Market for Other tobacco products
Sales for Other tobacco products primarily comes from cigars and chewing tobacco for the US market. Swedish Match has also expanded its presence in Europe with chew bags and tobacco bits.
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
It is estimated by Swedish Match that the market for US machine made mass market cigars grew by approximately 4 percent in volume terms in 2018 and amounted to approximately 7.5 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 5 percent. During 2018, 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 23 percent in 2018. 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. Within the natural leaf segment, rolled leaf cigars have experienced rapid growth.
During 2018, Swedish Match expanded distribution for a number of cigar products under brands such as Game, Garcia y Vega, and White Owl. A price increase on the rolled leaf assortment was implemented during the year which enabled improved profitability for these products to be more in line with the Company’s other natural leaf cigar products. 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 has increased dramatically, which during the latter part of the year led to tightened tobacco supplies. Swedish Match’s HTL volumes declined in 2018 with its White Owl and Jackpot brands. During the year, FDA related costs increased for cigars from both higher user fees (on increased volume) and required changes to packaging and point-of-sale materials.
Swedish Match is the largest participant 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 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 2018 declined in line with historical trends. 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. Swedish Match has increased its share in both the premium and value segments. With the more rapid decline of the premium segment, there has been a shift in the Swedish Match portfolio 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 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. For instance, Swedish Match has a 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.
In Europe, modern chewing tobacco products, such as chew bags, represents a very interesting opportunity for Swedish Match as it has proven to be 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. The V2 acquisition has helped to broaden Swedish Match’s footprint for these types of products in Europe and certain other markets. Swedish Match’s brand portfolio now includes General Cut, Göteborgs Rapé and Thunder. During 2018, Swedish Match’s chew bag products were available in a number of markets including Germany, Denmark, Switzerland, Slovenia, and the Czech Republic. Expanding Swedish Match’s offerings of innovative smokeless products in line with the strategy provides greater consumer choice in both existing and new markets.
On April 3, 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. Main markets are in Scandinavia and certain other EU countries. The production facility is located in Odense, Denmark.
1) Source: Swedish Match and industry estimates, full year, 2018.