| Sven Hindrikes on |
| the business environment |
Companies must constantly adapt to various changes in their business environment. For Swedish Match’s operations, the most obvious business environment factor is perhaps the international efforts to limit tobacco use, which have had repercussions in society in the form of new regulations, changes in legislation and changed consumption patterns and values. One consequence of this is an increased interest in snuff as an alternative to cigarettes. Other factors that affect our operations are the tougher competitive situation, mainly in the snus and snuff markets, and a growing interest in luxury and pleasurable products.
Legislation
Legislation relating to tobacco has been tightened considerably during recent decades as part of moves to limit the harmful effects caused, in particular, by cigarette smoking. This has resulted, among other developments, in new marketing restrictions, warning texts on packaging and bans on smoking in public places.
While many of the new laws restrict Swedish Match’s operations, they also create new market opportunities. Our smokeless tobacco products provide a better alternative for those who choose to stop smoking but do not wish to refrain from using tobacco products. This is clear in Scandinavia, where many smokers have switched to snus. A similar trend can also be observed to some extent in the US, where there are currently some 50 million cigarette smokers. When these people are no longer allowed to or wish not to smoke, they increasingly look for smokeless alternatives.
Changing trends
Luxury and pleasure
A trend that has gathered pace in recent years is the increased interest in consumer goods that give a feeling of luxury and pleasure. Although most consumers are price-conscious, they are nevertheless willing to pay for that little bit extra, with the result that luxury products and premium brands are being sold as never before. Consumers are enjoying the finest chocolate in beautiful packaging, oak-matured cognac in crystal balloon glasses, expensive vintage wines and aged cheeses. The focus is on quality rather than quantity, and consumers place a high value on their indulgences. For Swedish Match, the trend is reflected in increased sales of premium cigars and the emergence of a totally new category of premium snus.
Smoking cigars is a lifestyle in itself, associated with many positive values by cigar aficionados. Some of them talk of it as a pause for contemplation. Others speak of how their thoughts become clearer and creativity increases, which may be linked to savoring a moment of peace and quiet amid the otherwise frenetic tempo of life. It is almost impossible to feel stressed with a cigar in the corner of your mouth.
Health
Another trend that also affects our operations is the consensus that prevails today regarding the threat to public health represented by cigarette smoking. All over the world, a high priority is given to efforts to persuade people to stop smoking, involving marketing restrictions, bans on smoking in public places and increasingly heavy taxation of tobacco products.
In Sweden, considerable success has been achieved in efforts to restrict cigarette smoking, and a unique situation exists regarding tobacco consumption. The proportion of daily smokers in the population is currently below 15 percent, which is the lowest in Europe. What is striking is that Swedes’ total tobacco consumption is roughly the same as in comparable countries. The unique factor in Swedish tobacco consumption is the large proportion accounted for by snus – there are nearly as many users of snus in Sweden as there are smokers. The positive effect of this is the extremely low incidence of tobacco-related illnesses among Swedish men. Among other things, statistics show that Sweden has the lowest rate of lungcancer of all industrialized countries.This unique situation has attracted much attention in the international health debate and is a key element in what has come to be known as “the Swedish Experience”.
Today, this is playing a prominent role in the international health debate about which strategies are most effective for reducing cigarette smoking. For a growing number of researchers in the tobacco area, it appears increasingly evident that snus can serve as an alternative to cigarettes, with a dramatically lower health risk. Current research shows that snus is the most common and successful aid for Swedish men who have stopped smoking, and that very few snus users switch to smoking.
Seen in this perspective, the EU ban on snus dating from 1992, is a serious obstacle. It preserves the monopoly of the most dangerous tobacco products – cigarettes – while obstructing the freedom of consumers to choose less hazardous products. There is no question that public health in the EU countries would benefit from scientifically based regulation of smokeless tobacco products in place of the present arbitrary ban on snus.
The public health strategy that has become established in recent years is essentially to oppose all tobacco use. I believe it would be desirable to distinguish different tobacco categories from each other, since it is clear that it is smoking, rather than tobacco as such, that constitutes a health risk.
Effective January 1, 2007 the tax on tobacco products was raised in Sweden. The per stick tax on cigarettes was increased by 40 percent, while the weight based tax on moist snuff was increased by a full 100 percent. It is regrettable that the tax was raised by less for the documented health hazardous cigarettes, and by more for snus. This sends misleading signals to the general public.
Competition
A handful of large multinational companies dominate the global tobacco market. These companies are all characterized by the predominance of their cigarette operations. Swedish Match has chosen a different business profile with the focus on smokeless tobacco products and cigars, which means that we actually benefit from current social trends. Swedish Match has a unique position in the international tobacco market and is playing a prominent role in the development of the modern smokeless-products category.
From a competitive perspective, it is especially interesting that the number of players in the market for the Swedish type of snus has increased sharply over the past few years. In Sweden, several new players have entered the market, and the increasing competition has driven up the pace of development of new flavors and new formats and packaging.
It is also interesting to note that all the major tobacco companies have now complemented their cigarette-dominated product portfolios with snus – primarily through acquisitions.
“A good cigar closes the door on the vulgarities of the world.”
Franz Liszt
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