Introduction

Before the introduction of plain packaging in Australia, tobacco companies claimed that tobacco manufacturers would be forced to compete on price alone, and also compete against an increase in illegally imported cigarettes which together would result in a drop in the retail price of tobacco.1–3 One tobacco company-funded study predicted a decrease in cigarette prices ranging from 4.8% and 19.2%.4 A fall in tobacco prices would be problematic because it would threaten attempts to decrease tobacco consumption, especially among youth.5 6 Despite the claims of tobacco companies, two studies found that both the inflation-adjusted prices listed in-store7 and inflation-adjusted recommended prices of cigarettes1 had increased by August 2013, less than 1 year after full implementation of plain packaging (December 2012). The relative size of the increase in recommended price varied over time and between factory made cigarettes and loose tobacco, but inflation-adjusted recommended per-stick prices, on average, increased by 6.4% from November 2011 to November 2013, and by 3.4% from November 2012 to November 2013.1 Listed in-store per-stick prices of the lowest-priced brand (inflation-adjusted) increased significantly, by an average of $A0.02 from May–July 2012 to August 2013.

While the two studies by Scollo et al 1 7 provide important evidence to counter the claims of tobacco companies that plain packaging will result in a decrease in tobacco prices, the studies only examined prices up to 97 or 111 months after plain packaging was fully implemented. However, there is evidence that consumers become more price-sensitive over time, when there is reduced advertising and increased promotion (such as price promotions).8 Although that study did not examine tobacco sales, it is consistent with the possibility that tobacco prices could decline over a longer period than examined by Scollo et al 1 7 since some brand enhancement effects from fully branded tobacco packaging would be expected to persist over time, though with gradual decay. In addition, the study that examined in-store prices excluded tobacconists,7 one of the cheapest tobacco outlets in Australia,9 with the second largest market share (after supermarkets).10 If, as tobacco companies argued,2–4 plain packaging leads to an increase in illicit tobacco, the amount of illegal sales might be expected to increase over a longer period as well, thus applying further downward pressure on legal tobacco prices.

The current study covers a period from November 2012 to March 2016, where there were sharp increases in tobacco tax in Australia, following the government’s decision to increase tobacco taxes by 12.5% annually from 2013 to 2016, in addition to pre-existing tax increases accounting for inflation.11 Such sharp annual increases in tobacco taxes might be expected to put downward pressure on manufacturer and retail margins which tobacco companies claimed would increase the attractiveness of contraband cigarettes, resulting in decreased tobacco prices. Similarly, plain packaging was followed by increased usage of colour-based variant names (eg, ‘Winfield Sky Blue’),12 13 by new product varieties (eg, new menthol capsule products, filter innovations), proliferation of the new super-value market segment14 and increased use of roll-your-own tobacco,15 each of which may have put pressure on cigarette prices.

This paper thus extends the work by Scollo et al 1 7 in three ways: first, it extends the time period of price comparison to more than 3 years after the implementation of plain packaging, allowing testing for any long-term changes in tobacco prices; second, it includes prices from tobacconists, where tobacco prices have historically been lowest, and finally, it examines differences in price changes over time across different outlet types and retailer characteristics.

Methods

Results

Of 857 retailers with relevant price information recorded before the introduction of plain packaging, 789 and 579 were still open for business at Audits 2 and 3, respectively, had not changed business type, were still selling Winfield cigarettes and had relevant price information (table 1). Mean CPI/tax-adjusted stick prices were $0.716 per stick at audit 1, $0.816 per stick at audit 2 and $0.827 per stick at audit 3 (table 1 and figure 1).

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Figure 1

Mean price per stick with 95% CIs; adjusted to November 2012 dollars, excise/customs duty levels and GST payable (CPI/tax-adjusted) and nominal. CPI, Consumer Price Index; GST, goods and services tax.

