n The new pack date mark rules on tobacco will cause nothing but trouble for smaller stores, fears Tony Brown It may be set for April Fools' Day. But it is no joke. Be warned. The new cigarette pack date mark can seriously damage your wealth. Retailers are already warning the introduction of the fiscal mark in 2001 will do exactly the opposite of what it is intended to do ­ rather than stop smuggling, it will increase the opportunities for bootleggers. The theory behind pack marking is that if cigarettes are brought into the country illegally then they will not be marked ­ hence they are contraband and easy to spot as such. But the new restrictions will add to costs all along the supply chain. Retailers are already claiming it could add up to 15p per packet sold. So it will increase the opportunities for White Van Man ­ the contraband smuggler who makes regular runs between Dover and Calais ­ to make his killing on the price differential between UK stocks and those on continental Europe. Any decrease in cigarettes sales will hit the small retailer hardest. It is estimated that a third of all cigarettes sold pass through Palmer & Harvey MacLane's hands, and another third through Booker warehouses. And the small independent retailer who stocks up using cash and carries could be hit hard by the loss of footfall associated with any increase in smuggled goods. If punters don't come in for their regular packet of cigarettes, then they are unlikely to make any impulse buys. The Tobacco Alliance said it is not opposed to date pack marking per se, just the way it has been employed. The real problem is, and will remain to be, the duty charged on cigarettes, says the TA. The TA, which represents the interests of 26,000 independent retailers across the UK, is funded by the Tobacco Manufacturers' Association. It estimates that around 75% of hand rolling tobacco and 20% of cigarettes consumed in the UK escapes UK excise duty. But when the rewards are so large, stamping out smuggling is going to be an enormous problem. Tax now accounts for 80% of the price of a packet of 20 cigarettes. In the last Budget the price was increased still further by 17.5p, taking the current pack price to £3.88 ­ now £1.90 more expensive than in Belgium. If we look at extremes, a 50g packet of tobacco costs £7.95 in the UK but only £1.90 in Belgium for instance. The Treasury admits smuggling and cross border shopping causes a £2.5 billion shortfall in tax revenue. TA research suggests this could be nearer £2.7bn. For the independent retailer the problem is huge. Sales losses per retailer were an average of £42,500 per year according to a 1998 survey conducted by the TA, up from £10,500 in 1994. Paul Mason, an independent retailer in Southampton and national spokesman for the TA, said it was a "lose/ lose" situation for the small convenience store operator. Firstly, the date marked pack will be easily mistaken for a sell by date, leaving consumers unsure of the product they are buying. Secondly, retailers will have the problem of returning stock once it has passed its date mark period. It will be a time consuming and bureaucratic process. Retailers will only get a VAT refund once the out of date cigarettes have been destroyed, not once they have been returned. But the fiscal mark will curtail the life of a packet of cigarettes well before its natural shelf life. "It will significantly increase the opportunity for black marketeering," said Mason. What's more, it is the retailer who will end up in the dock if the cigarettes are still on the shelf after the pack mark date period ­ with a potential fine of £250 for every offence. "Independent retailers will stop stocking up in the run up to the end of a date mark pack period to avoid having to return stock or face a fine. That can only play into the hands of the supermarket chains or the black marketeers," said Mason. But there is no guarantee wholesalers or suppliers will take back stocks of unsold cigarettes. No such agreement exists in current practice. The Association of Convenience Stores said while duty paid marking was, in principle, a good idea, the date mark was not. It is in the process of conducting a study through the University of Bournemouth to examine the effect of how quickly packs move through the supply chain. "The impact of stock levels on slow selling brands could be quite substantial, and there could be a lot of redundant stocks," said spokesman James Lowman. "Customs and Excise has assumed there will be no problem returning the goods through manufacturers, but nobody has considered the costs in reversing the supply chain." According to the 1999 Convenience Tracking Survey, produced by the IGD, tobacco accounts for 23% of sales in the c-store sector. In petrol forecourts, the proportion is even higher, with tobacco accounting for 40% of non fuel sales. Anything that threatens the fragile margins made by independent store owners, and the incidence of footfall in the store must be guarded against very closely warns the ACS. Manufacturers must also look over their shoulders. If customers stop ordering goods in the run up to the date mark period, it could lead to supply side problems akin to those in the motor industry. A lack of demand in the run up to the end of the car registration period is always followed by a surge so large it is difficult to meet the demand. In a way, wholesalers have created their own supply bottlenecks. One reason for pack date marking is also to prevent forestalling. This is the practice developed by manufacturers and importers to build up large quantites of cigarettes in duty suspended storage in an attempt to forestall annual increases in the duty rate. They can pay duty on their accumulated stocks as little as half a day before the Budget increase takes effect. By this method they very often avoid paying the new, higher, rate of duty for up to five or six months. They can also take the additional profit under the guise of a duty driven price increase. The purpose of the new date marked pack is to curtail forestalling by effectively limiting the quantity of stock, cleared before the Budget, that can be retailed in the post Budget period. The government is rigid in its defence of the fiscal marked cigarette pack and forcing it to budge will be difficult. This is not a view shared by the Federation of Wholesale Distributors. It has joined forces with Booker, Palmer & Harvey MacLane, Bestway, Landmark and BWG to challenge the wisdom of Customs and Excise officials. Director general Alan Toft says: "I think we have got to find an agreement in terms of persuading the government that its proposals, as they stand, will disadvantage the independent retailer. "The delivered industry has a different cost structure from cash and carries. We have to put a case for each part of the mechanism." In total, the FWD believes it could cost the industry £50m ­ costs that will directly be passed on to retailers. In practical terms, it could lead to 55,000 retailers each ending up with at least one case of cigarettes to return each year ­ each one costing in the region of £40 ­ adding up to £2.2m worth of usable, but worthless stock. "Who handles it? What does the manufacturer do with it? Is there a danger that these goods could be diverted onto the black market?" asks Toft. The FWD and all the other objectors have a little over a year to work out the full implications. If the government gets its way, the retailers will be the butt of a very painful joke on April 1 2001. {{NEWS }}