Spreading the Snus
Snus are out there, but what will get customers to buy them?
Walk into most c-stores these days, and you’re likely to see rows of attractive tins containing snus. But do the sales of the small teabaglike pouches of tobacco justify the presence? And there’s also the chicken/egg conundrum: Is that presence enough to promote sales? It depends on who you ask. Manufacturers see a category growing; some retailers see it as an additional proviso to their tobacco contracts.
The spitless-tobacco category, predominantly made up of snus, increased 36.9% in year-to-date unit sales at c-stores to 56.4 million units through May 15, 2011, according to numbers from SymphonyIRI Group reported in CSP’s Midyear Category Data Report [CSP— Sept. ’11, p. 51].
Snus is often touted as a smokeless, spitless alternative, especially practical where society and regulations might not allow smoking. And Sandy Fowler-Jones, spokesperson for Richmond, Va.-based Swedish Match North America (which doesn’t have retailer contracts), says, “We feel that the category is poised for continued growth, given consumer and legislative trends. … As cigarette prices continue to rise and smoking restrictions increase, adult smokers will continue to look for more convenient and discreet forms of tobacco such as snus.”
From a retailer perspective, the reviews on snus are mixed, with operators falling in two definable camps:Contracts Make Me Carry It. “There is no demand for this product by the public,” says Ray Johnson of the lack of snus growth at his Speedee Mart stores in Las Vegas. Johnson carries five SKUs of snus, three Camel and two Marlboro, but says, “I would carry none without a contract; sales do not justify stocking.”
And on the East Coast, Matt Paduano has a similar lament, saying snus’ sales have plunged 19% in 2011. Were he not bound to contracts, Paduano, vice president of information for Canastota, N.Y.- based Nice N Easy Grocery Shoppes, says he would drop his 13 SKUs to about six. Paduano credits snus’ initial burst to heavy manufacturer promotional support, but “this has dropped off and the sales have followed,” he says.
- Some Growth, Tolerate Contracts. Snus volumes are still very low, says George Pearson, president of G&M Food Marts in California, but the category has climbed about 50% from 2010. “If it does finally take off, we need to be early to the party,” he says. And while he might carry fewer SKUs without the contracts, he confirms he would still participate in the category, because he feels it will eventually be much larger.
His company was “slow to embrace it, but over time it made sense to give it more space and visibility. … If it growsinto a much larger piece of the tobacco pie, G&M needs to be a destination for it here in [Southern California],” he says.
At Bradley Petroleum, snus continue gradually to gain acceptance. First addressing manufacturer contracts, Anna Ciciora, Bradley’s vice president of operations and general manager, sees a benefit. “We understand the [tobacco] category from the top side, the sale side, but [manufacturers] understand what’s trending everywhere,” she says. “I don’t think, at the end of the day, you could run that cigarette category without being on contract; you have to in order to be competitive pricewise.”
As for snus itself, she says her Camel snus sales are up 8% over last year. While some of that is due to tighter smoking restrictions in the company’s home state of Colorado, she also attributes the growth to heavy promotion by Reynolds, the offering of numerous flavors and the fact that the product is refrigerated. While customers look for the “born date” right after they purchase moist smokeless tobacco, she says, that hasn’t been the case with Camel snus. “Because you’ve got a cold product, it has a sense of being fresh,” she says.
Reynolds also provided coupons for free product at the Bradley-sponsored Country Jam USA in Grand Junction, Colo., with the retailer subsequently redeeming 2,000 of the coupons.
As a whole, the category is not without its slower movers, with Ciciora citing product and promotion issues. While Marlboro did a good interior launch, Ciciora says, there was less promotion outside of the store. Also, while there was initial trial of the Marlboro product, there wasn’t a lot of repeat from customers.
Ciciora’s other major snus provider, Swedish Match, also hasn’t gained much traction. While its snus are well regarded, it hasn’t been seeing movement either, despite an equally prominent placement. “I think the problem with that is the lack of any advertising,” she says. “They’ve just got it on the shelf, and there’s not anybody promoting it.”
Fowler-Jones says the company has supported its snus brand with initiatives, and it has been pleased with initial consumer acceptance. “For 2012 we will more aggressively support the brand through awareness and trial-driving activities, now that we have established initial distribution levels,” she says.
So how can retailers and manufacturers get customers to pick up that first tin of snus? The answer, many contend, stems from educating them about what snus is and what its positive attributes are.
While snus dates back to the early 19th century, it remains a relatively new form of tobacco for American consumers. “Although there is high awareness of the word ‘snus,’ there is still a low understanding of what snus really is,” says Fowler- Jones of Swedish Match. “Consumer education for adult tobacco users on the benefits of snus remains an opportunity.”
And as recently as last year, during a Barclays Capital 2011 Back-To-School Consumer Conference, Howard A. Willard, executive vice president and CFO of Richmond, Va.-based Altria Group Inc., recognized the same challenge.
“We continue to believe that spitless tobacco pouches offer long-term potential, but we recognize that it will take time to create awareness and generate trial and conversion to spitless-tobacco pouches among adult smokers,” he said.
One retailer, who spoke on condition of anonymity, knows firsthand how important it is to be able to communicate what snus is to generate sales. In Canada, where he operates, tobacco isn’t even allowed to be displayed.
