Market for Cigars
Sales and operating profit climbed, and cigar volumes hit an all-time-high level just shy of 2 billion sticks during 2021. Pricing improved, attributable in part to portfolio shifts. Swedish Match has a strong competitive position with its broad cigar range of both natural leaf and HTL.
The Cigars product segment derives its sales and profit almost exclusively from the US operations. In the US, Swedish Match maintains a strong presence with its machine made mass market cigars in the natural leaf segment1), as well as in the homogenized tobacco leaf segment (HTL)2) which is the largest cigar segment in the US. The Group’s portfolio of products is broad, covering a wide range of formats, brands, and tastes. Its natural, sweet, and flavored offerings are available under well-known brands such as Game and Garcia y Vega for its natural and natural rolled leaf varieties, and White Owl for HTL. Swedish Match manufactures its natural leaf varieties exclusively in its cigar plant in the Dominican Republic, while its HTL cigars are produced both in the Dominican Republic and at its Dothan, Alabama, US facility. The primary channel of distribution is convenience stores. The products are also sold in food stores, gas stations, independent tobacconists, e-commerce among other classes of trade.
The category for US machine made mass market cigars has experienced notable growth over the past several years. Based on distributor shipments to retail, cigar category volumes (excluding little cigars3)) increased by more than 3 percent in 2021, with continued volume growth for natural leaf cigars more than offsetting volume declines for HTL varieties. Swedish Match estimates that the size of the category in 2021 was approximately 8.7 billion sticks. The cigar category remained highly competitive in 2021.
- Swedish Match cigar shipment volumes grew by 5 percent in 2021 compared to the prior year. Swedish Match estimates that the Company’s volume share of the overall cigar category declined slightly and was approximately 22 percent in 2021.4)
- Swedish Match shipment volumes for natural leaf cigars grew by 18 percent in 2021, as production normalized versus COVID-19 constrained levels in 2020. The Company’s volume share within the natural leaf segment declined and amounted to approximately 35 percent in 2021.4)
- Swedish Match shipment volumes for HTL varieties declined by 13 percent in 2021, as raw material shortages negatively impacted the Company’s production levels and competitors recovered from prior year’s production challenges. The Company’s volume share within HTL-segment declined slightly and was approximately 14 percent in 2021.4)
- On April 29, 2021, the FDA announced that it is working toward issuing proposed product standards within the next year to ban all characterizing flavors (including menthol) in cigars. The intent to issue such a proposed rule is in line with previous announcements made by the agency since 2016.
- In the month of September, Swedish Match announced the intent to separate the US Cigar business and started working towards a spin-off to shareholders with a subsequent listing of the separated business on a US national securities exchange. In March 2022, Swedish Match took the decision to suspend the preparations for a spin-off until further notice. While the strategic intent remains to separate the US cigar business from the rest of the Group, a step that Swedish Match believe would further enhance the prospects for the smokefree business, as well as for the cigar business, the decision to suspend the spin-off preparations was prompted by increased regulatory uncertainties and considered to be in the best interest of shareholders.
1) Natural leaf cigars: cigars which have binders and wrappers made of parts of selected tobacco leaves cut specifically to form the binders and/or wrappers. Natural leaf cigars differ from premium hand rolled cigars in that natural leaf cigars contain short filler tobacco and utilize machines in the latter steps of the manufacturing process.
2) Homogenized tobacco leaf (HTL) cigars: Cigars which have binders and wrappers made of tobacco leaves that have been ground, mixed with water, homogenized and rolled into sheets to ensure a consistency of look, feel, and quality.
3) Little cigars are typically filter tipped and packaged in packs of 20. Swedish Match does not participate in this segment.
4) Based on MSA distributor shipments: Mass market cigars (excluding little cigars), full year 2021.
| Key data | 2021 | 2020 | Change, % |
|---|---|---|---|
| Financials | |||
| Sales, MSEK | 4,688 | 4,533 | 3 |
| Operating profit, MSEK | 1,841 | 1,796 | 3 |
| Operating margin, % | 39.3 | 39.6 | |
| Shipment volumes | |||
| Homogenized tobacco leaf (HTL) cigars, million sticks | 732 | 838 | -13 |
| Natural leaf cigars, million sticks | 1,258 | 1,065 | 18 |
| Cigars total | 1,991 | 1,903 | 5 |
| Market shares1), % | 2021 | 2020 | Change, % |
|---|---|---|---|
| Homogenized tobacco leaf (HTL) cigars | 13.6 | 14.8 | -1.2 |
| Natural leaf cigars | 34.9 | 36.7 | -1.8 |
| Cigars total | 22.0 | 22.4 | -0.4 |
1) Based on MSA distributor shipments: Mass market cigars (excluding little cigars), full year 2021 and 2020. Figures for 2020 have been restated to reflect changes in MSA store measurements.
