Are cigarette sales the last gasp for the traditional corner dairy?

Declining sales of tobacco products mean the controversial policy reversal might be a temporary lifeline at best. Miriam Bell reports.

The new Government's plan to repeal the country’s smokefree legislation is a reprieve for dairies, but it is only temporary, and many will need to rethink their business model, experts say.

Under the previous Government’s world-leading Smokefree Aotearoa 2025 Action Plan, de-nicotisation of cigarettes, a reduction in retailers and banning cigarettes for the next generation were on the way.

It would have significantly reduced the number of businesses permitted to sell cigarettes to just 600 nationwide from June 1 next year, and left thousands of dairies unviable.

Last week, the new Government announced it would be scrapping the legislation, a move that has horrified health professionals and anti-smoking advocates.

But that move offers a lifeline of sorts to many dairies. Dairy and Business Owners Group chairpeson Sunny Kaushal says that 44% to 50% of the average dairy’s revenue comes from cigarette sales.

Losing that revenue would have a huge impact on the business model of many dairies, particularly as people who bought cigarettes often bought other products too, he says.

“Smoking is not good for people’s health, and we all want a smokefree New Zealand, but the smokefree legislation was not the right way to go about it.

“It simply put dairies on the chopping block when they could be part of the solution by providing access to vaping products, which are helping get smoking rates down.”

The “prohibitionist rabbit hole” would have opened the doors to gangs and boosted the black market, and repealing the legislation is a big win for common sense, he says.

“The law needs to be urgently amended, before Christmas, and we would like the Ministry of Health to pause determination on licensing applications, and return any application fees.”

But the change in Government plans does not mean dairies are set to continue business as usual.

Retail NZ chief executive Carolyn Young says while there might be plans to repeal the legislation, there is a lack of clarity and detail about what that will entail.

“We don’t know if there will be a total scrapping of the plan, or whether parts of it will just be amended, and the implementation slowed down.”

That poses an immediate problem for cigarette-selling retailers as under the current legislation the deadline for licensing applications is today, she says.

“It is causing a lot of stress for businesses because they don’t know what will happen with applications now, and it’s a costly process, so they are concerned about losing any money they may have paid.

“We have asked the ministry to use its powers, and put a pause on the licensing process until it is clear what is happening with the legislation.”

For dairies particularly, but also retailers such as convenience stores and petrol stations, there are longer-term issues around relying on tobacco product sales for revenue, Young says.

“There is still an objective for the country to be 95% smoke-free, so cigarette-dependent retailers have to think about what their business model should be.

“They have to figure out how to diversify, and continue attracting people to their stores, as they will need to be agile and readjust to a changed environment to survive.”

An example is her local dairy which has developed a strong line in flower sales. “They are good stock, reasonably priced, and easily accessible.”

It is about trialling new products and ideas, but it is currently a difficult environment for retail, and that adds to the pressure for many businesses, she says.

For the Association of Convenience Stores executive director Dave Hooker, the repeal of the smokefree legislation is “100% a lifeline” for many retailers, but it is a short-term one.

A recent survey by Imperial showed that about 50% of convenience stores would have had to close if they had not been licensed to sell tobacco, he says.

“But long-term there are still challenges. The volume of smoked tobacco products being sold is dropping steadily, and the sales and profits from alternative products don’t offer much respite for most.

“Convenience stores, and that’s including dairies, simply can’t rely on the income and foot traffic generated by smoking-related products anymore.”

There are many retailers that are already diversifying their business and product offerings successfully, he says, and cites service stations run by brand oil companies, such as BP, Z Energy and Caltex as an example.

They have heavily boosted their food and coffee offerings, and offer services such as car washes, while tech products, such as charging banks and power cords, are an emerging category that will grow.

It feels like the industry faces never-ending challenges, and there is no silver bullet to fix them, Hooker says.

“But stores that are improving their food and coffee offerings, and doing it to a high standard of hygiene and product quality, as opposed to just doing it for show, and who are committed to investing in staff, they are getting wins.”

For dairies, the challenges go beyond a reliance on cigarettes and smoking-related products.

First Retail Group managing director Chris Wilkinson says the strong growth in the supermarket sector, and in petrol stations’ ramping up of their convenience store offerings, has affected dairies.

Location is also key, and as they are convenience-based businesses, changes in that convenience due to the loss of car parks or a decline in foot traffic can have a negative effect, he says.

“While some dairies would struggle without cigarettes, the changing environment does not mean the end of dairies. They can still be viable, although they may be different to the dairies of the old days.”

Diversification is often easier said than done, and needs to be carefully thought through rather than a knee jerk reaction to a trend, Wilkinson says.

“You might say ‘let’s put an artisan coffee window in here’, but you need to think about whether people would actually go to your dairy for their artisan coffee.

“But many communities are fiercely loyal to their local dairy, so if a dairy morphs into a store catering to what its particular community wants, that can work well.

“Convenience stores, and that’s including dairies, simply can’t rely on the income and foot traffic generated by smoking related products anymore.”

Association of Convenience Stores executive director Dave Hooker

“Some dairies offer Pacific foods and drinks, or products from local suppliers and growers, for example.”

Joining up with a convenience store franchise, such as Night ‘n Day or Circle K, could be an option for some independent dairies, he says.

“It is a different structure and culture to the typical family-owned dairy, and that may not work for everyone, and the fit-outs can be expensive. But it might suit entrepreneurial operators who are looking to scale up a bit.”

Offering more reasonably priced grocery products for sale is another option, but limited access to competitive wholesale pricing has been an issue in the past.

Now, efforts to address the lack of competition in the country’s supermarket industry may help.

As part of that, major grocery retailers have had to open up wholesale offerings, so other grocery retailers have direct access to a range of products at competitive prices.

Kaushal says if dairies band together they can function as an effective third party in the supermarket sector, and his organisation has set up the National Retail Group to coordinate that.

Dairies who sign up with the group will become stores branded as Qik Market, and will have access to 6000 grocery products at wholesale prices through an online portal.

“We have signed an agreement with Woolworths, and have set up a distribution centre in Auckland. Distribution centres in Wellington, Christchurch and Waikato are planned, and there will be a soft opening soon.”

Over 100 dairies have signed up to date, and he believes the initiative will allow more dairies to diversify and better prepare for a future, which may not include cigarettes.