Organised crime is hitting supermarkets, but customers are coming back

In this post-election period, political parties appear to have lost interest in weaponising the cost-of-living crisis to attack the supermarket giants.

Now the sector is facing an increasing onslaught of organised crime, and it seems there is an endless supply of supermarket attackers.

Stealing higher-value items from retailers and particularly supermarkets isn’t new, but it’s on the rise and forming the basis of a thriving business model for gangs of thieves.

Unsurprisingly, it’s also fertile new ground for politicisation, with a chorus of politicians and retail groups calling out Victoria as the state in which commercial criminal enterprises have been best able to flourish.

Meanwhile, theft is proving very costly for legitimate businesses that are forced to use technology or surveillance tools to combat what they refer to by the misnomers “loss” or “shrinkage”.

Coles, which reported a strong full-year result on Tuesday, has invested heavily and successfully in countering theft, but the sector remains under serious attack.

Sure, there is a portion of theft which can be blamed on customers pinching items – particularly those doing it tough. But the criminals who steal for profit are a more sinister force.

But that’s only part of the story of how organised crime has disrupted supermarket sales. The other part is the competition from illicit cigarette sales, which have pushed tobacco sales for Coles alone down by 30 per cent in the 2025.

Coles says it is not yet at the point where it’s considering abandoning selling tobacco. However, one would have to think there is an inevitability to this outcome.

Criminals have given a new meaning to the traditional retail term “category killer”.

It is easy to understand the force that is pushing smokers to buy contraband cigarettes for around $15 per packet when legal packets cost closer to $50.

To be clear, criminals are not actually stealing cigarettes from supermarkets, as the product is secured away behind the counter. But they are stealing nicotine-addicted customers, and there isn’t really anything that supermarkets can do about it.

Illicit sales accounted for 39 per cent of the Australian tobacco market for the 2024 calendar year, according to a study by FTI Consulting, but this has accelerated as the vicious gang war for control of the market has consolidated control and distribution efficiency.

So why won’t supermarkets stop selling tobacco products?

Because in the 2025 financial year, ciggie sales still reached roughly $1.2 billion – or 3 per cent of Coles’ supermarket sales. But six years ago, cigarettes accounted for 8 per cent. Based on 2025 sales of almost $40 billion, 8 per cent of sales would be around $3.2 billion.

Another way of looking at it would be that if it wasn’t for the collapse of tobacco sales, the Coles group would have boasted year-on-year sales growth of 5.7 per cent, rather than the 3.7 per cent it reported.

For now at least, Coles chief executive Leah Weckert says the group wants to give its customers the option to buy tobacco in its stores, given it is a legal product.

And $1.2 billion in sales is still not to be sneezed (or coughed) at.

Liquor was the other category that slowed down Coles’ group sales growth. There is a structural and a cyclical element to softer alcohol sales, evidence of which we have seen from other sector retailers including Endeavour – owner of Dan Murphy’s.

Purveyors of alcohol products, who note that younger people are consuming less, believe that new products that cater to this market can stimulate demand – but so far, that hasn’t happened.

The noteworthy aspect to Coles’ full-year result was that it managed to report strong growth in supermarket sales and profit despite the tobacco sales hole. Underlying supermarket earnings grew by an impressive 8.3 per cent and its profit margins remained stable.

It seems consumer confidence is coming back, and trolley sizes are beginning to build, as are the number of transactions.

The consumer spending freeze hasn’t entirely thawed, but easing inflation and lower interest rates have buoyed shoppers.

Shareholders will discover how Woolworths has fared when it releases its result on Wednesday.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.