On a backbar filled with an ever-revolving door of new products, brands and flavors, moist smokeless tobacco (MST) has long been a steady performer for the convenience channel. But is it possible that this profitable subsegment is about to undergo a drastic evolution in the types of MST products that are selling?
Joe Teller of Swedish Match thinks so.
Presenting at CSP’s Tobacco Update webinar in December, Teller, category manager of the Richmond, Va.-based manufacturer, acknowledged that Nielsen’s overall growth rate of 4% in 2014 was “typical” for MST.
“Everyone knows this category is really consistent; that’s not going to change next year,” he said. “I’m projecting the same growth rate of about 4%.”
However, based on 2014’s numbers, Teller predicts the MST subsegments driving the growth will need to change to hit that 4% total growth projection. Though premium and low-priced loose MST make up 84% of c-store smokeless sales, the two subsegments accounted for only about 40% of category growth in 2014.
Nielsen data shows both segments have experienced a slowdown in can volume: Premium-loose volume was down 1% in 2014 and low-priced loose grew by just 2%.
“Low-priced loose MST is the big one, with 54% of all category can sales,” Teller said. “It’s not throwing up nearly the growth it used to. Since this is the biggest piece of the category and since its growth is slowing (which I expect to continue), how do we get to 4% MST category growth next year?”
The answer? Focus on the small but growing pouch options. While premium and low-priced pouches are a small piece of c-store MST sales, both experienced robust growth in 2014, with premium pouches up 6% and low-priced portioned pouches up 20%.
“Low-priced pouches and premium pouches, although they’re only 15% of can sales, [are] driving 60% of category growth off a very small base,” said Teller. “A huge percentage of the typical strong category can growth we get is coming from pouches.”
This growth is a trend Teller expects to continue in 2015 and beyond.
Based on 2014’s numbers and trends within the category, Teller anticipates sales of premium and low-priced loose will have a combined growth of less than 1%. He believes premium-pouch sales will continue to grow at a moderate rate. (Teller has it at 5.7% growth in 2015.) This means low-priced pouches will need to grow by 27% to maintain that 4% MST growth rate.
“Next year, pouches are probably going to need to drive 90% of category growth, given the big slowdown in low-priced loose MST,” Teller said. “If we’re talking about this in 2016, it might be 100% of the growth.”
It’s an admittedly drastic prediction on Teller’s part—one he says is well warranted, based on existing data: “Pouches are already 60% of the growth. Driving 60% of the growth is a huge number.”
But why are consumers shifting toward pouches and away from the long-term power players of premium and low-priced loose?
It may have something to do with preferences of consumers entering the MST segment for the first time: cigarette consumers who might not be accustomed to or welcoming of the seemingly messier experience of loose smokeless.
“It’s probably the main entry point for consumers who already smoke cigarettes looking for a different way to enjoy a tobacco product,” Teller said. “They want something neater and cleaner.”
Some of the increase might be coming from current loose-moist consumers who are also drawn to the cleaner, simpler experience offered by pouches, which are more similar to a smaller but also growing subsegment: snus. “I think it’s what the consumer wants to see,” Teller said.
Even given consumer demand, maintaining the 20% growth rate enjoyed by low-priced pouches last year—and growing it to the 27% Teller predicted—is no easy task. Creating a pouch destination, according to Teller, comes down to three things: variety, merchandising and awareness.
“To get to that 27% growth rate, you have to have a good variety,” he said. “That means you have to hit all price ranges: premium MST pouches, low-priced pouches and value-priced pouches.”
Once retailers establish the right product mix, Teller suggests they group all pouches together in a set—something that actually can be done within the limitations of manufacturer programs. “You keep the products within their allotted (brand) space,” he explained. “Just move everything to the left or right to create a pouch section.”
Retailers who work with shelving manufacturers can also enlist their assistance on options for calling attention to the pouch products, Teller said. These kinds of callouts are not only important for consumers, but also for cashiers.
“Use POS to highlight the pouch products so the consumer—and, almost as important, the clerk—can figure out where the pouch products are and the consumer can see the big variety that you have,” he said.
Retailers will play a crucial role in propelling pouch growth, thus ensuring that the MST segment maintains its healthy growth rate in years to come. “Retailers are going to need to actively push this pouch segment, or the risk is that the category growth could potentially stall out a little bit,” Teller said.
That isn’t to say he expects this category to stall. Based on 2014’s trends, retailers have every reason to be optimistic about the potential of pouches. “The good thing about pushing MST pouches is it’s the easiest way to drive additional growth because it’s from the part of the category that’s already showing excellent growth,” he said.
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