‘The whole industry stinks’: Big tobacco’s squeeze on small business

25 June 2018:

Anthony Rachelle finally cracked about 10 months ago.

The owner of a tobacco franchise in Philip Island put a sign in the front window of his shop calling out big tobacco for its treatment of his business.

“Dear customers, due to the corporate bullying and financial incompetence of British American Tobacco, this store will no longer be stocking the following brands: Winfield, Rothmans, Dunhill and Benson & Hedges,” it says.

Anthony Rachelle has made a submission to the franchising inquiry outlining his complaints of bullying.
Anthony Rachelle has made a submission to the franchising inquiry outlining his complaints of bullying.

Photo: Jason South

Operating outside the law

Rachelle and other tobacco franchisees claim they are bullied by the big three tobacco companies, British American Tobacco (BATA), Philip Morris and Imperial Tobacco Australia.

“The whole industry stinks,” Rachelle told Fairfax Media. “It’s just, where do you start?”.

The claims of bullying are outlined in Rachelle’s written submission to parliament’s inquiry into franchising, which held public hearings in Melbourne on Friday.

Rachelle claims BATA and the other big tobacco companies control and manipulate tobacco supply and pricing and have destroyed the reputation of his business.

BATA disputes Rachelle’s claims.

Anthony Rachelle with the sign he has put on his store.
Anthony Rachelle with the sign he has put on his store.

Photo: Jason South

Control over supply

Rachelle says when BATA re-released its brand Rothmans back into the Australian market it quickly became the most popular brand in the country as a result of its cheap price.

After four months Rothmans had grown to be 50 per cent of Rachelle’s business but he says BATA informed the entire specialist channel it was having “supply issues” and could no longer order the product.

Rachelle says this went on for over three months and during that time Coles and Woolworths had no trouble getting the product.

“We lost half our business in that time and our franchiser could do nothing about the situation,”  Rachelle says in his submission. “During that time our BATA sales representative came into the store and told us we should be purchasing from Coles.”

Rachelle claims this is a breach of the Trade Practices Act.

“They were manipulating the market,” he says.

Rachelle says for two years Coles kept selling BATA products for $30 to $40 cheaper than he could buy them off BATA itself.

“The customers would always walk away from our stores thinking we’re ripping them off,” he said. “This was both embarrassing and humiliating, and has permanently destroyed the reputation of my store.”

Rachelle claims what he says is market collusion and exclusive dealing is what has caused the illicit tobacco industry to explode.

“Retailers who are unable to compete with Coles ‘giving away’ cigarettes were in a lot of cases forced into selling illicit products just to keep the door open,” he says.

Rachelle says most tobacconists now work on a 3 per cent margin and make a dollar a packet so are currently running at a loss.

Anthony Rachelle says small tobacco retailers are used as dumping grounds.
Anthony Rachelle says small tobacco retailers are used as dumping grounds.

Photo: Jason South

Dumping ground

Rachelle says independent tobacco retailers are used as “dumping grounds” for BATA’s allocated products, which end up being sold at a loss for most of the year.

“This practice strangles our cash flow and prevents us from purchasing products from other suppliers that actually sell,” he says in his submission.

Prohibitive terms of trade

Rachelle says BATA forces stores to allow it to direct debit money from their accounts, however mistakes are frequently made with nearly 500 stores across Australia affected by accounts being overdrawn.

“In our case $2500, was taken by BATA, which was a mistake, and it took them eight weeks to return the money,” he says.

Rachelle says he blocked BATA from direct debiting after multiple errors and the tobacco company then cut off his terms of trade.

Rachelle says BATA then sent two representatives to his store and said his terms of trade were being cut because of suspected illegal trade in tobacco.

Rachelle denies he has participated in any illegal tobacco trade.

Visa issues

Rachelle told Fairfax Media many tobacco retailers won’t speak up about big tobacco’s behaviour as the industry is dominated by people seeking a visa into Australia.

“They’re attracted to the industry because the high turnover makes them look good on paper,” he says. “However the numbers just don’t stack up.”

Rachelle says his store turns over $2 million a year but only makes about $35,000.

“Stores are literally running at a loss, however the owners don’t care as they’re buying their way into the country,” he says. “This is where the black market has crept in to be more prominent in recent years.

BATA’s investigation

A spokesperson for BATA said the tobacco company suspended commercial arrangements with Rachelle last year “after he was found to be selling illegal tobacco on more than one occasion and for repeatedly failing to pay invoices on time”.

Rachelle disputes these claims and says BATA cut his terms of trade before this, in August 2017.

“Mr Rachelle did raise some concerns which BATA investigated thoroughly,” the spokesperson says. “BATA has a firm stance that no retailer should sell illegal tobacco. Claims of alleged mistreatment made by Mr Rachelle do not change that. BATA goes to great lengths to ensure that it complies with applicable laws and expects retailers to do the same.”

Cancer Council’s concerns

Dr Sarah White, director of Quit Victoria, told Fairfax Media, the three big tobacco companies basically run the tobacco retail sector as they wish.

“There is no requirement in Australia for tobacco companies to report sales and price data – something they are required to do in many other countries including the US and New Zealand,” she says. “Increasing the price of tobacco products is the single-most effective strategy to discourage smoking, and successive Australian governments have increased taxes substantially over the past seven years. However, tobacco companies have been able to undermine these price increases by introducing many new budget brands of cigarettes and smaller pouches of roll-your-own tobacco.”

White says it appears that in Australia, like Canada and New Zealand, tobacco companies have almost complete control over products held and prices charged by tobacco retailers.

“Retailers have become the key remaining avenue for promotion of new products, discounted products and any other marketing ploy big tobacco initiates,” White says.

Source: The Sydney Morning Harold