Wholesalers are set to be saddled with costs of implementing new track and trace tobacco rules far exceeding the statutory reimbursements they can expect from tobacco manufacturers.
According to the Federation of Wholesale Distributors, which along with the ACS wrote to the exchequer secretary last week calling for greater support from HMRC, the ultimate cost to the wholesale sector could stretch into the millions.
Track and trace stock is starting to trickle into the wholesale channel, with the majority of the SKUs set to be in cash & carries and distribution centres by the end of September. A number of wholesalers told The Grocer this week they could not guarantee they were 100% track and trace-compliant, despite their best efforts to get ready for changes that came into force in May. This stems from delays in getting the necessary hardware and fears systems may break down at busy times.
Under the rules, wholesalers and retailers need a series of codes to be compliant with track and trace. Both need an Economic Operator code that shows they are entitled to buy and sell tobacco, as well as a separate Facility Identifier code for each of their premises from which tobacco is sold. Wholesalers need to scan in stock and ensure they are registering the codes of the retailers they sell to for every transaction.
The law says tobacco manufacturers should provide wholesalers with the equipment necessary to comply with the regulations. However, wholesalers have argued that only basic systems have been funded, resulting in them facing higher costs for bespoke solutions.
“Track and trace is the biggest regulatory cost to be imposed on the wholesale sector since the introduction of the national living wage,” said FWD chief executive James Bielby.
“The tobacco manufacturers have discharged their legal requirements with reimbursement for basic scanning equipment required to implement the policy, but the true cost of integration with existing systems is substantially higher. Wholesalers also have to bear the cost of handling, scanning and equipment depreciation, as well as time and training in new processes. They are being required to make millions of pounds of extra investment, at a time when the sector is under pressure in other areas, such as preparation for a no-deal Brexit.”
One senior wholesale chief executive added: “Preparation and readiness for track and trace has been a significant undertaking, with little apparent tangible benefit to wholesalers but some significant tangible costs.
“The biggest challenge has been the disconnect between the level of grant authorised for hardware and the actual combined hardware and software costs as levied by IT partners.
“The short-term costs in sign-up campaigns/drives for customers to gain their codes and the ongoing costs of double scanning and training have seemed to land with the wholesalers, with tobacco companies funding to the letter of the HMRC guidance and HMRC not responding to feedback on the incurred extra costs.”
A spokesman for the Tobacco Manufacturers’ Association said: “Since spring 2019, manufacturers have been running campaigns to educate both wholesalers and retailers about track and trace. Moreover, manufacturers first began raising awareness of the changes as soon as they were announced in 2014.”