As a snus user himself, he tried selling du Maurier snus, a brand typically known for premium cigarettes, a few years back. But because of the merchandising restrictions, sales were limited to the few people who walked into the store knowing they wanted to purchase snus. “Nobody knew what snus was, and people didn’t understand it; sales were very, very slow,” he says. Du Maurier snus have since been discontinued. But the retailer continues to be hopeful about a future for snus. “I think it has potential down the road,” he says, adding that getting the word out about snus “has to be done through the U.S. first” before he would try it again. “In Canada, the response wasn’t there, and I don’t see it coming back for a little while.”
During a recent CSP CyberConference, UBS Securities analyst Nik Modi stuck to his belief that snus could be tobacco’s version of energy drinks in category growth, but that the timeline might be longer because of the communication issue. “The one advantage that energy drinks companies have is that they can advertise,” he said. “I’ve always said that the onus actually falls on the retailer to educate the consumer to get as quick a ramp on the consumption on this category as possible.”
As to how retailers can help in communication efforts, Richard Smith, spokesperson for Winston-Salem, N.C.-based Reynolds American Inc. says, “Best-in-class retailers, in our view, are the ones that effectively follow what we refer to as the ‘five P’s,’ which are pricing, promotion, category presence, product availability and personal selling—where stores can be a part of this growth story with adult tobacco consumer interactions at retail.”
For the personal-selling part of the equation, retailers are “becoming part of the story” with consumer interactions, he says: “It can pay for clerks to know about the product and what’s happening with the brand.
“When changes come in for sales and promotions, it’s important to keep up with what’s happening with the products and to be able to discuss them with adult tobacco consumers.”
Ciciora also says retailers need to do their part. She put together a “cheat sheet” for cashiers to explain to customers about what snus is. “You just can’t expect them to be experts at everything, and our stores are high-volume, fast-paced—and so you just don’t want to slow the line down, either,” she says.
A communication issue on the manufacturer side, according to Tim Grossi, category manager for La Plata, Md.-based Wills Group, dba 51 Dash In Food Stores, is that there doesn’t seem to be a clear competitive edge between the products on the market.
“Both [Altria and Reynolds] have gone toe-to-toe as far as cost, retails, merchandising space and other market-sharedriven tactics,” he says. “But what really is snus and what differentiates one over the other?” Consumers wouldn’t even buy shampoo that way, he says, yet “hyping” snus “is all about presence and cost and market share of a product that is still new and somewhat different by brand. My take is to have them educate the retailers on the difference in quality and how their product differentiates from other brands.”
In the world of communication, everything said so far would certainly accelerate growth, but in an incremental way. What would be the game changer for snus?
If you want to ask Bill Godshall of Smokefree Pennsylvania about snus, then be prepared to have a seat and learn. Evangelical in his conviction, Godshall preaches the relative health benefits of snus compared to smoked products. His is the argument that companies such as Swedish Match and Reynolds are carrying to the FDA: Snus is less harmful and deserves a different warning message based on reduced or moderate risk.
Several studies in Sweden, where snus use is more prevalent, have shown that the use of snus reduces smoking, heart attacks and lung cancer. Not being able to say snus is less hazardous, says Godshall, is “counterproductive for public health.” As a former three-pack-a-day smoker himself, he strives to “reduce the preventable mortality, morbidity and disability caused by tobacco use”—even when that means erring on the side of promoting a less-hazardous nicotine alternative to cigarettes. One day, he says, he would like to see about half of all tobacco consumed in America to be noncombustible products.
So far, handcuffed by regulations, the health benefit has gained little traction. Indeed, reducing health risks, says Godshall, ranks low among the reasons consumers use snus. A higher priority, he says, is that snus “doesn’t stink up their breath or clothes, they can use it where smoking isn’t allowed, and it’s cheaper.”
FDA Ruling Awaits
A decision by the FDA’s Center for Tobacco Products on how tobacco manufacturers may actually be able to market their products as modified-risk tobacco products (MRTP) is expected in April.
In December, the Institute of Medicine (IOM) released a report on the design and conduct of scientific research for such designations, which the FDA said in a release it would “take into consideration” concerning MRTPs.” It defined MRTPs as “any tobacco product sold or distributed for use to lower the harm or risk of tobacco-related disease associated with other tobacco products.” The IOM report suggests that a “wide range of scientific evidence” be required, and that tobacco manufacturers consider using FDA-approved independent third parties to oversee health and safety research. Jane Jenney, chair of the committee that wrote the report, said that third parties could “re-engage scientists and enable credible research data.”
The tobacco industry now, she said, “lacks the trustworthiness, expertise and infrastructure” to produce such research.
Although IOM can be influential, Christina McGlone and Andrew Kieley point out that it is just one nonbinding input into an FDA recommendation. In a recent Deutsche Bank report, they write: “The key is whether FDA ultimately: (1) Recognizes relative degrees of tobacco harm as a way to improve smoker mortality, or (2) Takes a hard line that any tobacco product is addictive/harmful and a starter product for youth, which is the long-entrenched stance of U.S. health agencies. This remains to be seen, but again, any actual product approvals will seem some years away.”
Meanwhile, Smith confirms Reynolds has applied for a modified-risk designation, but says, “Developments on this application rest with the FDA, and we wouldn’t begin to speculate on what they may or may not decide at this time.”
If manufacturers can communicate such messages, Modi of UBS said, it could change the landscape for products such as snus. “That’s why the reduced-risk debate becomes important, because snus is the ultimate reduced-risk mechanism based on the science that’s out there,” he said. And if the debate evolves soon, “It could really change the dynamic of the snus category and the backbar pretty quickly.