Cigarette sales volumes at Spar are yet to fully recover since the ban on tobacco was lifted in August 2020, suggesting that the illicit trade that thrived during the four-and-a-half-month prohibition may have become more entrenched.
“This business has not seen any meaningful recovery since restrictions were lifted,” the wholesaler said in an earnings report that showed cigarette sales to its SA independent franchise outlets were 13.1% lower from October to March 2021 compared with the same months a year earlier.
Spar’s comments raise fears that many smokers who switched to black-market tax-free cigarettes have continued to use them as the prices are lower, potentially robbing the fiscus of much-needed cash in the form of excise tax on cigarettes. The excise tax on a pack of legal 20 cigarettes equals R18.39, about half the pack price.
Independent research conducted by the Research Unit on the Economics of Excisable Products at UCT as well as research by Ipsos — and paid for by British American Tobacco — concluded that the illicit trade in cigarettes has become more entrenched.
Prof Corne van Walbeek, the director of the unit, asked a nationally representative sample of smokers in January what brand of cigarettes they smoked as part of the Nids-Cram third wave study.
It concluded companies that sell illegal cigarettes increased their market share from about 28% of all cigarettes sold before lockdown to about 47%.
Multinational cigarette companies, which pay tax and had three-quarters of the SA market worth R32bn, dropped to having just over half of the market.
The fall in demand for cigarettes is not only down to consumers simply quitting, which by the research unit’s estimation is 5% of smokers. That was one of the goals of co-operative & traditional affairs minister Nkosazana Dlamini-Zuma when she backed proposals to ban cigarette sales. She suggested that sharing of mouth fluids in the case of shared tobacco was problematic during the pandemic.
The ban on sales of cigarettes was lifted on August 17.
Had cigarette sales remained the same, grocery sales would have been up 1.4%, CEO Brett Botten said in a presentation of the results, which showed grocery sales grew 0.8% in its core SA market in the six months to the end of March.
It reported an almost 30% increase to R1.7bn in operating profit, due to success in retail stores in Ireland and Switzerland, even as growth in SA was flat.
The group’s overseas showing is unusual for SA companies because retailer Woolworths has lost billions in Australia, while Shoprite sold its business in Nigeria.
Spar, which owns 388 Spar stores in Switzerland, has a food catering business in Ireland and sells to 1,392 retail stores. It also bought a loss-making Polish retail chain in 2019.
Its expectations for when the Polish business will break even have moved from the 2021 calendar year to late 2022.
Market watchers will be monitoring whether the retailer can turn around the Polish business and repeat the success the company has enjoyed in Switzerland, which had 11.1% growth in Swiss currency.
It has also had success in Ireland, which had strong turnover growth of 13.3%, which was up 3.3% in foreign currency terms.
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