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Observed retail price of Australia’s market-leading cigarette brand before and up to 3 years after the implementation of plain packaging
  1. Sam Egger1,
  2. Suzan Burton2,
  3. Rebecca Ireland1,
  4. Scott C Walsberger3
  1. 1 Cancer Council New South Wales, Kings Cross, Sydney, New South Wales, Australia
  2. 2 School of Business, Western Sydney University, Sydney, New South Wales, Australia
  3. 3 National Heart Foundation of Australia, Sydney, New South Wales, Australia
  1. Correspondence to Professor Suzan Burton, School of Business, Western Sydney University, Sydney, NSW 2006, Australia; S.Burton{at}westernsydney.edu.au

Abstract

Objective Despite claims by tobacco companies that plain packaging would lead to lower cigarette prices, recommended and observed real cigarette prices in Australia rose in the 9–11 months after plain packaging was introduced. However, little is known about trends in prices longer term. In this report, we assess whether inflation (Consumer Price Index; CPI) and tax adjusted (‘CPI-tax-adjusted’) prices of the market-leading Australian cigarette brand changed in the 3-year period after plain packaging, and whether price changes were associated with retailer characteristics.

Method Cigarette prices were ascertained from a panel of tobacco retailers at three time points: (1) in November 2012 (n=857) (before full implementation of plain packaging, compulsory in retail outlets from December 2012), (2) between October 2014 and February 2015 (n=789) and (3) between November 2015 and March 2016 (n=579). Generalised estimating equations were used to estimate percentage change in mean CPI/tax-adjusted cigarette prices over time.

Results CPI/tax-adjusted adjusted mean stick prices rose by 13.7% (95% CI 13.0 to 16.0) and 15.2% (95% CI 14.3 to 16.0) at 2.1 and 3.1 years after plain packaging was introduced, respectively. Increases in mean CPI/tax-adjusted stick prices varied by outlet type (p<0.001), socioeconomic status (p=0.013) and remoteness of retailer’s area (p=0.028) and whether twin packs were sold (p=0.009).

Conclusions Contrary to tobacco company predictions of a fall in prices, the price of the market-leading Australian cigarette brand increased significantly in the 3 years after plain packaging was introduced, and these increases were above the combined effects of inflation and increases in excise/customs duty.

  • Price
  • Packaging And Labelling
  • Public Policy

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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

Study design

This study began as a cross-sectional observational design in which a random sample of New South Wales (NSW) tobacco retailers was audited in person by volunteers to record the advertised price of the highest-selling Australian cigarette brand (Winfield16 17) (in what is referred to hereafter as audit 1), and to assess retailer compliance with legislation relating to in-store tobacco display restrictions (ie, no display of cigarettes or smoking products, only one price board (of a maximum size), warning signs and, for tobacconists, distance of tobacco display from public facing openings).18 Two subsequent price audits were conducted by volunteers on the same sample of retailers roughly 2 and 3 years later (audits 2 and 3). This study is therefore now a longitudinal repeated-measures observational design.

Retailer sample

The retailer sampling methods for audit 1 have been published elsewhere.9 Cancer Council NSW, a non-government organisation based in NSW, the most populous state in Australia, obtained business data for all NSW tobacco retailers listed on the Tobacco Retailer Notification scheme (hereafter ‘listed retailers’) from the NSW Ministry of Health (MOH). From the MOH list, a systematic in-person audit was conducted of a sample of 1565 retailers in 95 randomly selected postcodes from eight geographical regions of NSW between November 2012 and February 2013. In addition to the 1565 listed retailers, 174 unlisted retailers were identified and audited in audit 1. Of these 1739 retailers, 1579 sold the market-leading Australian cigarette brand (Winfield16 19) and had 25-cigarette single-pack or 50-cigarette twin-pack price information. Auditors subsequently revisited 857 of the 1579 retailers that were audited in November 2012 (prior to the full implementation of plain packaging on 1 December 2012), who were the same business type and still selling Winfield cigarettes between October 2014 and February 2015 (audit 2), and/or between November 2015 and March 2016 (audit 3). (Previous reporting of the results from audit 1 included outlets that were audited after November,9 18 but those outlets were excluded from this analysis to ensure that prices reported at audit 1 reflected only prices before the full implementation of plain packaging.) Stores that could not be audited in one of the follow-up surveys (because they were permanently or temporarily closed, changed business types or were no longer selling Winfield cigarettes) were not replaced, leading to 92% (n=789) and 68% (n=579) of the 857 baseline outlets contributing data at audit 2 and audit 3, respectively.

