Contraband

Published on September 25th, 2012 | by OCSA

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Sign Of The Times

Many consumers think competition is good as it creates a competitive pricing for the general public.  In most cases, I agree.

The economics of supply and demand are simple. Take the petroleum industry for example. People closely watch the price of gas knowing that it typically increases as weekends approach (more travellers – more demand). Some consumers will leave their traditional gas purchasing location, when it is a penny a litre cheaper down the street. Can you imagine what they would do when it is 5 to 10 cents cheaper all the time!  The growth of gas stations located on aboriginal lands is a fine example of consumers seeking and paying less for gas where all taxes are either not applied, or are applicable.

For tobacco, the same holds true for consumers. They are price sensitive and will shop elsewhere where they know the price will be cheaper. Hence the boom of cigarette smoke shops located on aboriginal reserve lands.  Combine the two offers (tobacco and gas) and you have a very very busy petroleum convenience store in today’s standards.

Location, location, location is everything

Where average gas throughput is below 4 million litres per year, it is not uncommon to hear of gas stations on aboriginal lands selling in excess of 10 million litres a year. For tobacco, average weekly carton requirements approximate 130 cartons a week, when on the reserve, convenience smoke stores can sell in excess of 2,000 cartons per week.  The magic is simple … price…. both gas and tobacco are heavily taxed by all levels of government, and aboriginal business owners have the legal rights to buy these products excluding some of the applicable taxes.

Given that this problem has existed for years, and despite its recent and robust growth, the lessons to be learned is not to build a petroleum and or convenience store located within 20 minute drive of the aboriginal lands.  They say location, location, location is everything in retail – pull out your map and stay away from locations close to the reserves.

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