In an effort to reduce the rate of children taking up smoking, the UK Government is to begiven the power to standardise packaging for tobacco products. Simon Ellis looks at the proposals and considers the merit of opposition arguments that standardised packaging will increase the number of counterfeit products available and how this may affect retailers.

Following a report by Sir Cyril Chantler, the UK Government has passed legislation to enable it to introduce regulations requiring standardised packaging for all tobacco products. If the regulations are introduced, tobacco manufacturers will be forced to remove all branding and label the majority of the pack with health warnings. The product name would be minimised and a standard font and size used for all brands.

Why?

Sir Cyril concludes that standardised, plain packaging will:

  • help to reduce the rate of children taking up smoking, as it will remove brand differentiation and encourage people to see all cigarettes as equally harmful and unappealing;
  • emphasise the health warnings and promote the danger message;
  • remove any misconception that a certain brand is lighter or healthier simply because the branding portrays that image; and
  • remove a form of advertising, which inadvertently reaches young adults and children.

Will it work?

Not everybody thinks so. From a commercial and policy perspective, opponents argue that standardised packaging will infringe on the right of the brands to create their own identity and will damage the asset that is their good will. Some see it as a slippery slope that will set a precedent for other unhealthy products, such as alcohol or junk food.

However, the main objection, and concern for retailers, is the risk that it will increase trade in counterfeit tobacco products as standardised packaging will act as a single, easy blueprint that smugglers will find easy to copy. A KPMG study in Australia following its introduction of standardised packaging indicated that the number of illicit tobacco products rose following its introduction from 11.8% to 13.3% in 2013.

Illicit products are frequently more toxic than regulated products and so opponents of standardised packaging believe that its introduction would also be detrimental to public health.

Concerns with counterfeits

The easier it is to copy, the easier it will be to deceive the consumer. But will consumers be deceived or will they actually choose to purchase counterfeit products?

Illicit products are usually available at a significantly lower price than legitimate products by virtue of the fact that they are smuggled and avoid tobacco duty. The lower price will inevitably be attractive to some consumers.

The knock-on effect for retailers is the increased competition - as customers may turn to cheaper, counterfeit products. This will naturally impact upon profitability.

An increasing prevalence of counterfeit products will also place pressure on retailers to ensure that their suppliers are providing them with authentic products in circumstances where it may be difficult to detect.

Combatting counterfeits

Counterfeit tobacco is a major worldwide industry and an increasing amount of sales are made via the internet, making it more difficult - and expensive - for UK authorities to police. Given the current size of the counterfeit market, it is an open question as to whether standardised packaging will boost counterfeiting. Smugglers are becoming increasingly sophisticated and until standardised packaging is up and running, it will be impossible to assess whether the initiative will lead to an increase in counterfeiting that goes beyond the current trend. For now, retailers will need to be aware of the increased risk of counterfeit products and the effect this may have on their business.