After adjustment for retailer characteristics, the increase in mean CPI/tax-adjusted stick prices from audit 1 to audit 2 was 13.7% (95% CI 13.0 to 14.5) over a median time of 2.1 years after plain packaging was introduced (figure 2) or, expressed alternatively, a per-year average price increase of 6.3% (95% CI 6.0 to 6.6).

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Figure 2

Adjusted percentage increases in mean CPI/tax-adjusted stick prices from audit 1 to audit 2, and from audit 1 to audit 3. ^P values are for tests of whether price increases from audit 1 differ by the listed store characteristic in either audit 2 or 3. Percentage increases adjusted for outlet type, legislation breach at audit 1, listing with Ministry of Health at audit 1, remoteness of postcode, socioeconomic status of postcode, % of postcode population less than 18 years, % of postcode born in Australia and sells twin packs ‘Outlet type’ ascertained at audit 1 (follow-up data from businesses that changed type after audit 1 was not included ‘Legislation breach’ and ‘Listing with MOH’ ascertained at audit 1 only (time-invariant variables) ‘SES’, ‘% less than 18 years’, ‘% born in Australia’ based on 2012 census data (time-invariant variables). CPI, Consumer Price Index; MOH, Ministry of Health; SES, socioeconomic status.

From audit 1 to audit 3, CPI/tax-adjusted stick prices increased by 15.2% (95% CI 14.3 to 16.0) over a median time of 3.1 years after plain packaging was introduced (figure 2), corresponding to an average increase of 4.7% (95% CI 4.4 to 4.9) per-year.

From audit 2 to audit 3, CPI/tax-adjusted stick prices increased by 1.3% (95% CI 0.5 to 2.1) (and because the median time between audit 2 and 3 was 1 year, the 1.3% increase also represents the average per-year increase). The 1.3% per year increase was significantly lower than the 6.3% per year increase from audit 1 to audit 2 (p<0.001).

Discussion

In Australia, tobacco companies argued that the removal of fully branded packaging from cigarettes would force competition on price rather than through the reputation of their trademarks.2–4 However, even when the time frame of comparison is extended to 3 years after the implementation of plain packaging, when any residual effect of brand imaging is likely to have decayed, and thus consumers are more likely to have become more price-sensitive,8 the price of the market-leading cigarette brand did not fall in Australia. Tobacco companies also argued that prices would fall due to increased availability of contraband cigarettes.2–4 However, two studies that examined availability of illicit tobacco 9 months after plain packaging implementation,32 and use of such tobacco 16 months after implementation,33 found no increase in either availability or use of illicit tobacco. Our results strengthen those findings, showing that even if availability or use of illicit tobacco increased over a longer period than the one examined in those studies, the price of the top-selling cigarette brand did not fall in response. Instead, inflation and tax-adjusted cigarette prices increased significantly—across outlets—by an average of 13.7% 2 years after implementation of plain packaging and by 15.2% 3 years after implementation. Although the size of the price increase varied across retailer types, the results showed that all outlet types increased the inflation and tax-adjusted price of the leading brand, with the size of the increase varying from 5.4% (for tobacconists, 3 years after implementation) to 17.3% (for service stations, 3 years after implementation).

Plain packaging has been shown to be effective in changing smokers’ attitudes and increasing attention to graphic health warnings,34 reducing the appeal of cigarette packs for adolescents35 and increasing quit-related cognitions and quit attempts.36 The claim by tobacco companies that it will lead to lower cigarette prices has been previously demonstrated to be incorrect in the short-term after implementation.1 7 Adding to those findings, the current study provides no evidence for predictions of falling cigarette prices following the implementation of plain packaging; indeed, it demonstrates increases in the retail price of Australia’s leading brand over a period as long as 3 years. Concerns about a potential fall in cigarette prices following implementation of plain packaging therefore appear to have been overstated by tobacco companies; as a consequence, similar arguments aimed at impeding the implementation of plain packaging in other jurisdictions should be interpreted with caution. Instead, the current study suggests at least in the Australian context, tax policy can be used to achieve real increases in the price of cigarettes in order to discourage smoking, especially by youth, and that tax increases as large as 12.5% per year are not necessarily negated by tobacco companies decreasing their margins.

