MICHAEL, Mr Heath, Director, Policy, Government and Corporate Affairs, Australian Retailers Association

ROGUT, Mr Jeff, Chief Executive Officer, Australasian Association of Convenience Stores Ltd

[11:36]

CHAIR: Thank you very much for joining us this morning. Do either of you have any objection to being recorded by the media if they happen to be present today? No. I remind you that these are formal proceedings of the parliament. The giving of false or misleading evidence is a serious matter and in some circumstances could be regarded as a contempt of the parliament. Today's proceedings are being recorded by Hansard and do attract parliamentary privilege. I note that you've made a written submission, but I invite you to make a short opening statement.

Mr Rogut : I am certainly not a health professional. AACS is the peak body representing convenience stores in Australia. Our numbers are about 6,000 stores, generating about $8.3 billion worth of sales in merchandise. If you add petrol onto that, we're about a $20 billion industry. Where the topic of tobacco and related products like e- cigarettes is concerned, it really is very difficult to get the voice of our members and certainly small businesses heard as a result of the very powerful health lobby in Australia. Therefore I would thank you and the committee for inviting us to present before you this morning.

E-cigarettes are a unique case from our point of view, because it gives our industry potential for additional sales, and I make no bones about that. It also gives greater choice to consumers and potentially greater health outcomes for the community. Around the world, from what we can read—and, as I say, we're not health experts—e-cigarettes have helped many people cease smoking tobacco. International authorities and medical experts from Public Health England in the UK to the New Nicotine Alliance Australia have emphasised this potential. In Australia though no framework exists for the legal sale of e-cigarettes and giving consumers the advice to allow them to make those choices that they may wish to make. We certainly are hopeful that this inquiry will achieve that.

In 2016 we commissioned independent research amongst consumers on a number of topics. We surveyed 4,000 consumers, which was a really good sample. In amongst that we canvassed the issue of e-cigarettes. To go to some of the results, 73 per cent of Australians support the legalisation of e-cigarettes; 68 per cent of smokers say they would try it cigarettes if they were readily available and certainly cheaper than normal tobacco; and, interestingly, 54 per cent of people view the legislation of e-cigarettes as a potential vote-influencing or even vote-changing issue. We thought that was really interesting, just to get a feel of what consumers thought.

As I say, we have been very forthright in saying that, from our point of view, e-cigarettes do offer a sales opportunity for our industry. Tobacco represents typically about 38 per cent of sales of a small store—it could be as high as 40 per cent—and generally about a quarter of their profitability. So, suffice to say, in many cases, without tobacco, which is a legal product, our industry would suffer dramatically.

It's also fair to bring in the question of illicit tobacco. As you're probably aware and have read, illicit tobacco makes up about 14 per cent of the tobacco industry in Australia. That's been represented through the KPMG survey that's been done over a number of years. I think last year, in 2016, it was 13.9, but generally it's held at about 14 per cent.

We've also seen—aside from the fact that government is losing somewhere between $1.6 billion and some people in Border Force have suggested up to $4 billion in terms of excise revenue—that e-cigarettes are now becoming far more readily available as illicit products. Let me give you an example of how easy it is. I'm not a smoker, but I have done this on a number of occasions, where I've had to appear before various committees and meetings. One Sunday morning I went with my wife to a local Sunday market, and I said, 'We're going to buy some illicit tobacco.' She asked, 'Are we going to end up in jail?' And I said, 'No, we're not.' So, we went, and I found a person I thought would be a seller of such products, and I was able to buy a pack of 100 cigarettes which is not anywhere near plain packaging; in fact, it's in a box that should be for cigarette filters. There's 100 cigarettes there for $30. That's less than a third of the legal price.

I'm happy to leave these samples here. That is a package that's meant for filters, with no country of origin, no idea of what's in there—contents or anything—and people were queuing up to buy this product. I asked, 'Do you have any other products?' And I was offered a range of other products, not in plain packaging and certainly not illegal product. I then went across the aisle to somebody who was selling what looked like vaporisers, and he was selling e-cigarettes. I saw one on the table and asked how much it was, and he said $10, and that was the actual item, and I said, 'I'll have that.' He was selling some product that appeared to be non-nicotine liquid for the e-cigarettes. I asked, 'Do you have any nicotine liquid?' And he sort of looked around, surveying the scene, and from under the table brought out two containers of nicotine-based product—again, I've not tried them out, to verify that they're nicotine, but he assured me that they are—for $15. And people were queuing up to buy these products. No doubt that scene is replicated every day of the week, every weekend, somewhere around Australia.

Aside from the health issue, where these are being sold to anybody—illegally, without any health warnings, without really having any knowledge of what's in those products—purely from a retail aspect, legitimate retailers are losing business to criminal activity. There is the response also from UK Health Quit in the UK, who only a couple of months back came out saying that they are supporting e-cigarettes as a quit tool. And only this week—and, again, as I said, I'm not a medical expert—there was a report from Georgetown University in the US talking about the benefits of e-cigarettes, saying that they are far safer and could save up to five million lives a year in the US.