Winfield was chosen as the tobacco product for price auditing because in years leading up to audit 1, it had the highest market share,16 17 and so was likely to be carried by the largest number of outlets.20 In 2014 and 2015 (ie, including the periods covering audit 2 and the start of data collection for audit 3), Winfield remained the highest market share brand.17 21 22 Across the whole of 2016 (which included the end of data collection for audit 3), Winfield was the second highest market share brand.23

Data collection

In addition to collecting cigarette price data during audit 1, volunteers also collected data on outlet characteristics that we hypothesised might be related to cigarette price. Specifically, volunteers recorded the outlet type (since previous research had shown lower average prices at Australian tobacconists and supermarkets24), compliance with NSW tobacco display legislation (since retailers who fail to comply with one aspect of tobacco legislation might also be more likely to sell counterfeit cigarettes at reduced prices) and whether Winfield was also sold in twin packs (since twin packs usually provide lower prices per-stick). We also obtained 2011 census data from the Australian Bureau of Statistics relating the postcode of outlets to characteristics that we speculated might also be related to cigarette price. Specifically, the postcode of each audited outlet was coded for remoteness25 (since price competition in major cities was expected to result in lower prices in those areas), the socioeconomic status (SES) of the postcode26 (reflecting evidence of greater price sensitivity in this group27), the percentage of residents under 18 years of age in the postcode28 (reflecting evidence of greater price sensitivity in younger people5) and the percentage of residents in the postcode born in Australia (since smoking in Australia is higher among some migrant groups29).

Price calculation

For each 25-cigarette single-pack or 50-cigarette twin-pack price, a pack price was calculated (ie, the cheaper of either the single pack price or half the twin pack price). For each pack price, average ‘stick prices’ were calculated by dividing the pack price by 25. Stick prices were then partitioned into an ‘excise-component’, a ‘goods and services tax (GST)-component’ and a ‘non-tax-component’. The excise-component was the excise/customs duty payable per stick at the time of auditing,30 the GST-component was the GST payable per stick (GST in Australia is 10% which equates to 1/11 of the retail price) and the non-tax-component was the remainder of the stick price. CPI/tax-adjusted stick prices were then calculated by resetting the excise-component to the November 2012 excise/customs duty level of $0.349 per stick, indexing the non-tax-component to November 2012 levels of the Australian Consumer Price Index (CPI),31 summing these (now adjusted) components and multiplying this sum by 1.1 (to incorporate a 10% GST-component based on November 2012 CPI and excise/customs duty levels).

Statistical analyses

Regression analyses with generalised estimating equation (GEE) adjustment for repeated observations on the same retailer were used to estimate percentage changes in mean CPI/tax-adjusted cigarette prices over time. For each GEE model, a Poisson distribution, log-link function and exchangeable working correlation matrix were used. The dependent variable in each model was the CPI/tax-adjusted stick price. Independent variables were selected for inclusion in the regression models on the basis of our a priori expectation that these variables might be associated with cigarette prices. Independent variables were audit number (1, 2 or 3), outlet type (using the outlet classification contained on the MOH database, or for unlisted outlets, the outlet classification as judged by the volunteer auditor), NSW tobacco display legislation breach at audit, listing with MOH at audit 1, remoteness of postcode, SES of postcode, percentage of postcode population less than 18 years, percentage of postcode born in Australia and whether the outlet sold twin-packs of Winfield 25 s. Changes in prices over time according to each independent variable were assessed by adding appropriate interaction terms between the independent variable and audit number. In exploratory analysis, we applied various covariate selection procedures to reduce the number of independent variables in the regression models. However, since the reduced models provided no appreciable reduction in the SEs of effect estimates, only the results of the full multivariable analysis are reported here.

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).

Table 1

Stick prices according to characteristics of the store and the store’s postcode

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).

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).

Price increases by retailer characteristics

Percentage increases in mean CPI/tax-adjusted stick prices varied by outlet type (p<0.001), SES of retailer’s area (p=0.013), remoteness of retailer’s area (p=0.028) and whether twin packs were sold (p=0.009) (figure 2). Specifically, percentage increases in mean CPI/tax-adjusted stick prices after plain packaging was introduced were lower for tobacconists than for other outlet types (6.3% (95% CI 3.8 to 8.8) at audit 2 and 5.4% (95% CI 2.5 to 8.4) at audit 3); higher for retailers in areas corresponding to the second lowest SES quintile than for retailers in other SES quintiles (16.3%% (95% CI 14.1 to 18.6) at audit 2 and 18.1% (95% CI 16.3 to 19.9) at audit 3); higher for retailers in regional/remote areas than for retailers in major cities (16.0% (95% CI 14.1 to 17.9) at audit 2 and 16.2% (95% CI 14.1 to 18.2) at audit 3) and lower for retailers who sold twin-packs than for retailers who did not (11.7% (95% CI 10.1 to 13.3) at audit 2 and 14.3% (95% CI 12.5 to 16.1) at audit 3).

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.

What this paper adds

  • Tobacco companies have argued that plain packaging would result in substantial falls in tobacco prices which, if true, would undermine efforts to discourage smoking using tax-driven price rises.

  • Previous research has shown that recommended and observed cigarette prices did not fall (and in fact rose, even after adjustment for inflation) in the 9–11 months after implementation of plain packaging in Australia. However, that research leaves open the possibility that prices fell over a longer time period.

  • These results show no support for tobacco companies’ claims that plain packaging would result in a decrease in tobacco prices. Instead, the price of the leading brand of cigarettes in Australia increased significantly over the 3-year period after plain packaging implementation, after adjusting for tax and inflation.

Acknowledgments

Price data were collected by Cancer Council volunteers across NSW, without whose help this study would not have been possible.

References

Footnotes

  • Contributors All authors contributed to the design and write-up of the study, and reviewed and approved the final version.

  • Competing interests None declared.

  • Patient consent Not required.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Data sharing statement At this time, we have no additional data to share.

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