Market for Other tobacco products
Sales for Other tobacco products primarily comes from cigars and chewing tobacco for the US market. Swedish Match also has a presence in Europe with chew bags and tobacco bits.
In the US, Swedish Match maintains a strong presence with its machine made 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 other chewing products, such as chew bags and tobacco bits, in the European niche chewing tobacco market.
Swedish Match maintains a strong presence with machine made cigars in the US. Its portfolio of products is one of the broadest portfolios on the US market with flavored, natural, and sweet varieties available under well-known mass market brands such as Game, White Owl, Jackpot, and Garcia y Vega.
Market and highlights
The US machine made mass market cigar category has experienced significant growth over the past several years, but in 2019, the market is estimated by Swedish Match to have declined slightly in volume terms and amounted to approximately 7.5 billion cigars excluding little cigars. The category volume decline was driven by the homogenized tobacco leaf (HTL) segment, and in particular for low priced flavored HTL cigars. The natural leaf segment continued to demonstrate growth. Swedish Match cigar volumes were down less than 1 percent compared to the prior year. During the year, the market remained highly competitive. Swedish Match estimates that the Company’s share of market was approximately 22 percent in 2019. Swedish Match participates in both HTL, which is the largest segment, and in natural leaf, a smaller but growing segment in which Swedish Match holds the leading market position. Within the natural leaf segment, rolled leaf cigars have experienced rapid growth.
The volume growth for Game and Garcia y Vega natural leaf cigars was particularly strong, and was a major contributing factor for increased sales and operating profit. The demand for the Company’s rolled leaf cigars continued to be strong. While Swedish Match’s rolled leaf volumes increased during the year, tightened tobacco supplies due to the high demand limited the volume growth of rolled leaf cigars. However, the Company made significant progress throughout the year in easing these constraints. Swedish Match’s HTL volumes declined in 2019.
Swedish Match is the largest participant in the US chewing tobacco category, with the country’s number one selling brand, Red Man. Swedish Match also sells chew bags, a form of chewing tobacco available in pouch format, in certain European markets and the largest brands are Thunder and General Cut. Swedish Match also has a presence with its Oliver Twist tobacco bits in Europe.
Market and highlights
The US market for chewing tobacco is in a long term state of volume decline. It is estimated by Swedish Match that the market in 2019 declined in line with historical trends. The overall volume decline for the total category was driven by premium products where Swedish Match has a leading position. Here, the decline was approximately 11 percent. The value segment of the market was stable in volume terms, with growth in the big bag format.
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. Swedish Match has increased its share in both the premium and value segments. For Swedish Match as for the industry, there has been a shift toward lower priced brands.
The Group’s Red Man brand is by far the largest chewing tobacco brand in the US, accounting for approximately one third of all volumes sold on that market. Swedish Match products 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. For instance, Swedish Match has a contract manufacturing agreement with a third party, 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.
In Europe, chewing tobacco products, such as chew bags, are a viable smokeless alternative in some markets. In 2017, Swedish Match acquired V2 Tobacco, a manufacturer of both chew bags and snus with production in Silkeborg, Denmark. In 2018, Swedish Match acquired House of Oliver Twist A/S, a Danish manufacturer of tobacco bits made of processed tobacco strands under the brand Oliver Twist. The production facility is located in Odense, Denmark. The V2 Tobacco and House of Oliver Twist acquisitions have helped to broaden Swedish Match’s footprint for these types of products in Europe and certain other markets. Swedish Match’s brand portfolio includes General Cut, Göteborgs Rapé, Thunder, and Oliver Twist. In 2019, Swedish Match’s chew bag products were available in a number of markets including the Czech Republic, Denmark, Germany, Slovenia, and Switzerland. In November 2019, judgements in court cases in Germany were presented which concluded that certain Thunder brand chew bag products as well as loose chew products sold in Germany are to be regarded as oral tobacco not intended for chewing and therefore not allowed to be sold in Germany. Following the recent judgements by the court in Germany and in view of changed market dynamics in certain markets, a non-cash impairment charge of 367 MSEK in the European chewing tobacco business was recognized as a larger one-time item during the fourth quarter 2019. The judgements of the German court have been appealed.
1) Source: Swedish Match and industry estimates, full year, 2019.