Illegal tobacco is reshaping Australia’s retail landscape, draining revenue from legitimate businesses and feeding a lucrative underground economy.
The scale of the problem is visible in many communities, where unlicensed shops openly sell untaxed or counterfeit cigarettes at heavily discounted prices. These products are often up to 80 per cent cheaper than legitimate packs, making them an attractive option for smokers.
For Ritchies, Australia’s largest independent supermarket group, the financial toll has been severe. Once generating around $300 million annually in tobacco sales, the company now reports turnover of only about $60 million, with losses of roughly $50 million each year. Crucially, this decline is not being driven by a reduction in smoking. National tobacco consumption has actually increased, with demand shifting from legitimate outlets to illegal suppliers.
The growth of the illicit market has been valued at more than $5 billion annually, a figure that highlights the scale of organised criminal involvement. The trade has not only encouraged smuggling and counterfeiting but has also sparked violent turf wars as rival groups compete for control.
Large national retailers are also counting the cost. Woolworths, one of the country’s biggest supermarket chains, expects an $80 million to $100 million hit to its earnings this financial year. This comes after tobacco sales dropped 19 per cent in 2024 and 16 per cent in 2023, marking a sustained decline that shows no sign of easing.
Coles faces a similar challenge. Tobacco once accounted for more than 8 per cent of its supermarket sales but has now fallen below 3 per cent. The company recorded a 30 per cent fall in tobacco sales volume in the 2025 financial year, a decline made worse by legislation restricting pack sizes and formats. Despite this trend, Coles continues to stock tobacco, maintaining that even a small share of total sales still represents a significant category for customers. However, its leadership acknowledges that a complete withdrawal from the category could be on the horizon.
The impact extends beyond supermarkets. Viva Energy, the operator of more than 1,300 petrol stations and convenience stores, reported a 10 per cent fall in convenience sales in its latest half-year results. The primary driver was a 27 per cent drop in tobacco sales, which forced the company to reduce the value of its retail network by $245 million. This impairment significantly affected profitability, underscoring how damaging the collapse of legal tobacco sales has become.
The situation presents a serious challenge for both retailers and policymakers. For businesses, the shift has eroded profitability, created instability in revenue forecasts, and forced reassessments of long-term strategy. For governments, the rise of illicit tobacco undermines both public health efforts and tax collection, while empowering criminal networks.
What is particularly concerning is the scale of consumer demand being met outside the legal market. Rather than a population gradually giving up smoking, more people are simply buying from unregulated sources. This means the public health benefits of reduced smoking rates are not being realised, while billions in tax revenue are being lost.
Retailers argue that the situation has reached a point where reversing the trend will be increasingly difficult. Years of tax increases on cigarettes, aimed at discouraging consumption, have instead incentivised the growth of a black market that is now deeply entrenched. With illicit operators continuing to expand, the challenge for authorities is not just to reduce the trade but to re-establish the credibility of the regulated market.
The black market for tobacco has evolved into a major economic and social problem, impacting every level of the retail sector. Unless effective measures are introduced to curb illegal sales, legitimate businesses will continue to lose market share, governments will forfeit vital revenue, and criminal groups will maintain control over a growing share of tobacco consumption in Australia.
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