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July / August, 2007

Essentra

Swedish Match Lights Up The North American Market

By Joseph Finora

The fastest growing moist snuff company in the US shows how it’s done.

Talk about a category leader. While the moist snuff market in the US is estimated at 1.1 to 1.3 bn cans and has grown 11.7% year-to-date vs. last year, Swedish Match is holding onto a 10.4 market share with two key brands: Timber Wolf which has a 6.6 share of the market and Longhorn, which was introduced in 2003 and has a 3.9 market share. Volume growth is a hefty 46% year-to-date vs. the same period prior year, according to Nielsen. The products are appearing on a bigger and bigger amount of retailers’ shelves as they realize the profit potential to pick up new clients in this growing category.

“Longhorn is the fastest-growing US snuff brand. Recent Longhorn initiatives include a packaging change, a new look at retail with redesigned POS, and a fully-integrated promotion that connected with grass roots consumers,” says Lennart Freeman President of Swedish Match North America, who came to the United States 1985 to assume the position of Marketing Director of Smokeless Tobacco for Swedish Match North America (then called Pinkerton Tobacco). In 1999, he was transferred to Brussels and held a variety of positions across Europe before returning to the US in 1999 as president of Swedish Match North America Division headquartered in Richmond. “The value-priced snuff category is growing in the US due to the introduction of lower-priced brands,” Freeman adds.

In the US, Swedish Match’s main cigar brands include Partagas, Punch, Macanudo, Cohiba, White Owl, Garcia y Vega, La Gloria Cubana, and LaPaz. It also produces the legendary Red Man chewing tobacco and Half & Half pipe tobacco. While many of its brands are well known, the parent company keeps a low profile. Swedish Match is actually a global group of companies with a broad assortment of market-leading brands in smokeless tobacco products, cigars, pipe tobacco and lighter products. In North America, Swedish Match is one of the “major players” in the growing value-price snuff segment. It is also the world’s second-largest producer of cigars and cigarillos and produces lighters, matches and match-related products including Cricket, one of the world’s best-known brands of disposable lighters.

Timber Wolf is a high-quality alternative to premium-priced, moist snuff brands and is a leader in the price-value segment, accounting for some 20% of price-value brand sales. Its companion brand Longhorn is targeted as a high-quality, low-priced premium brand and has become one of the fastest-growing moist snuff brands in the marketplace. It is available in six flavors/cuts.

Swedish Match North America became the first company to launch a value-priced pouch product, Timber Wolf Packs. The pouch segment now accounts for more than 5% of total moist snuff sales and has grown 33% over the last two years. Timber Wolf Packs come in natural and wintergreen flavors. According to AC Nielsen research, the total price/value segment continues to drive overall category growth in moist snuff.

Swedish Match North America has also expanded its Longhorn brand offerings with the introduction of a Long Cut Natural. The Longhorn brand provides consumers with a high-quality, low-priced moist snuff for an everyday price. Currently, natural products account for over 35% of loose moist snuff sales and Long Cut makes up 64% of the category by cut (excluding pouches). The pouch segment is growing approximately twice the rate of the total category according to the company.

Getting the Word Out
Manufacturers of snus have a gigantic horizon ahead of them as most of the smoking public remains unaware of them. While numbers are moving in the right direction for Swedish Match in North America, communication is an ongoing hurdle. Part of the rapid snuff/smokeless category growth can be attributed to the fact that consumption levels are relatively low compared to those of more mainstream tobacco products. “While a lot of people know about smokeless, it’s still a small category. About one-tenth that of cigarette smokers” admits Freeman. “Not enough smokers are aware of the harm-reduction potential in smokeless. Smokers need to know they can still enjoy tobacco.”

Swedish Match’s home country is the largest Nordic market with about 1 mn snuff users (or “snus” as the product is called in Sweden). More than half of these are former smokers. Women account for slightly more than 10% of snus consumers and marketers hope the name “snus” will catch on with American tobacco users and the word will no longer be foreign in US tobacco shops.

The tobacco harm-reduction strategy in banking on the belief that individuals who cannot or are not willing to give up smoking can lessen health risks by switching to a smokeless tobacco product, such as snus.

