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COVID-19 a boon for c-store tobacco sales

Cigarettes Generic Lg_100517With stay-at-home measures in place across the country, c-stores are experiencing an unprecedented spike in tobacco sales, in part because First Nations reserves (and their popular smoke shacks) are largely closed to outside visitors

Dave Bryans, CEO of the Ontario Convenience Stores Association, estimates that the legal tobacco business is on track to grow by 20-25% while the reserves stay closed and he’d like to see c-stores to hold on to that business once the restrictions are lifted.

However, it’s an ongoing battle and the lines are fuzzy, with many smokers not even realizing that it is often illegal to purchase cigarettes on a reserve. Many Canadians make a regular pilgrimage to stock up, but experts say it’s important people understand the difference between being in possession of legal and illegal cigarettes, as the fines are hefty.

Under the Tobacco Tax Act, unless otherwise authorized, it is illegal to buy, possess or distribute any quantity of untaxed cigarettes or any other untaxed tobacco products.

Smoke shacks unto themselves are not illegal. Indigenous Canadians living on reserve are allowed to buy tobacco products tax-free there, however non-indigenous Canadians are not legally allowed to buy any tax-exempt cigarettes.

That said, the practice is widespread, as taxes make up about 70% of the purchase price. A carton of cigarettes in a c-store costs about $120, while you can buy a carton on a reserve for about $35. While this represents a significant cost-savings to the individual, it also represents billions in lost tax revenue for society.

“Our fear is most will return to the reserves or have the underground delivery model revived post COVID-19,” says Bryans, adding he is “hoping manufacturers will work to keep the prices down, with no increases and offer levels of value brands to help c-stores retain this new customer base.”

He points to studies that show contraband accounts for 30-35% of all tobacco sales – in areas closer to reserves, that number spikes as high as 65%.
While it is hard to compete with the massive price differences between legal and illegal sales, c-stores operators have proximity and the law on their side.
Operators and their teams would be well-advised to take advantage of the current situation by getting to know customers’ and their smoking habits. Fulfilling a customer’s wants and needs in a friendly (legal) exchange, will no doubt help build and maintain those relationships and sales once travel restrictions subside and communities open up.
Educating customers is a key component in reducing illegal sales and driving smokers back to c-stores, says Bryans. “The OCSA has met with Ministry of Finance to discuss an educational component on how reserve products are illegal and hurt every community.”