So, just to sum it up, our position is that we believe there is a commercial opportunity for e-cigarettes. We believe there is an opportunity to offer our customers choice. But obviously we do need to be able to inform them and make e-cigarettes available in such a manner that they can choose between e-cigarettes and normal tobacco. Thank you for giving me the opportunity, and I will be happy to take any questions.

Mr Michael : I think Jeff's made a number of salient points that I was probably going to cover off, so I'll keep my overview fairly quick. ARA is a Fair Work registered organisation representing about 7½ thousand members and 50,000-odd shopfronts. Around half of the sector sells tobacco-related products in one form or another, whether that's convenience—Jeff and I share a number of members—petroleum, liquor, supermarket et cetera down to pure tobacconists who play in this space.

We have always held the position that we support cessation programs and reduction in smoking rates. We also acknowledge that volumes are decreasing across retailers who sell tobacco products and our retailers are very keen to be able to sell alternative products when they're available. In this particular situation, it is not legal to sell these products. As Mr Rogut has pointed out, it is freely available within the domestic market by asking for the product through disreputable sellers. Most importantly, these products are available online offshore and there is absolutely no stoppage at the border when it comes to these products entering the country. We have had a lot of discussion about anecdotal and scientific evidence in relation to these products. Like most of us here I am not a medical expert, but it is almost nonsensical to claim that these products are not better for an individual to use over tobacco products. Using one of those anecdotal cases in hand, I do have that classic relative who has been smoking her entire life. Several years ago she moved to e-cigs. I have asked her extensively how she acquires the product. She said it is online and it has never been stopped and she tells me repeatedly how much better she feels now that she is off tobacco products and on the electronic product. She states to me in a very strong manner, 'I will never be able to give up nicotine, but at least this is less harmful for me.'

All our members want to do is to be able to fill that gap by supplying this product to the community, as happens in other markets. We have all travelled overseas extensively, whether it is to the US or the UK, or in my case to a friend's wedding a little while ago in Germany, where I walked with some smoking friends into a tobacconist where over half the product would have been vape products or electronic products. You don't see that availability or that alternative available here in the Australian market. If these products were available at a lower cost, which they would be, because of the excise regime, and with a similar margin, which they would have, because they have to compete against the margin of tobacco products, we believe that these alternatives would be offered to consumers by retailers.

Mr TIM WILSON: Thank you for your presentations. We have heard a lot of evidence this morning about the health component. We are particularly interested in your perspectives on the retail components and the impact on industry. It seems to me that the obvious allegation against the presentation you put today is, as you have just mentioned, that there is a decline in the consumption of tobacco, that you support those measures, and this is about providing a pathway for a new product line for you to continue distribution of products, which you make profits from. What is your response to that?

Mr Rogut : Unashamedly, tobacco is a legal product and we are retailers who serve our customers. If there were no demand we would not sell it, whether it is a soft drink item, a chocolate or an ice cream product. There is demand for tobacco, which in our industry has continued to grow at around five per cent every year for the last seven years, and even if you strip out excise it is growing at over two per cent, so people certainly are coming to our members—to our stores. We represent the organised convenience, largely the larger forecourt-style stores—BP, 7-Eleven, Caltex and many independents. People are coming to us looking for those products.

E-cigarettes are hidden behind a cupboard door, so people do not know they are available to be sold. Because of some very hefty fines that were levied against some retailers some years back, when allegedly their staff were up-selling or selling promotions, staff are very reticent to even say to consumers, if they are asked if they stock e-cigarettes, 'Yes, we've got them, and here they are.' So, all we are asking for is, like any other product, to make it easy for customers to buy those products, should they wish to, and for retailers to be able to offer any advice they may be able to around those products.

Mr TIM WILSON: One of the things we have heard today from various health professionals is at least an acknowledgement or concession that there could be availability of vaporisers and nicotine capsules, if it were to meet similar conditions to tobacco based products. How do you feel about that, particularly as you will obviously be at the point of sale if it were to become available, depending on the circumstances? Also, what other policy measures would have an influence, such as, say, plain packaging, and whether you think that is necessary, and the likely impact it would have on consumer choice?

Mr Michael : On the regulations around supply, a number of state jurisdictions have already put those regulations in place for vape products that do not contain nicotine, and they would apply to products that do contain nicotine. We haven't particularly opposed those measures. We haven't had any strong feedback around opposition to them being supplied in the same manner and not to under-18s. We accept that when it comes to smoking there's a very low take-up rate for younger people. It is very much those who are already addicted tending to seek these products. When it comes to the planned packaging piece, I haven't actually had that one raised with me by any members. I'm not sure whether Jeff has.