In the US, smokeless tobacco volumes have increased annually at a 3-4% annual pace according to research firm Euromonitor International. Conversely, US cigarette consumption declined 1.3% to 371 bn sticks in 2006 according to government data. On an after-tax basis, the case for smokeless products is even more attractive as they are anywhere from 20-30% less than cigarettes. Additional factors, such as growing smoking bans in restaurants, offices and public facilities such as airports and train stations however, will provide further incentive for smokers to at least carry a pack of snus to help fight the urge for a smoke when they’re in a restricted venue. The tiny snus packet is discreet. Placed in the upper lip it does not require the user to orally discharge or “spit” out the mixture yet still delivers tobacco flavor and nicotine.

The growth potential of snus has not been lost on American tobacco giants. Philip Morris USA, a division of Altria Group, Inc., is test-marketing a snus pouch line in Dallas starting in August. Last year it tested its first smokeless product, Taboka, in the form of a pouch that’s placed between the cheek and gum. It was sold at retail for about the same price as a pack of cigarettes in the Indianapolis test market. According to company statement, the product was well received by users as a possible alternative to cigarettes. Also in 2006 number-two US cigarette manufacturer Reynolds American purchased Conwood Co. as a way to enter the smokeless market and began marketing a smokeless product under its Camel brand. Connecticut-based US Smokeless Tobacco Company (USSTC) is the world’s leading producer and marketer of moist smokeless tobacco. The company sells more than 1.7 mn cans per day, or about 640 mn cans per year. USSTC is test marketing Revel, a pouch or packet chew product the size of a piece of gum.

Swedish Match is test marketing snus in about 100 outlets across the country, through its’ General Cigar division, and efforts are underway to expand distribution. In the US, Swedish Match divides its sales force into two halves with one group serving the premium cigar retail clients and a second managing the Other Tobacco Products business and there is little overlap between the two. “The two groups are very different,” notes Freeman who limits marketing to specific venues. Currently, convenience stores and gasoline stations are the most leading sales locations for moist smokeless tobacco or snuff.

Swedish Match does not use electronic marketing, i.e. televisions or radio. It is however, a believer in in-store Point-of-Sale displays and discount coupons as each helps encourage new prospects to sample their products. “Once smokers try our products they usually remain customers,” says Freeman. “That’s why we give them an incentive.” It also sponsors selected events with favorable demographics such as NASCAR racing by participating in adult-only venues at the tracks, usually with taste tests. Longhorn is the Official Tobacco Product for the 2007 Hooters Pro Cup Series and BASS Federation Bassmaster Classic events. Professional fisherman Jeff Kriet’s boat started sporting new colors for the 2007 Bassmaster Elite Series as Swedish Match’s Longhorn Smokeless Tobacco came on as a new BASS sponsor for the veteran Oklahoma fisherman. “I feel real fortunate to have Longhorn as a sponsor in the 2007 Elite Series,” Kriet said in a statement.

More to Come
Swedish Match is also keeping new products coming through the cigar pipeline as its mass-market line of Game cigars, introduced as a sub-brand of Garcia y Vega in 2006 is gaining a following. It’s offered in three flavors plus Palma and cigarillos. “Demand has exceeded supply up until February of 2007 when we increased capacity,” says Freeman. Similarly, White Owl Sweets were launched last May, are offered in two sizes and in 50-count boxes, uprights and packs.

In cigars, new items coming on line since 2003 now represent over 50% of volume. This surge includes such entrants as White Owl Blunts Xtra, a Homogenized Tobacco Leaf (HTL) cigar in a tube. Capitalizing on this, Vanilla Blunts Xtra were introduced last May.

Premium cigars introduced in 2007 include: Macanudo Gold Label Hampton Court and Macanudo Maduro Cristal, Partagas Black Label Corona Premium, Partagas Spanish Rosado Gigante and Cohiba Black Pequeños.

The company also recently announced it will add a venerable smokeless brand name into the rapidly growing moist snuff category with Red Man Premium Moist Snuff. Red Man Snuff will test in 11 US states in September—representing 36% of the moist snuff category volume. Red Man Premium Moist Snuff will be available in Long Cut Wintergreen, Fine Cut Natural, and Long Cut Straight—the three most popular flavors in the moist snuff category. The product also has uniquely original packaging—an embossed metal lid with metallic side labeling.

Far from being a one-product company, Swedish Match is well on its way to becoming a nearly full-service provider by capitalizing on trends, creating in-demand products and properly marketing them. It offers nearly everything a tobacconist can put on a shelf. “We’ve got a great portfolio,” says Freeman. “We’re well positioned for growth.”


Tobacco International - July/August, 2007

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