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Special

Smokeless tobacco: the industry’s miracle cure?

11 Jan 2009. As restrictions on smoking increase all over the globe, the quest for less hazardous tobacco products gains in importance, and cigarette consumption continues to decline in developed markets, could smokeless tobacco products be the road to the future? Latest moves by tobacco companies suggest just that.


In the autumn of 2008, the smokeless tobacco sector repeatedly made the headlines. In early September, Altria Group, the holding company of cigarette maker Philip Morris USA, announced a long-anticipated deal: it agreed to buy UST, the leading US manufacturer of moist smokeless tobacco, for USD 11.7 billion (EUR 8.2 billion). According to analysts, the purchase will give PM USA, which has been test-marketing smokeless products under its Marlboro brand name, an instant boost in that market to help diversify its revenue. UST provides Altria with the leading premium brands, Copenhagen and Skoal, in the highly profitable moist smokeless tobacco category (see article on page 26).

In October, Reynolds American, the number two tobacco company in the United States behind PM USA, announced that in 2009 it would roll out its Camel Snus brand nationwide, which so far had been in test markets. In addition, the company launched a new product line, also under the Camel brand name: dissolvable tobacco, an evolution of snus (see page 24).

Meanwhile, on the other side of the Atlantic, British doctors for the first time officially advocated the use of snus, the Swedish form of moist snuff. In a report commissioned by the UK department of health, the Tobacco Advisory Group of the Royal College of Physicians noted that Swedish data provided proof “that substitution of smokeless for smoked tobacco can be as effective as a harm reduction strategy”. The product, which is banned throughout the European Union except Sweden, should be made available in the United Kingdom as a healthier alternative to smoking, the group claimed. Increased access to nicotine in safer forms, as provided by smokeless tobacco, together with strengthened curbs on smoking, to be achieved principally by higher taxes, could eliminate smoking completely within twenty years, the report said.

This latter statement, however, sounds rather utopian for the time being – the smokeless tobacco sector is still a niche. But the niche is growing and it is doubtlessly gaining in importance. As bans on smoking increase and consumers become more health-conscious and also less tolerant towards second-hand smoke, non-combustible tobacco products offer some advantages over cigarettes in terms of social acceptability. For tobacco companies, they are a means to diversify their income streams in the light of rising cigarette taxes, a decline in cigarette sales in developed markets and a consolidating industry.

 

Acquisitions and new products

 

The two main markets for smokeless tobacco are the United States, which accounts for about 65 per cent of the world market, and Sweden, which has smokeless sales of about USD 500 million annually, according to Euromonitor. Non-combustible tobacco products are also popular in India, Algeria, Pakistan, South Africa and Norway. Unlike India, where around 100 million people consume smokeless tobacco and the product mainly serves as a constituent of traditional chewing mixtures, studies have shown that in western markets smokeless tobacco attracts mostly former smokers. According to consumer research in the US, fifty per cent of daily snus users are ex-smokers.

In the US, smokeless tobacco saw sales in 2007 increase by six per cent, states the Maxwell Report. Within the smokeless sector, moist snuff and snus have been a particular success story. According to TMA (Tobacco Merchants Association) figures, 86.2 million (US) pounds of moist snuff were sold in the US in 2007, up from 81.5 million pounds in 2006. The market for snuff and snus accounts for around USD 3.7 billion.

Considering the appeal smokeless tobacco has in the light of an increasing number of smoking bans, combined with the perceived health benefits and its impressive growth rates, it is little wonder that the leading cigarette manufacturers have been eager to secure their piece of the cake, preferably by means of acquisitions of smokeless tobacco companies, but also by launching a number of snus line extensions of their flagship cigarette brands.

British American Tobacco (BAT), the world’s second largest cigarette maker, began test-marketing snus versions of its Lucky Strike and Peter Stuyvesant brands in South Africa and Sweden as early as 2005. It expanded sales to Norway in 2006 and Canada in 2007 and in the meantime opened its own snus product development facility in the UK. ‧Across all markets, BAT says, it sold more than one million cans of snus in 2007. Through its acquisition of Danish company Skandinavisk Tobakskompagni in July 2008, BAT became the owner of snus maker Fiedler & Lundgren, which gave it not only in-house snus manufacturing, but also market shares of six per cent and four per cent in Sweden and Norway respectively.

Imperial Tobacco made its inroad into the snus market by acquiring Swedish snuff maker Skruf. The British company had owned 43 per cent of Skruf since 2005; in June 2008 it purchased the remaining 57 per cent. RJ Reynolds (RJR) was the first US cigarette maker to venture into the smokeless market by acquiring Conwood, the number two player in the smokeless tobacco industry, in April 2006. As RJR stated in its third quarter 2008 results, Conwood had just posted another record quarter, achieving USD 98 million in operating profits – a ten per cent increase over the previous year’s third quarter. In October of the same year, Philip Morris International acquired Swedish snus manufacturer Rocker Production, a small player which at that time had one brand, Rocker, and a total share of the Swedish market estimated at 0.1 per cent.

2006 was also the year in which RJR began to test-market Camel Snus, which it will soon take nationwide. Around the same time, Philip Morris USA introduced Taboka, a snus product, to test markets, trial sales of which, however, it discontinued in 2008 in favour of smokeless tobacco products under the more familiar Marlboro brand. And in late 2006, Lorillard, the third-largest cigarette maker in the US, partnered with Swedish Match, the leading smokeless manufacturer in Sweden, to develop and promote smokeless tobacco products. 

 

New Swedish approach

 

As the world’s leading tobacco companies gear up to get their share of the promising smokeless tobacco market, hopes that this market segment may eventually become enlarged significantly in geographic terms have recently been rekindled. The debate around the European Union’s ban on snus, which has been in force since 1992, intensified in recent months, not only because the public health community is seeking ways to reduce the health risks caused by smoking. In late November, Sweden’s trade minister Ewa Björling approached the issue from a different angle: she called on Brussels to lift the EU ban on exports of Swedish snus, calling the prohibition discriminatory and “one of the clearest infringements on free trade within the EU”. In her letter to the EU commissioner for the internal market, Björling likened the prohibition of selling snus elsewhere in the EU to banning the export of French wine or Danish meat.

Specifically, she claims that the snus ban fails to fulfil EU requirements that internal trade restrictions be non-discriminatory and proportional to the economic damage they cause and asks that the matter be taken up for discussion. Perhaps this new approach will bring life into the debate again, leading, as manufacturers of moist snuff hope, to the snus ban being replaced by clear product regulations and the opening up of new business opportunities.

Stefanie Rossel