News; May 17, 2002 CET

Smokeless in the US, Timber Wolf a solid success

Swedish Match success in the North American market for smokeless tobacco is continuing. The main locomotive is Timber Wolf, a strong snuff brand, but chewing tobacco also shows positive earnings growth, despite a declining total market.

It was 1994-1995 when Swedish Match entered the American value-price market for snuff through the introduction of its Timber Wolf brand. In retrospect, one might say it was a solid success right from the start, and one of the most successful products ever launched by Swedish Match. Timber Wolf is the best-selling brand in its segment today and continues to take market shares in the US, which is the world's largest single market, with annual growth of 2-3 percent.

During 2001, Swedish Match increased its sales of snuff in the US market by 13 percent, measured in terms of the number of cans sold. As a result, the company's average market share rose to 8.5 percent, compared with 7.5 percent in the preceding year.

THIS GIVES LENNART FREEMAN, President of Swedish Match North America, every reason to be satisfied. Success in the US, however, has not come without hard work.

»Our major competitors are trying to fight back, and the battle becomes more intense every year, so we must continuously work to increase the efficiency of our marketing operations,« says Lennart Freeman.

»What that means« adds Ed Golden, Vice President Marketing, »is that we must constantly monitor the overall picture, from how we work with our distributors to pricing. We also invest substantial resources in efforts to strengthen our brand in various ways.« »We are the only producer that is strong in all OTP areas ? meaning Other Tobacco Products, which comprise smokeless products, cigars and pipe tobacco ? and our efforts have paid off handsomely,« notes Lennart Freeman.

»In particular, the integration of our sales forces after the acquisition of General Cigar has borne fruit and greatly expanded our market coverage. As a result, the market's large customers regard us as the leader in the OTP category, which in turn generates strong interest in working more closely with our organization. Retailers are often involved in our planning process, and we keep them constantly supplied with relevant market information and sound advice ? on product exposure, for example.«

IT HAS STILL NOT BEEN POSSIBLE, however, to make any significant gains in the American health debate, despite the recent favorable publicity for Swedishmanufactured snuff.

Lennart Freeman notes: »I believe it will take a little time before people start talking about snuff as a less harmful alternative to smoking. For the time being, the debate is charged with emotional arguments and a limited element of factual information. Naturally, however, we conduct an intensive and ongoing dialogue with various public authorities. It is also interesting to note that our largest competitor has asked the federal authorities for guidance regarding snuff advertisements and what they are allowed to include. The results of these discussions will naturally also affect our operations.«

However, the ongoing launch of two new snuff alternatives has confirmed the US market's strong confidence in smokeless products. These efforts are focused, in particular, on Sequoia, a premium snuff brand first introduced almost exactly a year ago.
LENNART FREEMAN IS PLEASED with the results that have been achieved so far. »The launch is proceeding as we had planned. We should also bear in mind, however, that it takes time to introduce a completely new brand. We have also encountered growing competition in conjunction with the launch.«

The second initiative is Exalt, another new product, which has several similarities with the Swedish mini-pinch snuff. Sales of Exalt, however, are still regarded mainly as test operations, rather than a new product launch, and are currently being conducted only in two limited market areas.

WHILE THE US IS ONE OF several markets for snuff, chewing tobacco is a more specifically American product. The market is also concentrated in the country's southern states and is declining by 4-5 percent annually. Swedish Match has steadily increased its market share, and is the largest of four producers of chewing tobacco. »We have noted a steadily improving share trends for a number of years,« says Lennart Freeman.

»Among the reasons are our success in taking market shares and improvements in production efficiency. More cost-effective marketing, as well as pricing initiatives, have also contributed to our strong results.«

SWEDISH MATCH CHEWING TOBACCO is marketed under several brands, of which Red Man, a brand that has been sold for more than 100 years, is the largest in the US. The fastest-growing brand in the Red Man family is Golden Blend, which appeals to a somewhat younger consumer group. Additionally, Southern Pride, a price brand that was introduced in 1998 has also quickly become a success.

In the immediate future, there is good reason to feel optimistic about the American market, according to both Lennart Freeman and Ed Golden. »It's an exciting market characterized by very strong sales growth. As for our own operations, we are now expanding our distribution network for both Timber Wolf and Sequoia,« says Ed Golden.

»The outlook for 2002 is also good,« adds Lennart Freeman. »The first quarter showed favorable sales growth for Timber Wolf and continued positive performance for chewing tobacco.«