Cigarette Companies Investing in Snus

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Although transnational tobacco companies (TTCs) have successfully raised cigarette prices to offset cigarette volume declines, thus maintaining profits, industry analysts have raised doubts about the sustainability of this pricing strategy in the medium to long term.1 Not surprisingly, TTCs have steadily diversified into alternative tobacco and nicotine products, including a certain type of smokeless tobacco, called Swedish-style snus.2

The Global Snus Market

Data from Euromonitor International shows that the global market for snus has steadily increased in size from 7,000 tonnes in 2008 to nearly 10,000 tonnes in 2018 (all figures here rounded to nearest 100).3 This represents a global increase of over 42%.

Sweden remained by far the biggest single market, accounting for nearly 70% of the global market in 2018 (over 6,900 tonnes) and 80% of the European market. Although a much smaller market than Sweden, sales in the US have shown by far the fastest growth in the last decade, growing by 600% in the 10 years to 2018 (from 200 to 1,600 tonnes). In the more established Norwegian market, sales rose 62% from 1,000 to 1,600 tonnes over the same period. In Sweden, the increase was 21%.3

EU Snus Sales Ban

In European Union (EU) countries other than Sweden, the sale of (tobacco derived) snus is illegal.

TTCs have unsuccessfully tried to lift the EU sales ban on snus since 2008.45

Cigarette Company Investments in Snus

From 2002, TTCs started buying up small Swedish snus manufacturers and developing and marketing their own snus. After 2008, snus investments slowed down and tobacco companies focused on e-cigarettes and heated tobacco products (HTPs) instead. Since 2018, TTCs have shown renewed interest in snus-type products, in particular tobacco-free pouches.6

Japan Tobacco International

In 2002, Gallaher, now part of Japan Tobacco International (JTI), became the first TTC to add snus to its product portfolio in Europe by acquiring Swedish snus manufacturer Gustavus.7 Initially, JTI sold three brands of snus in Sweden only: LD in the value segment; mid-priced Gustavus; and premium Camel snus, which it launched in 2009.8 In 2013, JTI’s parent company, Japan Tobacco briefly trialled ZeroStyle snus in Osaka, Japan, but with little apparent success.9

From 2017, JTI has been selling snus in Norway and Sweden through its wholly-owned subsidiary, Nordic Snus.10 It sells two brands: LD and Nordic Spirit, the latter being tobacco-free.1112

British American Tobacco

In May 2005 British American Tobacco (BAT) commenced trial markets of snus in South Africa and Sweden, followed by trials in Norway and Canada, plus a “limited consumer test” in Japan.13

Then in July 2008 it acquired Swedish snus manufacturer Fiedler & Lundgren.2 Initially, BAT sold snus under cigarette brands Lucky Strike, Peter Stuyvesant, and du Maurier, and snus brands Granit, Mocca, and Knekt snus, in South Africa, Canada and Scandinavia. But in March 2011 BAT announced that it had “scaled back” its snus trial markets “to review our BAT’s approach to developing new reduced risk product categories”, and in addition, cancelled a test market planned for 2011.14

From 2012, the company sold snus in Sweden and Norway only. In 2017 BAT’s snus activity picked up again. Following its acquisition of Reynolds American Inc (RAI) in the United States (US), the company now owns Camel snus in the US. In Europe in the same year, BAT acquired Swedish snus company Winnington AB, adding Epok snus to its portfolio.1516
In 2019, BAT introduced tobacco-free nicotine pouches to its portfolio, marketing them as Lyft in the UK and Velo in the US.171819 A July 2019 news report suggested that BAT’s nicotine pouches were also on sale in Sweden, Italy and Tanzania.20 After announcing their intention to sell nicotine pouches in Kenya, BAT launched Lyft in the country in December 2019.202122

BAT distinguishes Epok, Lyft and Velo from traditional snus and has allocated them to a new product category, which it calls “modern oral products”.17

Imperial Tobacco

Imperial Tobacco, the second largest cigarette company in Europe, entered the snus market in September 2005 when it acquired a 43% share in Swedish Skruf snus, taking full control of the company in 2008.223 Imperial has sold Skruf, its main premium brand, in Sweden and Norway, and Knox, its value brand, in Sweden only.

At Imperial’s 2010 Investor Day, Marcus Diemer, General Manager for Central Europe North, credited snus as a “sizeable, and highly profitable business, and less vulnerable to growing regulatory pressures”.24

In May 2018 the company launched a tobacco-free version of Skruf, called Skruf Super White, in Sweden and Norway.25 This product appears to have been rebranded ZoneX for the UK market in August 2019.2627

Philip Morris International

Of all TTCs, Philip Morris International (PMI) has had the least invested in the snus product category.

