British American Tobacco’s Global Chief Corporate Officer Kingsley Wheaton has publicly stated that the company may have no choice but to exit Australia entirely. In an exclusive interview with Australian media, Wheaton said the illicit tobacco market has grown so large that without drastic government intervention, there will not be a viable legal market for BAT to operate in within three years.
This is not a hypothetical. It is the world’s second largest tobacco company signalling that Australia’s legal tobacco market may be beyond saving. For independent retailers who stock legal tobacco products, that statement should be taken seriously.
The numbers behind the threat
According to Wheaton, nearly 75% of all tobacco consumed in Australia is now illicit. A pack of illegal cigarettes costs around $15 compared to roughly $50 for legal product. Tobacco excise revenue has collapsed from $17 billion at its peak to a forecast $5.5 billion this year. Modelling cited by BAT suggests that by 2030, nine out of ten cigarettes sold in Australia will be illegal if nothing changes.
Wheaton is calling for the federal government to halve the tobacco excise on Budget day, 12 May, arguing it is the only lever that can bring the legal market back from the brink. Whether you agree with that prescription or not, the diagnosis is hard to dispute: the legal tobacco market in Australia is shrinking rapidly and the illicit market is filling the gap.
What this means for independent retailers
If BAT follows through and exits Australia, the implications for independent service station operators who sell tobacco are significant. BAT is the country’s largest tobacco company by market share. Their brands, including Winfield, Peter Jackson, and Rothmans, are among the most commonly stocked legal tobacco products in independent servos. An exit would mean the loss of a major legal supplier, reduced product range, and potentially the removal of an entire product category that, while declining, still drives foot traffic and basket spend in convenience retail.
But here is the part of the story that hits closest to home. Deakin University criminologist Dr James Martin made the point in the same article that BAT quitting may not even be their decision to make. If legal tobacco becomes uneconomic for retailers to stock, retailers will stop selling it before BAT can decide to leave. As Dr Martin noted, some high profile retailers have already made that call. The retailers making those decisions are doing so because the margin on legal tobacco no longer justifies the risk that comes with stocking it: the threat of armed robberies, firebombings, and standover tactics from organised crime groups who see legitimate tobacco retailers as competition.
Many of our members are already feeling this. You are competing against illicit tobacco shops operating openly down the road, selling product at a third of your price to customers who increasingly do not see the difference. Your staff are exposed to heightened security risks. Your margins on legal tobacco are being compressed by excise increases on one side and illicit competition on the other. And the customer who used to buy a pack of cigarettes and a coffee on the way to work is now going somewhere else entirely.
What happens next
The federal Budget on 12 May will be the key date to watch. If the government moves on excise, it could slow the collapse of the legal market and give legitimate retailers some breathing room. If it does not, the trajectory Wheaton described, a market that is 90% illicit by 2030, becomes increasingly difficult to reverse.
State governments are also moving. Western Australia has passed new tobacco legislation with penalties of up to $4.2 million for individuals and $21 million for companies caught selling illicit product, along with store closure powers. Queensland has expanded enforcement and seizure powers. These are positive steps on the enforcement side, but enforcement alone cannot fix a market where the price gap between legal and illegal product is so wide that the incentive to trade illicitly is overwhelming.
ServoPro will continue to monitor this closely and advocate for independent retailers who are doing the right thing. The tobacco landscape in Australia is shifting fast, and the decisions made in the next few months will shape what this market looks like for years to come. We will keep you informed as the situation develops.