Market for Smokefreee
Markets for smokefree alternatives, driven in large part by innovative products have demonstrated attractive growth. As the market leader in Scandinavia and a rapidly growing player in the US, Swedish Match is well positioned for the future.
The development of the combined Scandinavian snus and nicotine pouch market remained strong in 2019 driven by modern and innovative products, and Swedish Match’s volumes increased during the year in Sweden, Norway, and Denmark. In other parts of Europe, there is a potential for innovative smokefree products and Swedish Match has introduced nicotine pouches in several markets. In Switzerland, the ban on the sale and distribution of snus was lifted in 2019 and snus is now allowed to be sold on this market. In the US, Swedish Match became the first tobacco company to receive Modified Risk Tobacco Product (MRTP) designations from the FDA for its portfolio of General snus products, including mint and wintergreen varieties. The US market for nicotine pouches continued to demonstrate an impressive growth trajectory, with Swedish Match building on its leading position. On the US moist snuff market, Swedish Match offers attractive alternatives in the fastest growing formats – pouches and tubs.
Snus, nicotine pouches and moist snuff
Swedish Match is the leading snus producer in Scandinavia and enjoys strong market positions in both Sweden and Norway. In Sweden, General, a premium product, is the largest brand on the market, while Kronan and Kaliber are among the leading brands in the value priced segment.1) In Norway, General is the largest Swedish Match snus brand on the market, including its G.3 range. Swedish Match also offers nicotine pouches on the Scandinavian market. In Sweden, Swedish Match is marketing ZYN, its nicotine pouch product without tobacco. In Norway, the Company is marketing its G.4 range, which contains a small amount of tobacco. Swedish Match also offers Onico in both Sweden and Norway, the number one brand in the segment for products with neither tobacco nor nicotine. In Denmark, Swedish Match is present in the growing nicotine pouch segment with ZYN.
1) Source: Swedish Match estimates of can volume using Nielsen data (excluding tobacconists in Sweden), full year 2019.
The combined Scandinavian snus and nicotine pouch market is estimated to have amounted to approximately 470 million cans in 2019, up by more than 7 percent from the previous year.1) Most of this growth came from nicotine pouches, which by the end of 2019 was approximately 9 percent relative to the snus category in volume terms.
Over the long term, snus consumption has been moving from traditional loose products to pouch products, which at the end of 2019 accounted for more than 86 percent of volumes in Sweden and Norway combined.1) More recently, consumption has been moving to more innovative pouch offerings. Swedish Match’s Scandinavian shipment volumes measured in number of cans grew by more than 2 percent, while underlying organic volumes (excluding hoarding and year-end calendar effects as well as acquisition effects) are estimated to have increased by approximately 1 percent.
Sweden has more than 1 million snus consumers, and growing.2) It is estimated that more than 24 percent of Swedish men and more than 7 percent of Swedish women use snus on a regular basis. The overall percentage of women using snus has been growing in recent years, while their use of cigarettes has declined.2) The consumption of nicotine pouches is more skewed towards female consumers and it is estimated that in Sweden, more than half of nicotine pouch consumers are women.2) The average nicotine pouch consumer is also somewhat younger than the average snus consumer.
The Swedish snus and nicotine pouch market is estimated by Swedish Match to have grown by approximately 7 percent in volume terms in 2019 versus the prior year. Nicotine pouches accounted for the majority of this growth, but the Swedish snus market also grew. The upward trajectory was mainly attributable to the premium segment.1) This development reflects the continued shift away from the more traditional and higher-priced pouch and loose products toward premium pouch products which are offered at somewhat lower consumer price points. While volumes also grew within the value segment of the Swedish snus market, the pace of growth was more modest than for the premium segment.1) Nicotine pouch volumes have been growing quickly and this segment was 6 percent relative to the snus market in Sweden.1) Nicotine pouches are innovative and modern products with price points in line with higher-priced premium snus. The fast growth of these products has contributed to a positive price/mix effect in the combined market for snus and nicotine pouches.
In Sweden, Swedish Match’s market position is strongest within snus, and more specifically in the premium segment of the snus market. While the Company’s premium volumes grew during the year, it however lost market share in this segment. Within the value segment of the snus market, competition remained intense during the year, and Swedish Match’s volumes and market share declined. Swedish Match’s market share within nicotine pouches is significantly lower than its share of the Swedish snus market, but the market share increased slightly compared to the prior year.
During the last 20 years, the Norwegian market has transformed from being a small traditional snus market to a large snus and nicotine pouch market with growth coming from nicotine pouches. In this time period, consumption of cigarettes has shifted to snus and nicotine pouches, especially among younger adults. The Norwegian market is an all premium market. As in Sweden, the majority of Norwegian nicotine pouch consumers are women, and the average age of both male and female nicotine pouch consumers is also younger than the average snus consumer.