The current study also reinforces previous evidence that some retail outlets are able to sell tobacco at significantly lower prices.9 Tobacconists started with much lower prices than all other outlets, and increased their prices significantly less than all other outlets at each of the time comparisons. This is particularly notable in view of the fact that tobacconists lack the huge buying power of supermarkets, with only 32% of the market share of supermarkets,22 spread across 53% of the number of outlets.10 The presence of outlets that sell tobacco at much lower prices limits the effectiveness of strategies to discourage smoking, especially among youth, by tax increases. The results thus provide evidence in support of arguments for a floor price for tobacco to reduce tobacco use and socioeconomic disparities in smoking,37 or for alternative polices such as a standardised price per brand across all retailers, or licensing conditions on retailers which include pricing components. We also found that price increases following plain packaging were significantly higher in regional/remote areas than in major cities. Higher cigarette prices in regional areas are consistent with evidence that groceries38 and fuel prices39 are higher in regional locations compared with capital cities, and may plausibly be due to the presence of more competing retailers in cities, and/or higher transport costs incurred in transporting goods to regional areas. However, the fact that cigarette prices were similar between regions before plain packaging (table 1) may suggest recent differential changes in market forces between regions. Price increases were also associated with the SES of the retailer’s area, but the relationship between price increase and SES was non-linear and with only the second lowest quintile of SES having a noticeably higher increase in price.

The study has limitations. First, it was limited to one brand of cigarettes, although the leading market share brand at the time of both the first and second audit, but at the same time, the analysis provides the first longitudinal data on the in-store price of a comparison brand over an extended period before and after the implementation of plain packaging. Second, the study was limited to one state (NSW) in Australia, although the most populous state. However, Scollo et al found that per-stick prices for value, mainstream and premium brands were not significantly different between Sydney (the capital of NSW) and other Australian capital cities that they examined (Melbourne, Adelaide and Perth),7 so we have no reason to believe our results would be substantively different in other states. The same study found that the lowest priced-brands were more expensive in Sydney than the other Australian cities they examined, but the difference was less than $0.02 per stick.7 Moreover, by including data collection in remote and regional areas, this study is the first to examine variation in pricing due to remoteness. Finally, although data collection for audit 1 was limited to the time before full implementation of plain packaging in NSW in December 2012 (ie, when only plain packaged cigarettes could be sold), some plain packets were appearing in shops in November 2012, and the prices of some of these packets may have been included in our data collection for audit 1. However, this seems unlikely to have had a major influence on our results given that (1) other data shows that cigarette prices in Australia were relatively flat over two periods including August 2012 to January 2013,7 and (2) in November 2012, the recommended retail price40 was similar to our observed prices in newsagents and general grocery stores, and lower than our observed overall average price (suggesting discounting in that month was unlikely).

Further research in this area could investigate changes in the price of lower priced brands, in order to investigate if those brands are becoming proportionately more accessible to smokers, relative to higher priced brands such as Winfield. However, collecting longitudinal data on retail prices across multiple geographical areas is difficult and time consuming, and collecting data on the prices of multiple brands makes the task more difficult. As one reviewer of our paper noted, data collection for only one brand for our study ‘reflects an enormous human effort to collect information on local prices’. Policy changes that required tobacco retailers to disclose their prices would make public health monitoring of cigarette prices immeasurably easier. Future research could also examine what implications Winfield’s price changes may have for the brand portfolio of its parent company, British American Tobacco, and for the wider tobacco market.

In conclusion, the study found that─in direct contrast to tobacco company predictions─the price of the best-selling Australian cigarette brand increased by 15.2% in the 3 years after plain packaging was introduced, after allowing for inflation and taxes. Claims that plain packaging should not be implemented in other jurisdictions because it may lead to lower tobacco prices are inconsistent with the available evidence from Australia.