Moist smokeless tobacco(MST) continues to grow amid an expansion of tobacco-related options, contributing to a declining cigarette sector already harmed by a rash of local and federal restrictions.
The darling a decade ago, MST is mature, showing stable single-digit annual growth; newer segments, notably oral products and e-cigs, fight to win more space in the OTP section.
The question is, will those up-and comerspull space from MST? Moist smokeless manufacturer Swedish Match hopes not. A price rollback and new package design stand as part of the Richmond, a.-based company’s strategy to capture more market share of the growing discount MST category. Competitors appear to be taking a wait-and-see approach to reacting to the moves.
“Historically, the pouch segment of the moist-snuff category has grown at twice the rate of the total category,” says Joe Ackerman, marketing director of U.S. smokeless brands for Swedish Match. “Within the last year, that rate has accelerated to three times the category rate. We anticipate this growth trend to continue as tobacco consumers continue to gravitate toward the convenience of pouch products.”
Most of the growth, he says, is in two areas: About two-thirds of it is coming from low-priced or value moist snuff, and one-third from pouches.
“With the advent of [major tobacco companies] coming into the marketplace, we have seen more products in the value priced segment of this category than any other,” Ackerman says.
In 2000, pouches made up roughly 3% of the market (not including snus),a number that has since quadrupled in percentage. Swedish Match’s smokeless brands include General snus and Longhorn, Timber Wolf and Red Man moist products. In late January, the company slashed the factory selling price (FSP) for all Longhorn and Timber Wolf pouches to 90 cents per can—a 31% reduction for Longhorn and a 49% reduction for Timber Wolf.
“Swedish Match has been caught between Altria and Reynolds’ price battles, so it was an obvious thing for them to do in order to stabilize their market share,” says UBS tobacco analyst Nik Modi. “The reality is they’re too small to really make a difference right now. ... Swedish Match is less than 10% of the market, and it’s at a disadvantage because it doesn’t have contracts like the others do.”
With the price decrease, the company hopes to “re-establish the historical price gaps [it has] enjoyed throughout the years on all our products,” says Ackerman.“We view this segment as one that will soon be 15% to 20% of the overall moist snuff category, and we want to make sure that we have strong representation in this particular segment.”
Modi said he believes this move is a good one for Swedish Match: “Philip Morris has been launching a lot of new products at a lower price point—at introductory price points—so it makes sense.”
Package Deal
That innovation includes new packaging and functionality. The pricing change follows the company’s introduction last summer of Timber Wolf and Longhorn’s new package design, which offers a pouch storage and disposal compartment in the lid. It is an industry first, according to Ackerman, one that he expects other MST makers will find a way to replicate, despite some having metal rather than plastic cans.
“With the recent pouch packaging change, consumers will successfully differentiate Timber Wolf and Longhorn pouches from competitive brands,” Ackerman says. How will Swedish Match’s moves play out on the OTP chessboard? One way to assess this is to look for a reaction from its primary competitors: Richmond-based Altria’s U.S. Smokeless Tobacco Co. and Winston-Salem, N.C.-based Reynolds American Inc. So far, these two tobacco titans seem relatively quiet in their response. “I don’t think we’ll see [a reaction] unless it is really effective in showing that it is gaining share,” Modi says of Swedish Match.“We might see some increased promotional activity here or there, but I don’t think we’re going to see any sweeping price cuts based on Swedish Match’s move just yet.”U.S. Smokeless Tobacco’s two leading premium MST brands are Copenhagen and Skoal. It also offers discount-segment brands, including Red Seal and Rooster. Altria spokesperson Brian May says the company’s focus is on growing its premium brands. “Our marketing programs are designed to enhance brand awareness, reward loyalty and drive competitive conversion, “he says. The category has been growing but faces a tough economic environment.“We have to be mindful of the economic conditions that the country is in,” May says. So the company has introduced new products, and “some of those are offered at a lower price than others in the brand family,” he says.
And the price is making a mark. “That’s really about generating awareness ... generating trial, particularly among adult dippers that use our competitors’ products,” he says. “That’s how we think about pricing in this economic environment.”
Over the past year or so, recent introductions have included Copenhagen Wintergreen Long Cut and Copenhagen Wintergreen Pouches, Copenhagen Southern Blend and, in the beginning of 2012, the Skoal Extra products. Most recently, in November 2012, Skoal introduced Ready Cut into about 20 states.
Consumer Influence
Changing consumer preferences are also driving change in the MST category.“Our approach is to continue to develop innovative products that will meet their needs and preferences as they change over time,” said May. “That’s something all of our operating companies are really focused on: developing innovative products that meet their changing needs.”
According to Modi, the segment is “seeing more migration to pouches, to cleaner forms. So I think that’s why, inspire of the fast growth Swedish Match is seeing in pouches, they’re cutting prices there as well. They want to make sure they maintain momentum in their pouch business.”
Reynolds American, whose American Snuff Co. produces the market-strong Grizzly and Kodiak lines, is capitalizing on another slice of the OTP pie.“We see the growing interest in MST as a transformation in tobacco—something that R.J. Reynolds is leading with products such as Camel Snus,” says Reynolds spokesman Richard J. Smith.
“We’ve seen consistent growth and interest in the MST category as a result of a number of different factors,” he continues, “such as the evolving preferences of adult tobacco consumers and changing societal expectations of tobacco products. The industry must transform to meet those expectations.”
Smith emphasizes the role of retailers such as tobacco outlets and convenience stores in driving MST category growth.“For our retail partners, the biggest challenges it relates to MST products is to understand the opportunities and take full advantage of the growth they can provide,” he says.
Reynolds American has developed a pipeline of new smokeless and other product innovations, including heat not-burn cigarettes, vapor and tobacco extract products, Smith says.
So moist smokeless users should continue to expect greater selection, more diverse packaging and multi-price tiers from Altria, Swedish Match and Reynolds
.“Innovation efforts across multiple platforms,” says Smith, “is in line with the long-term strategy to transform the tobacco industry.”
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