In 2006 the company briefly sold 1847 by Phillip Morris on the Swedish market following the company’s acquisition of snus manufacturer Rocker Productions.28 In 2009 it sold Rocker Productions to Swedish Match as part of a deal that saw PMI and Swedish Match set up a joint venture, SMPM International, to “globalise snus”.29 However, the joint venture was not a success and was dissolved in 2015. This also ended PMI’s brief involvement in snus.

Altria

In 2019 Altria announced that it was acquiring an 80% share in oral nicotine pouch On!, from Swiss tobacco company Burger Sohne.3031 It set up a new subsidiary Helix Innovations, through which it would manufacture and market the product.3031
Altria stated that, as the product was already on sale across the US before August 2016, it did not require pre-market authorisation (PMTA) from the FDA.30

Company Market Shares

In 2010 Swedish Match, the only listed snus manufacturer without cigarette interests, held a share of over 80% the market in Sweden and Norway (see Table 1).

TTC entry into snus saw the company’s market share fall by over 10% in two years in Sweden and by 5% in Norway.32 This trend continued, with Swedish Match losing further snus market share to Imperial Tobacco and BAT, reducing its market share to 62% in Sweden and below 50% in Norway in 2018 (see Figure 1).32 Genuine competition between snus and cigarettes on the Scandinavian markets has thus slowly been reduced.
However, Swedish Match continues to hold the largest share of the Western European snus market.

The share of small independent snus manufacturers has always been, and remains, relatively insignificant.

Company 2010 2011 2012 2013 2014 2015 2016 2017 2018
Swedish Match 81.6 79.4 72.4 67.5 66.3 65.5 63.1 61.5 59.5
British American Tobacco 7.9 7.9 9.3 7.7 6.8 6.3 6.7 9.3 11.2
Imperial Tobacco 5.7 6.9 11.4 16.2 17.9 19.3 21.2 21.3 21.3
JTI Sweden 1.6 2.1 4.1 5.6 5.8 5.6 5.4 5.3 5.1
Other companies 3.2 3.7 2.8 3.1 3.2 3.3 3.7 2.6 2.8

Table 1: Companies’ snus market share in Western Europe between 2010 and 2018 (retail volume, %).32

Figure 1: Companies’ snus market share in Western Europe between 2010 and 2018 (retail volume, %)32

What’s Next?

Despite these TTC snus investments, smokeless tobacco use is not well established in Europe, other than in Norway and Sweden. This partly reflects the fact that the sale of tobacco-derived snus is prohibited in EU member states other than Sweden.

Shifted Focus to E-Cigarettes and HTPs

From 2012, TTC alternative investments moved from snus to e-cigarette and HTPs. As with snus, TTCs looked to the these categories to ensure their long-term future, should regulation further constrain the cigarette market or reduce its pricing power, and to reassure investors that TTCs have a revenue growth potential.2

FDA Authorises Swedish Match to Advertise Snus as Less Harmful in the US

In October 2019, Swedish Match was the first company to have its application approved by the US Food and Drug Administration (FDA) to advertise eight of its snus products (sold under the ” General” brand) as less harmful.33 Swedish Match had submitted the original application in August 2014, so the whole approval process took five years.34 This is the first tobacco and nicotine product that the FDA has authorised as less harmful. Specifically, the approved health warning on the snus can state “Using General Snus instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.”33 The FDA does not consider the products as ‘safe’ and the products will continue to carry the generic health warnings required for smokeless tobacco.33 The approval to advertise as reduced risk has a time limit of five years, after which Swedish Match will have to put in an application requesting renewal.

It is likely that the FDA’s decision on Swedish Match’s snus will affect TTCs’ strategy on NGPs and snus, in the US and perhaps globally, but in what way is as yet unclear. Industry analysist Bonnie Herzog, who works for investment bank Wells Fargo, was quoted as saying that it was “a huge positive” and “game changer”:35

“We view this as very good news for the broader tobacco/nicotine industry as it demonstrates the FDA’s commitment to a ‘continuum of risk’ strategy and provides viable pathway/process for manufacturers”.35

She also argued that “less harmful” products should be taxed “less onerously” than other tobacco products.35
As of November 2019, the only other TTC that has an FDA reduced risk application pending for its snus products is BAT/RJ Reynolds (Camel snus, submitted on 18 December 2017).36

TobaccoTactics Resources

TCRG Research

References

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