Retailers that were reliant on Palmer & Harvey (P&H) have had their tobacco margins slashed by up to 11.5% following the wholesaler’s collapse.
The average margin of ex-P&H retailers fell from 9.3% to 8.2% as they moved to alternative suppliers to keep their gantries full. While many store owners accepted the cut, 30% passed the increase on to consumers.
Those who do not pass on the increased cost could lose an average of £1,912 a year in profit.
One of the worst affected was Simon Lunn from Simply Fresh Weare in Somerset. Lunn’s tobacco margins dropped by three points, he told Retail Express: “It’s frustrating because sales were up 4-5% year on year until last month. Tobacco accounts for around 20% of our sales, so losing 3% really makes a dent in your bottom line.”
Unaffiliated retailers expressed frustration at having only local wholesalers to source tobacco from.
Hitesh Pandya, owner of Toni’s News in Ramsgate, Kent said: “Where there is no competition, wholesalers can take advantage. Tobacco companies need to put measures in place to make sure wholesalers give independent retailers a competitive price.”
Suppliers advise retailers to stick to RRP to remain competitive with multiples and have stressed previously that increasing prices in a market under TPD 2 and standardised packaging could put retailers at risk of losing loyal customers.
However, research by Retail Express showed Tesco was selling cigarettes at an average of 10p below RRP based on the top-10 lines in the category.