Cigarette Companies Investing in Snus

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Background

The European cigarette market, the second largest in the world by volume and highly profitable, is shrinking.[1] Although Transnational Tobacco Companies (TTCs) have successfully raised cigarette prices to offset these volume declines, thus maintain profits, industry analysts have raised doubts about the sustainability of this pricing strategy in the medium to long term.[2]

Not surprisingly, TTCs have been steadily diversifying into alternative tobacco and nicotine products.

From 2002 to 2009 this diversification strategy focused on a certain type of smokeless tobacco, called Swedish snus.[3]

More recently, TTC diversification has focused primarily on E-cigarettes and ‘Heat not Burn’ tobacco products.

European Snus Market

The main snus markets in Europe are Sweden, and to a lesser degree, Norway.

All TTCs, albeit in varying degrees, entered the European snus market in the period from 2002 to 2008.

Japan Tobacco International

In 2002 Gallaher, now part of Japan Tobacco International (JTI), became the first TTC to add snus to its smoked tobacco portfolio in Europe by acquiring Swedish snus manufacturer Gustavus.[4]

JTI sells snus in Sweden only, under three brands: LD in the value segment, mid-priced Gustavus, and premium Camel snus which it launched in 2009.[5]

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.[6]

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.

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.[7]

From 2012, the company only sells snus in Sweden and Norway.

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 in 2008.[8]

Imperial sells Skruf, its main premium brand, in Sweden and Norway. Knox, its value brand, is only available in Sweden.

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”.[9]

However Imperial has not made any snus acquisitions since 2008.

Philip Morris International

Philip Morris International (PMI), Europe’s cigarette market leader, no longer sells snus on the Scandinavian market.

In 2006 the company briefly sold 1847 by Phillip Morris on the Swedish market following its acquisition of snus manufacturer Rocker Productions.[10]

In 2009 it sold Rocker Productions to Swedish Match as part of a deal that saw PMI and Swedish Match set up joint venture SMPM International, to 'globalise snus'.[11] This joint venture was dissolved in 2015.

Company Market Share

Table below lists company market share in 2010 (retail volume, %):[12][13]

Company Sweden

2009

Norway

2009

Swedish Match 83.8% 80.7%
British American Tobacco 10.3% 6.0%
Imperial Tobacco 2.2% 13.0%
JTI Sweden 2.0% -
Small independent manufacturers 1.7% 0.3%

Swedish Match, the only listed snus manufacturer without cigarette interests, retains the largest market share of the European snus market.

TTC entry however saw the company's market share fall by over 10% both in Norway and Sweden.[12][13]

In 2009 Swedish Match established a joint venture with PMI to 'globalise' snus.[14] Genuine competition between snus and cigarettes on the Scandinavian markets has thus slowly been reduced.

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

Superseded by Vapour Category

Despite these TTC investments, smokeless tobacco use is not well established in Europe, other than Norway and Sweden. This partly reflects the fact that sales of snus have been prohibited in European Union member states other than Sweden.

TTCs have unsuccessfully tried to lift the ban on snus since 2008.[15]

From 2012, TTC alternative investments moved from snus to vapour products.

Like snus, TTCs are looking to the vapour category to ensure its long-term future, should regulation further constrain the cigarette market or reduce its pricing power, and reassure investors that TTCs have a revenue growth potential.[3]

In the interim, in the context of the reduced risk potential of snus and vapour products, these investments provide the tobacco industry a vital public relations function to rehabilitate their reputation as ‘a responsible industry’.[16]

TobaccoTactics Resources

* Snus: EU Ban on Snus Sales
* Snus: Marketing to Youth
* EU Tobacco Products Directive Revision
* TPD: Dalligate

TCRG Research

Notes

  1. Euromonitor International, Global Tobacco–Key Findings. Part One - Tobacco Overview and Cigarettes: Resilience or Decline? December 2010, available by subscription from: www.euromonitor.com, accessed July 2012
  2. Citigroup Global Markets, Tobacco: What If the Last Smoker Quits in 2050? We're cutting BAT, PM and IMT as short-term trends have worsened, but we're more concerned about the very long term, 2011, accessed July 2012
  3. 3.0 3.1 S. Peeters, A. Gilmore, Transnational tobacco company interests in smokeless tobacco in Europe: Analysis of internal industry documents and contemporary industry materials, PLoS Medicine, 2013,10(9):1001506
  4. Gallaher Group Plc Interim Results for the Six Months Ended June 30, 2002, accessed January 2017
  5. Datamonitor. Industry Profile: Tobacco in Sweden. Report No.: 0181-0817, London June 2010, available by subscription from: www.euromonitor.com, accessed July 2012
  6. British American Tobacco, Smokeless snus to be pioneered in Canada, News release 13 September 2007, http://www.bat.com, accessed August 2011
  7. British American Tobacco, British American Tobacco Sustainability Report 2010, http://www.bat.com, accessed 3 January 2012
  8. Euromonitor International, Smokeless Tobacco - Is it the Future of the Industry? April 2010, available by subscription from: www.euromonitor.com, accessed July 2012
  9. Imperial Tobacco, Investor Day Presentation Transcript Marcus Diemer on Snus, 28 September 2010
  10. Tobacco Reporter, PMI buys into Swedish Snus, Tobacco Reporter Magazine December 2006
  11. Swedish Match, Interim Report: January-March 2010, Stockholm (2010), accessed December 2011
  12. 12.0 12.1 Euromonitor International, Euromonitor Tobacco Passport Norway 2010, available by subscription from: www.euromonitor.com, accessed October 2010
  13. 13.0 13.1 Euromonitor International, Euromonitor Tobacco Passport Sweden 2010, available by subscription from: www.euromonitor.com, accessed October 2010
  14. Swedish Match and Philip Morris International announce global joint venture to commercialize smokefree tobacco products, Swedish Match Press Release 3 Feb 2009; accessed January 2017
  15. S. Peeters, H. Costa, D. Stuckler, M. McKee, A. B. Gilmore, The revision of the 2014 European tobacco products directive: an analysis of the tobacco industry’s attempts to ‘break the health silo’. Tobacco Control, 2016; 25:108-117, doi 10.1136/tobaccocontrol-2014-051919
  16. S. Peeters, A. Gilmore, Understanding the emergence of the tobacco industry's use of the term tobacco harm reduction in order to inform public health policy, Tobacco Control, 2015,24(2):182-189