments more.
    peter

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  16. Steve

    Y&G says “We’ve already paid the old tax on existing stock. Why do we need to charge as if we’ve paid the new tax rate on this stock?”

    The UK Government have used an above inflation tax escalator for around 15 years and we learnt many years ago to increase our prices quickly to meet these increases as we needed to fund the replacement stock with the increase applied.

    Giving the customer the benefit of a few days at the old price will in the long term damage your cash flow and your business.

    Steve

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  17. Max

    Have to disagree Steve.
    Customers aren’t stupid. They see a cash grab when it is this obvious. The good will created in a business can be destroyed very quickly.
    We will be putting our prices up when the next delivery is made and we have a better indication of the actual cost to us, rather than the rrp that is being supplied by wholesalers.

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  18. Mark

    Y&G, absolutely.If I were selling tobacco products and was aware of an increase in the next few days I would increase prices immediately – for exactly the reasons Stsve outlines above.

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  19. Y&G

    That’s cool. Whatever floats your boat.

    But if your margin remains the same, how different is it from any other product’s supply price rising, which would also have to be ‘funded’?
    It would be like getting notification of our confectionery lines going up, and scrambling to up the existing stock prices, even if our next order was a week away.
    I could understand better if one was normally stocking high volumes of tobacco in terms of cash flow, but then again, if restocking high volumes is necessary, then one would assume that sales are normally high as well?

    It’s not quite the same as the cash flow issues imposed by mag distributors. Their prices are printed on the covers, thus making it clear their prices are out of our hands. Other stuff, however, that is priced according to our own margin formulae, reflect our needs in terms of remaining afloat, and customers can either take of leave it. If you’re stuck with ciggies sitting there for months, surely you have the option to return or swap them? We do.

    Our tobacco buyers are mostly regulars who buy here because we can compete with the servos. We want to keep those customers, and one sure-fire way to lose them is to embark on such a cash-grab and tell them it’s to fund their subsequent purchases. That just wouldn’t wash.

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  20. John Kirkham

    The price rise shouldn’t have been at the retail level. Excise is added via the distributor, the smokes come from the tobacco companies excise free. Then it’s added and administered at the warehouse.

    I know since I did cigarette delivery a long time ago. What is going to happen to all the ‘extra’ collected excise from retail ? You don’t pay it twice !

    No retailer should be even thinking of tampering with excise, it’s done at a completely different level !

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  21. Luke

    Wouldn’t the excise be passed on from the distributor to the retailer John, I know from my deliveries on friday it sure was.

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  22. kellie

    we put ours up friday afternoon and had no complaints from customers the magority of them have just said is that how much they have gone up,some in the morning said have,nt you put your,s up yet so they are expecting that they will be put up on that day

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  23. Steve

    I used to think like Max that holding off from increasing the price due to the tax hike would effect how customers saw us, but have discovered that they do not see tax as our doing. Convenience and availability are the drivers of continuing sales.

    Failing to add the tax on to current stock means the retailer will fully fund the cost as they do with supplier increases. Putting prices up quickly means that each sale generates the cash flow you will need to fund the restock.

    Steve

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  24. Brad

    Why wouldn’t you increase your price?Or why didn’t you go out and buy cartons off Woolies at the old price? Surely in these tough times we haven’t become stupid retailors. I would guess that when Woolies has a massive discount on Coke we are all filling trollies yet if you get an opportunity to make 25% plus on smokes we all look to take a concious stance.

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  25. Max

    Interestingly enough it looks as tho we have picked up a few new ciggy customers because of our stance on not implementing new prices until we receive the new stock at increased tax rates.
    Each to their own I guess.

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  26. Angelo

    Brad,
    Huge difference between buying discounted cig or drinks etc from Woolies or Coles and stocking our sheves versus lifing our price on stock we haven’t paid the increased tax levy on. Don’t get me wrong, I will turn a dollar any way I can and would take a worm off a sick chook if I had to.
    My point is about not appearing so greedy to customers who know that we have simply lifted the price overnight for an item sitting on the shelf that has not cost us anymore. I don’t know or care how Woolies do it but I don’t want to appear that way to my customers even though I would have enjoyed the extra cash. Like Max I have a few new customers. Not many but enough to know that my stance is being discussed by word or mouth for better or worse. I’m not begrudging anyone doing as they wish. I just don’t want to appear greedy.

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  27. Brad

    Angelo,
    The key difference here is that we are not alone and we didn’t increase the price. Your point is lost on me as I can’t see why or how we can be blamed for an increase where the most notice most got was a couple of days. Plus with the anti-advertising laws on smokes how could you really tell people but through word of mouth. This is a prime case of taking adantage where we can. Greedy yes but lets not get on morality otherwise you probably shouldn’t stock the product at all.

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  28. Ian

    Hi all. All cigarette companies have just released updated pricing!!!! 4/5.So back to the computers to reprice the stock. Not happy

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  29. Max

    Yep just got ours a few hours ago. They have been told that a rrp isn’t good enough. What we need is a “landed” cost to us so that we can then put our margin on the product.

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  30. nick shanagher

    Two things: what do ciggy retailers make of the plans for plain packaging, which is development that will impact the world. Secondly, the point that Steve is making is that he was afraid of how shoppers would react to a price grab but understands over time that shoppers tend to value convenience and friendly service over price.

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