Where there’s smoke…
The Government’s efforts to stamp out cross-channel smuggling of tobacco and alcohol have engendered a disparaging response from brewers, the very people it plans to put in the frontline of a war against it.
Customs & Excise last week appointed JWT Manchester to create a campaign which will wage war on tobacco and alcohol smugglers by encouraging the public to inform on those involved (MW May 13). The details have yet to be confirmed, but in one move, C&E has called on pub companies to put up posters in their outlets to encourage informing, as part of the effort to stem the illegal 1.5bn trade.
However, the idea that these ads will be effective in combating the perpetrators of smuggling has been ridiculed by brewers and tobacco manufacturers alike, although they say they will support any attempts to highlight the problem.
A Bass Brewers spokesman says: “An ad campaign encouraging people to report offences – or reminding them that smuggling is illegal – is the equivalent of putting a finger in the dyke.”
Stuart Neame, vice chairman of South-east-based brewer Shepherd Neame, agrees: “The Government must know the root cause of smuggling is economic incentive. An advertising campaign is going to do very little to help.”
According to a C&E spokesman, the campaign will be “nothing like the drink-drive campaign, it will be quite low key”. So will the first nationally co-ordinated anti-smuggling ad campaign be too little, too late?
The tobacco and alcohol industries have been lobbying Chancellors over the years to bring tax on these items in line with European countries as the most effective way of stamping out the problem. The problem facing the Government, and JWT Manchester, is that the benefits of smuggling far outweigh the deterrents of detection and short-term prison sentences.
The only solution, according to the alcohol and tobacco industries, now supported in their stance by the Conservative Party after a policy U-turn, is a duty freeze.
By avoiding UK excise duty, consumers can make savings of 6 on a pouch of hand-rolling tobacco, 1.70 on a packet of cigarettes and 28p per pint of beer. HM Customs figures show almost 80 per cent of hand-rolling tobacco escapes UK duty – in other words, it is smuggled – as is 75 per cent of beer crossing the channel.
Figures from the Brewers & Licensed Retailers Association indicate 1.5 million pints are brought into the UK from France per day – duties in France are almost one seventh of those in Britain. More than 15 per cent of beer bought in France is now consumed in Britain. The Bass Brewers spokesman says: “As long as British beer duty remains seven times higher than it is in France, people will continue to cross the channel, and who can blame them?”
A City analyst adds: “Most people regard smuggled goods as avoiding a tax which is unfair anyway.”
But New Labour is unlikely to follow Sweden’s lead – the country axed its 26 per cent tobacco tax last year. The UK Government’s commitment to curbing smoking is amply borne out by its decision to increase tobacco tax by five per cent ahead of inflation.
Smuggling is altering the UK tobacco and alcohol markets beyond recognition. While official figures show tobacco consumption is in decline, the tobacco industry says this only takes legal UK sales into account and in reality consumption is on the increase.
Imperial Tobacco last week reported a 25 per cent profit rise to a record 183m and Swedish Match has reported unprecedented growth in its Swan brand products, at 14.9 per cent volume year-on-year.
Swedish Match’s cigarette filter business has also increased by 35 per cent. “A few years ago we wouldn’t have believed it was possible,” says marketing director Simon Duggan. Imperial Tobacco predicts the rate of decline in legal sales will accelerate from eight per cent to ten per cent, while smuggled goods grow above this.
Imperial’s budget brand cigarette Lambert & Butler has overtaken the market leader, Gallaher’s premium-priced Benson & Hedges, claiming 17 per cent of the market compared with B&H’s 12 per cent, a result of people “downtrading” to cheaper brands.
Imperial launched its Drum hand-rolling brand in the UK, after it had become the UK’s number one hand-rolling brand before it was legally available here.
While in the short term tobacco manufacturers win either way, they say the loss of UK retail channels will mean they lose out in the long term. The Tobacco Alliance (TA), a body funded by the Tobacco Manufacturers Association (TMA), says its 26,000 independent tobacco retailers are losing 42,500 a year each due to smuggling. Many are going out of business as a result.