Mr Rogut : From our point of view we'd have no problem with that in reality. The only thing that we would like to see is that customers who are looking to make that change are given correct information. We have no problem in terms of the age restriction, packaging, displaying it with tobacco. It's really not a bit issue. But potentially there would be an opportunity for an authorised brochure, let's call it, which maybe comes out from the TGA or whoever, saying, 'Here are e-cigarettes; these are the pros and consequence,' and allowing people to be educated. It's currently a mystified product. People are not sure whether it's good, bad or indifferent.

Mr TIM WILSON: I guess that follows through to the question I was asking others earlier, which is: what if there were similar measures, like plain packaging, imposed? We have legacy brands, so everybody knows what they are, where they've come from and the marketing, so at least existing smokers identify with those brands. If you were to have the accessibility of these products then, unless they used those legacy brands, there would essentially be no way of differentiating them? Are you suggesting that at point of sale, as part of that process of understanding what the point of the product is, you would have some sort of educative complementary component, such as a brochure, distributed?

Mr Rogut : I'd suggest that that would be useful. It's not there to upsell. It needs to be very bland, I guess, in terms of its content: these are e-cigarettes, these are the positives and these are the potential negatives. In terms of customers being aware of what's there, currently we have menu boards for tobacco products where, subject to it being in the legislated format, they can have a description and a price. The same could apply for e-cigarettes.

The thing that may drive e-cigarettes may be not so much price as technology, because it does appear that the companies are investing very heavily in the type of technology around e-cigarettes. People are online, they're travelling; they become aware of these things very quickly.

Mr TIM WILSON: In another hearing we heard that price and, in particular, tax contributions could have quite a significant impact on people's choice of substitutability. Obviously, tax is a very significant component of the sale of tobacco products today such that, if there were a limited or lesser tax component to e-cigarettes, you would probably see, from people consuming tobacco products, greater substitution of tobacco for e-cigarette products. From your experience, would you agree with that analysis? I realise it's difficult because of the fact that people are essentially selling them behind closed doors, but is it likely to lead to substitution if you have a lower tax rate for e-cigarettes than for tobacco?

Mr Rogut : Yes, absolutely I tend to agree with that. The other example I would cite is what happened with plain packaging. Once brand became irrelevant—because people weren't pulling out a red, blue or gold pack; it all looked the same—it all revolved around price. What's happened in our industry is that the premium brands have not disappeared but markedly declined over the last five years and the sub-value and value brands have markedly increased. It is now all about price and value. Customers are far less brand conscious than they ever were.

Mr TIM WILSON: Are you saying that with tobacco based products today there is now comparability in terms of price for different products?

Mr Rogut : Yes.

Mr TIM WILSON: I'm not a consumer, so I don't actually go and purchase it, but essentially all products are priced at roughly the same point, so the value proposition—

Mr Rogut : Not currently, no. They can vary from a packet of Marlborough at $27 or $28 to another, lesser-known pack at around the $20 mark, so there can be a substantial price difference. People are typically coming in and saying, rather than that they want a pack of a particular brand, 'What are your cheapest smokes?' That's the most common refrain that you now get in the stores. So it's shifted from brand as a result of plain packaging. And I'd suggest that people are almost consuming the same amount of tobacco in many cases but, because they're buying the cheaper brands, they're almost buying more of it than they used to buy previously.

Mr Michael : I might add—and this is feedback that we've had from our members straight off the shop floor—it's: 'What is your cheapest product?' And then they're often told, 'No, I want your really cheap stuff,' which is a reference to chop-chop or whatever else is available.

Mr ZAPPIA: I would like to pursue the legality of selling e-cigarettes. You can buy them online. Yet Mr Rogut spoke about some prosecutions not that long ago.

Mr Rogut : That was around normal tobacco cigarettes. As a result of that, stores are very wary about talking to customers on anything around smoking. They are so afeard of breaking the law to some degree.

Mr ZAPPIA: Was this to do with e-cigarettes?

Mr Rogut : No, it was to do with tobacco.

Mr ZAPPIA: So you're members can't sell e-cigarettes? Let's say they bought a batch of them online. They could not than resell them?

Mr Rogut : Our members can sell them if they buy them through legitimate sources. But they are treated the same as tobacco, so they are hidden behind the closed doors and there's a sign—certainly New South Wales recently reissued some new signage—that says e-cigarettes and tobacco can't be sold to people under the age of 18. They are generally hidden.

Mr TIM WILSON: With nicotine.

Mr Rogut : Nothing with nicotine.

CHAIR: The delivery device—

Mr TIM WILSON: The vaporiser.

CHAIR: You can sell the vaporiser and, presumably, you can sell non-nicotine capsules.

Mr Rogut : Correct.

CHAIR: But if you were selling a capsule containing nicotine, that would be illegal?

