News; Mar 7, 2007 CET

No. 2 worldwide in cigars

Swedish Match is the world's second largest cigar company in terms of sales value. Strong sales, driven by successful launches and sensitivity to trends and consumer preferences, are among the reasons.

SOME 15 BILLION CIGARS are consumed each year. The largest and most important markets are North America and Europe, which combined account for more than 90 percent of the total cigar market. The remaining sales are primarily in Asia and Australia.

Swedish Match has operations within both machine-made cigars and premium cigars. Combined, the two segments had sales of 3,407 MSEK in 2006.

Cigars are produced at Swedish Match plants in Houthalen (Belgium), Pandaan (Indonesia), Santiago (Dominican Republic), Danli and Confradia (Honduras) and Dothan, Alabama (USA). The Group also has tobacco plantations in the Dominican Republic and in Connecticut, in the US. Cigar Operations have approximately 8,500 employees.

But what is it that makes Swedish Match so successful in the cigar segment? The answer lies, among other factors, in the Group´s longterm strategic work with brands. A further success factor is Swedish Match´s ability to rapidly predict trends and match consumer needs and wishes with new products.

In the US, which is Swedish Match´s most important cigar market, accounting for two thirds of sales, the company has a leading position in the premium-cigar segment. The market share amounts to nearly 35 percent and five of the ten most smoked premium cigars in the US are Swedish Match brands. The leading brand in the US is Macanudo, while other well-known cigar brands include Partagas, Punch, Hoyo de Monterrey, Cohiba, La Gloria Cubana, Don Tomas and Helix.

The clearest current trend within premium cigars is the continued interest in full-bodied cigar blends and cigars that can be enjoyed in a shorter time. There is also increased interest in cigars in tubes.

US consumes approximately 7 billion machine-made cigars annually

Within machine-made cigars, known as the mass-market segment, Swedish Match has also been successful in foreseeing and satisfying market trends, in both the US and the rest of the world. While more than 300 million premium cigars are smoked in the US each year, the corresponding figure for machine-made cigars is a staggering 7 billion - a volume that has grown by between 1 and 3 percent annually over the past ten years. Swedish Match´s market share is around 7 percent, and the company’s strongest brands in the US are White Owl and Garcia y Vega.

Owl and Garcia y Vega. In the US, a clear shift can be seen from simpler products to cigars with natural wrappers.

"This was our motivation for launching Game, within the Garcia y Vega brand, in the middle of last year," says David Price, Vice President Marketing at Swedish Match North America Division. "It was an immediate success, and during the first six months alone we sold more than 30 million cigars."

Interest in flavored cigars continues. Swedish Match has launched a number of successful products in this segment, including White Owl Peach, Grape and Pineapple. The flavored cigars were the number one new cigar item for three consecutive years, beginning in 2003. White Owl Pineapple won Convenience Store Petroleum magazine´s Best New Product award in 2005. However, David Price emphasizes that the company’s future success will be driven by continuing to identify consumer trends, as well as developing strong brands that hold up regardless of trends.

Benelux and France our top markets in Europe

In the European market, Swedish Match´s sales are dominated by machine-made cigars, for which the total market amounts to approximately 6 billion sold products per year. The strongest Swedish Match brands in Europe, whether they are regional or local, are La Paz, Willem II, Hofnar, Bellman, Justus van Maurik, Salsa and Cortéz. At the beginning of 2006, Hajenius and Oud Kampen, two wellknown brands in the premium short fillers segment, were acquired, as well as the flagship Hajenius cigar store, the most exclusive in Amsterdam.

Swedish Match markets and sells cigars and cigarillos throughout Europe. The largest markets for Swedish Match are the Benelux and France, while sales volumes are also significant in the Nordic region and Spain to name a few. During the past year, the company has used its aggressive and successful strategy to capture market shares in a slightly declining market characterized by tough competition and increasingly stringent legal restrictions.

According to Jean-Louis Leppert, Vice President Marketing, Swedish Match International Division, the company´s success in cigar sales is due to its active development of new products in the different markets.

"We have launched an average of 25 new products per year since 2004, and the results have not been slow in coming. A full 12 percent of sales volume for 2006 derived from cigars and cigarillos that did not exist a mere two years ago," says Jean-Louis Leppert.

Popularity of aromatic cigars continues

As in the premium cigar segment, one of the clearest trends within machine-made cigars is without doubt the aromatic products.

"Today, nearly every country has a vanilla cigarillo," says Jean-Louis Leppert. "Some smokers and those around them find that the aroma of cigar smoke is not always appreciated, but a scent of vanilla can break down the barriers. It is mainly new recruits to cigar smoking who take to the new flavors, while long-time consumers still prefer the more traditional cigars."

As a result of the increased restrictions on smoking, there is also growing interest in shorter cigarillos and cigarillos with filters, as well as smaller packs containing only a few products.

"The key to our success is our strong brands and high launch rate of up-to-date new products that meet market preferences," concludes Jean-Louis Leppert.