Brand-owners complain smuggling means the loss of control over brand image and conditions of sale. Bass Brewers say its brands face a double-whammy – the impact of smuggled French-brewed lager has meant drinkers have become used to “bland, unbranded French lager in stubby bottles”. Consumers have come to expect lower retail prices and are going less frequently to pubs where they might find new brands showcased or existing brands repositioned.
At the same time, smugglers are re-importing British brands, which means transportation, storage and quality cannot be guaranteed, price differentials are lost and brand image is damaged.
In April’s Budget, Chancellor Gordon Brown called tobacco smuggling “a 1.5bn-a-year racket” and announced an extra 35m over three years to help Customs tackle the problem.
But TMA executive of trade and industry affairs Chris Ogden believes the Government is giving with one hand but taking away with the other. Brown says 100 new Customs enforcement officers will be added to the anti-smuggling “frontline troops”. However, at the same time the overall strength of Customs is being eroded, since 1,200 administration support jobs are to be cut over the next three years.
Meanwhile, canny smugglers are devising new ways of avoiding detection. The “white transit van trade” has moved drivers into smaller, less detectable vans and they have started taking advantage of cheap Channel Tunnel fares between 4pm and 6am.
Brewers & Licensed Retailers Association chief executive Rob Hayward says: “The smugglers’ change of tactics shows how sophisticated they have become, stretching the resources of the authorities even further.” Others within the industry say Customs workers are demoralised.
The Chancellor also announced a “smuggling tsar” was to be appointed, to carry out a similar role to the “drugs tsar” Keith Hellawell. But a Treasury spokeswoman says: “We have no further information on the appointment of an independent evaluator to look at current Customs resources and no date when further information will be available.” In the meantime, Swedish Match’s Duggan says: “The smuggling gangs are carving up areas of the country and protecting them, fighting tooth and nail to keep their patches.
“The Government’s campaign will have to go a long way to overturn the culture of acceptance smuggling has gained,” he says.
The new anti-smuggling campaign is likely to feature the Customs smuggling hotline number, which was combined with the drugs hotline numbers earlier this year.
The campaign tactic of encouraging informants is at odds with reports that the Department of Social Security is to abandon the Conservatives’ benefit fraud hotline campaign.
A DSS spokeswoman says: “There are no plans at present for further hotline advertising. We have recorded 500,000 calls since the benefit fraud hotline was set up in 1996, and 58 per cent of referrals from calls have been successfully reviewed.” It is understood that the DSS intends to concentrate on an educative approach to help people understand benefit fraud is wrong.
“There has to be an education element to every campaign at the same time as encouraging people to call in,” says Crimestoppers director Digby Carter.
Last year Crimestoppers launched a “You’ve got to shop ’em to stop ’em” anti-smuggling campaign, in conjunction with the Tobacco Alliance, which encouraged retailers to report the crime. Carter says the results are hard to quantify, but the information garnered leads to 14 arrests per day.
But Duggan says: “If you are part of the smuggling culture I doubt whether you will tell tales out of school on your friends. This is a market driven by price and saving a few pounds means a lot to some people.”
TA spokesman and Southampton retail Paul Mason says: “The Chancellor is in the unique position to address smuggling head on instead of splashing out on posters. The only way to tackle this crime is to address its root cause and remove the financial incentive to smuggle by lowering tobacco tax.”
The UK drinks industry says no matter how much is spent informing people of either the illegality or the damaging economic effects of bootlegging, the incentives will continue to drive people across the channel.
Brewer Shepherd Neame is expecting to hear in a couple of weeks if the House of Lords will grant it leave to pursue its case for lower UK alcohol duty in the European courts.
Stuart Neame says: “The issue is whether you feel you are dealing with smugglers who are nice, reasonable people who are likely to persist if the point is made to them that smuggling is anti-social, or smugglers who are essentially criminals who like to make money if it is there to be made.
“Bootleggers are not modern-day Robin Hoods, they are people who undermine the commercial fabric of this country.”
But if neither ad campaigns nor increased numbers of Customs officers will thwart smugglers, and the Government continues to milk taxes from the unhealthy pleasures of smoking and drinking, brand owners will have to resign themselves to seeing their brand values and sales gradually eroded for years to come.