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Deloitte’s views on “plain packaging”

Deloitte were employed by the “big 3” in Australian legal carcinogen sales (Phillip Morris, BAT, Imperial Tobacco)  to work out the transaction costs imposed on retailers and customers by the recently-passed “plain packaging” legislation for cigarettes.  Their report suggests total annual costs of $460 million or $34,000 per retailer. This covers the costs of  vendors and customers having to scour shelves looking for the right brand.  What nonsense given that the brand name does still appear on the pack*.  You wonder what  people participated in this report and how much they got paid. I wonder since I am sure I get paid a lot less.

I have not yet sold my soul to the devil but, hey, I’ll offer my services for other socially responsible endeavours and I guarantee that I’ll charge less than Deloitte would. How much am I bid for a polished report demonstrating that:

  • A carbon tax will immiserise the country and drive us back to living under “stone age” conditions;
  • The proposed MRRT will end mining in Australia and reduce male sperm counts;
  • Congestion pricing of roads will  force down real incomes by 50% and lead to streets being overrun by overweight middle-aged male bicyclists wearing (I stand corrected IC)  Lycra?

On any of these issues I’ll throw in some econometric research and socio-babble for an extra 20%.   For example, with 500,000 overweight bicyclists each imposing a disutility cost of $10,000 on residents who collapse in orgasms of disgust on seeing resilient biker lard the aggregate community cost of controlling congestion must be greater than $5 billion.  This is an outrage and a clear indication that increased subsidies to the local motor vehicle assembly industry are not only warranted – they save us money. Moreover, the fitness industry should be subsidised and a tariff imposed on imported bicycles. More vehicle emissions in this setting would be welfare-improving as would gun subsidies to rednecks who seek to rid our society of the slimy green, bicycle-loving international socialist menace who now occupy our universities.

I can, of course, deliver sludge of equal quality for radical leftists though I would have to check their credit ratings before I did so and might need to demand anonymity.  For example, 50% wage increases following a $200m public boost to the  vehicle assembly industry will almost certainly provide productivity gains.

Update: Deloitte have done other consulting work for the carcinogen giants including this study on illegal tobacco.  According to Deloitte the share of illegal tobaccos grew from 6% of the market in 2007 to a massive 15.9% in 2010.  The House of Representatives Standing Committee on Health and Ageing estimated the share at a stationary 3% which is less than 1/5th of the Deloitte estimate.  Who should one believe?

* $35,000 per store annually is $673 per week or $96 per day.  My guess is that shop assistants get a wage of around $20 so that this cost estimate I guess assumes nearly 5 hours of shop assistant time per day per shop deciphering cigarette brands that do have the brand name (inconspicuously) on the pack.

 

8 comments to Deloitte’s views on “plain packaging”

  • James

    I don’t understand how consulting in accounting firms exits. They charge a lot and there analysis always sucks. Why do firms bother to hire them?

  • Liam Lenten

    Yes Harry, if $34,000 is the extra cost per retailer, then on a opportunity cost of time basis, I’m sure THEY get paid astronomically more than BOTH you AND the consultant combined!

  • Sam

    Yet, some will insist that everything major decision of government should be subject to cost-benefit analysis.

    This is a particularly good example of assessing the cost of regulation on the basis of the most inefficient business model.

    I think you could make a credible argument that the legislation will reduce search costs. The cigarette companies surely aren’t going to maintain all of their brands, the product differentiation with plain packaging isn’t substantial enough to justify it. If they don’t reduce the range, retailers will. It will hardly affect their sales, the consumers are addicted. The least they would do is arrange the cigarettes in alphabetical order.

    The model used by Deloitte also seems to ignore that the cigarettes are required by existing legislation to be stored in cupboards so they can’t be seen. The plain packaging only increases the cost of searching within a single cupboard. The packaging doesn’t help you to know which cupboard to look in. Given most of these cupboards are small, the search costs must be tiny. Note, with my previous assumption businesses will actually probably get rid of some of these cupboards, freeing up space to place other items on display, rather than accommodating the world’s least beneficial product differentiation. So could actually make more money thanks to plain packaging.

  • IC

    Am I correct in assuming you meant overweight men wearing lyrcra*?

  • derrida derider

    “Why do firms bother to hire them?” – James

    Because of a misplaced belief that a consultant’s report publicly saying what the firm wants is more credible than the firm just saying it itself.

    As a public servant I have had to oversee consultancy contracts that ministers wanted for precisely this reason – not the most fulfilling work I’ve done.

    Don’t forget, too, the consultants know full well that if their “research” does not get the “right” answer they won’t get another contract. I’ve seen that happen too.