Mr Rogut : That is totally illegal, and you will be subject to fines.

Mr Michael : If you were to walk around the corner and ask a number of merchants whether you could buy an e-cigarette device, they would have them in store. They purchase the nicotine from overseas, or they would properly ask the store owner whether they have something under the counter.

Mr TIM WILSON: Or know where to get it.

Mr Rogut : Yes.

Mr ZAPPIA: Let's assume you don't buy it from under the counter. I assume it might vary from one state to the next. Or is it the same across all states?

Mr Michael : It is pretty much the same across all states. I think everyone is legislated now. Maybe Tassie is the last one.

Mr ZAPPIA: So you can buy the device to smoke with and, provided there is no nicotine, you can also buy the liquid across Australia?

Mr Rogut : Correct.

Mr ZAPPIA: And the alternative is to go directly online and buy both products?

Mr Rogut : Certainly.

Mr Michael : Or just the nicotine, as long as it fits that particular device. There are multiple websites out there. I looked at what a relative of mine was doing. She was telling me about the price. She commented that she was saving at least $200 or $300 a month by moving to nicotine electronic cigarettes.

Mr ZAPPIA: To your knowledge, no-one has been prosecuted for buying online?

Mr Michael : No. In that scenario, and it's the one I know best, they've never been stopped at the border. You can buy cigarettes from overseas online, and the chances of them being stopped at the border are pretty much zero.

Mr ZAPPIA: But with cigarettes, if they were stopped, you would then at least have to pay the duty if you wanted to collect them, I assume.

Mr Rogut : As I understand it, for the nicotine product, you don't need a medical description. All you do is go online. In fact, I was doing that while you were talking.

CHAIR: If you want to bring it in legally, you need a prescription. If you go online and order that, you're breaking the law.

Mr Rogut : Correct. People are doing it though. When you were talking to the previous witness, I brought one up on my phone just to see how easy it was. I am able to place an order if I wish to, and it will be delivered in three days. There is no question about medical certificates or anything. So it is easily available.

Mr ZAPPIA: Are you able to put a value on the amount of product that is coming online?

Mr Michael : No.

Mr Rogut : No. It was hard to even get the figure on what e-cigarettes are worth in Australia at the moment. I was able to get a figure for 2016 that suggested the market was worth about $31 million. When you consider that tobacco is about $14 billion to $15 billion, $31 million is not a lot. Again, according to this number, there were about 81,000 regular users of e-cigarettes. That is tiny compared to the number of people who smoke legal tobacco that is measured by statistics.

Mr Michael : I went out a couple of Friday nights ago and someone commented to me about all the e-cigarettes being sold everywhere. Every time you see someone smoking a vape device in a pub, I guarantee it has nicotine in it and it has been illegally supplied. The individual I was talking to was shocked when I turned around and said it is illegal to supply it in Australia.

Mr TIM WILSON: Just to follow that up, the tax component on a vaporiser is 10 per cent, the normal GST—is that correct?

Mr Rogut : Yes.

Mr Michael : Yes.

CHAIR: Just to follow up on Mr Zappia's line of questioning: is it fair to say the legally available non-nicotine capsules are not great sellers?

Mr Rogut : No, they aren't.

CHAIR: So most people would be buying the vaporiser. Is it your perception that if you were buying online you would just be buying the nicotine capsules or would you buy a vaporiser as well?

Mr Michael : Definitely both.

Mr Rogut : Both, because you would be getting the latest technology.

CHAIR: Every vaporiser that is sold legally is probably accompanied under the counter by an illegal nicotine capsule.

Mr Michael : Or online. And, every time you see someone smoking them outside a pub or a venue, they are something that is illegal to be supplied in Australia. You can ask them, 'Is that a nicotine device?' and they'll tell you, 'Yes, it's a nicotine device.'

CHAIR: With the vaporiser there are rules about display and who you can sell to. You are not allowed to sell to under-18s, I assume?

Mr Michael : Correct.

Mr Rogut : And they are hidden behind the cupboard doors.

CHAIR: With the non-nicotine legal capsules, are there rules in relation to how they can be displayed and packaged?

Mr Rogut : It is exactly the same.

CHAIR: Even with packaging, branding or naming?

Mr Rogut : It can't be seen at all.

Mr Michael : Although I have seen some displayed in tobacconists as I've wandered by. You notice these things being in the retail sector—the devices are sometimes displayed in windows. I'm not sure whether that's down to state legislation or whether it's just that the tobacconists have never had it enforced.

CHAIR: Thank you very much for your time today. You will be provided with a Hansard transcript of today's proceedings. If there are any corrections needed, you can let the committee secretariat know by 19 October. We might decline your generous offer of taking those samples as exhibits—we don't want to be in possession of illicit goods!

Mr Rogut : We might have to get them out of here! Thank you.