Market development

Market for Other tobacco products

In the US, Swedish Match maintains a strong presence with cigars, especially within the natural leaf segment where the Company has the leading position, and holds the number one position for chewing tobacco. Swedish Match also sells chew bags, a modern form of chewing tobacco available in small pouches, in certain European markets.

 

Cigars

Swedish Match maintains a strong presence with cigars in the US with such well known mass market brands as Game, White Owl, and Garcia y Vega.

Market and highlights

It is estimated by Swedish Match that the market for US mass market cigars grew by approximately 10 percent in volume terms in 2017 and amounted to approximately 7.2 billion cigars excluding little cigars (a segment in which Swedish Match does not participate). Swedish Match’s cigar volumes reached a new record level, increasing by 11 percent. During 2017, the market remained highly competitive with extensive activity for lower priced and promotional products. Swedish Match estimates that the Company’s share of market was approximately 22 percent in 2017. Swedish Match participates in both the homogenized tobacco leaf (HTL) segment, which is the largest segment, and the natural leaf segment, a smaller but growing segment in which Swedish Match holds the leading market position.

During 2017, Swedish Match expanded distribution for a number of cigar products under brands such as Game, Garcia y Vega, and White Owl. The volume growth for Game and Garcia y Vega natural leaf cigars was particularly strong, and were a major contributing factor for Swedish Match’s solid volume growth. The Company’s natural leaf cigars offer exceptional quality at an attractive price point. Swedish Match also grew HTL volumes in 2017 with its White Owl and Jackpot brands.

Chewing tobacco

Swedish Match is the largest player in the US chewing tobacco category, with the market’s number one selling brand, Red Man. Swedish Match also sells chew bags, a modern form of chewing tobacco available in small pouches, in certain European markets and the largest brands are Thunder and General Cut.

Market and highlights

The US market for chewing tobacco is in a long term state of volume decline. It is estimated that the market in 2017 declined in line with historical trends, negatively impacted by significant tax increases in some states in the latter part of 2016, including Pennsylvania. The decline was more pronounced in the premium segment where Swedish Match has a leading position. In this segment, the decline was approximately 10 percent. In the value segment, which declined at a more modest pace than the premium segment, there was growth for the big bag category.
For Swedish Match, the US chewing tobacco business is an important and profitable part of the Other tobacco products portfolio with solid cash flow generation. Swedish Match’s chewing tobacco shipments (excluding contract manufacturing volumes) declined slightly less than the market.

The Group’s Red Man brand is by far the largest chewing tobacco brand in the US, accounting for more than one third of all volumes sold on that market. Swedish Match brands account for approximately 40 percent volume share of the market.1)

With declining chewing tobacco consumption in the US market, Swedish Match works to reduce costs and maintain operating efficiency while also addressing pricing in order to ensure good profitability. An example of an efficiency measure is the contract manufacturing agreement with National Tobacco, whereby Swedish Match produces the chewing tobacco range of this competitor in the Owensboro, Kentucky, US facility. Swedish Match’s strong market share allows this business to remain highly cash generative. Also, as the market declines, Swedish Match is well positioned to maintain its share position over time in each of the pricing segments and packaging formats.

Chew bags represents a very interesting opportunity for Swedish Match as it has proven to be a viable smokeless alternative in some markets in Europe. During 2017, the Company’s chew bag products were available in a number of markets including the Czech Republic, Denmark, Germany, and Slovenia. Expanding the Company’s offerings of innovative smokeless products in line with the strategy provides greater consumer choice in both existing and new markets. On August 31, 2017, Swedish Match acquired V2 Tobacco, a Danish manufacturer of both chew bags and snus. V2 Tobacco has a broad presence for chew bags in Europe and certain other markets, helping to broaden Swedish Match’s footprint for these types of products.

1) Source: Swedish Match and industry estimates, full year, 2017.