The combined category for snus and nicotine pouches in Norway is estimated by Swedish Match to have grown by more than 5 percent in volume terms in 2019 versus the prior year. Nicotine pouches3) grew, while the snus category declined. The size of the nicotine pouch segment in terms of volume was more than 19 percent relative to snus.1)
In Norway, as in Sweden, Swedish Match’s market position is stronger for snus than for nicotine pouches, and the Company is significantly underrepresented in this rapidly growing segment. While Swedish Match’s snus market share in volume terms in Norway is estimated to have increased by approximately 1 percentage points, the Company’s nicotine pouch market share is estimated to have declined by approximately 2 percentage points.1)
1) Source: Swedish Match estimates of can volume using Nielsen data (excluding tobacconists in Sweden), full year 2019.
2) Source: Ipsos Sweden, Market Report, 2019.
3) In Norway, Swedish Match classifies nicotine pouches separately from snus. Under Norwegian regulation, nicotine pouches which contains only small amounts of tobacco are classified as snus.
Highlights in Scandinavia
In recent years, Swedish Match has been successful in the premium segment of the Swedish snus market with its attractively priced XR and One ranges. These products have drawn consumers from both higher and lower priced products, and have supported volume growth for premium brands. In 2019, the Company continued to build on the strength of XR and launched new snus varieties under this product range, including XR Göteborgs Rapé Sparkling Slim White. In addition, Swedish Match repositioned General Onyx, snus products with a distinctive look coming from the onyx black pouches. With these premium offerings at attractive price points, Swedish Match was able to improve its competitive position helping to mitigate its share decline within the premium segment during the latter part of the year.
In the nicotine pouch market in Sweden, Swedish Match continued to expand the distribution of ZYN, a brand first launched on the US market prior to being offered in Sweden. The Company offers two formats of ZYN on the Swedish market, Slim and Mini Dry, with the main difference being ZYN Slim having a somewhat softer and fuller mouth feel. During the year, the Company extended the ZYN range with new products in both formats. New launches included Apple Mint, Ginger Blood Orange and Lemon Spritz in the Slim format as well as Spearmint and Espressino in the Mini Dry format. ZYN volumes increased during the year and Swedish Match gained some share in this rapidly growing category. The Company’s ambition is to capture a higher portion of the category growth.
In Norway, Swedish Match estimates that all of the growth for the combined snus and nicotine pouch market is coming from nicotine pouches, while the snus category is declining in volume terms. Swedish Match gained market share in snus supported by the Company’s G.3 range of products, with functional properties such as a soft fit, minimal drip and a long-lasting snus experience. Volumes continued to decline for loose snus and for the more traditional pouch products.
In the rapidly growing nicotine pouch category in Norway, competition remained intense, and Swedish Match lost market share despite new product introductions during the year under the G.4 brand, including G.4 BLUSH, G.4 TACT, and G.4 FIZZY. The G.4 range, first launched in 2017, was developed utilizing state of the art technology and provides a soft mouth feel.
In Sweden, Swedish Match has six of its own stores which offer a unique consumer experience. At the Swedish Match stores, consumers can learn more about snus and nicotine pouches and the Swedish Match range of products. The stores are also an ideal venue to inform about new products. Starting with a store in central Stockholm at the end of 2012, the store concept now includes locations in Gothenburg and Lund, as well as in locations close to the Norwegian border – Strömstad, Åre, and Charlottenberg. Swedish Match also provides the store experience online through its e-commerce service.
In the US, Swedish Match sells nicotine pouches under its ZYN brand, and snus under its General brand. ZYN and General are priced in line with premium priced moist snuff products.
The Swedish Match brand portfolio for moist snuff is positioned in the value priced segment, with traditional loose products as well as pouch products. Longhorn is Swedish Match’s largest brand in the US market.
While nicotine pouches is a relatively new category on the US market, its growth rate has been impressive, and Swedish Match estimates that the US nicotine pouch market amounted to approximately 60 million cans in 2019, up from 13 million cans in 2018. During 2019, several competitors to Swedish Match entered this market by aggressively introducing their product offerings, a testament to the attractiveness of this category. The market growth potential for nicotine pouches is strong, as these products have a potential to appeal to a wide segment of the adult tobacco consuming population who desire a discrete and spitless alternative without tobacco.
The US snus market amounted to approximately 60 million cans in 2019, basically flat compared to the levels seen in recent years.1) Swedish Match estimates its market share by volume of the snus market to be approximately 10 percent.
Moist snuff is sold throughout the US and volumes are particularly strong in the southern and mid-Atlantic states. The vast majority of moist snuff users in the US are men. The moist snuff market is highly price competitive. In 2019, the US moist snuff market is estimated by Swedish Match to have declined by approximately 1 percent in volume terms compared to the previous year, and amounted to more than 1.5 billion cans, with the pouch segment accounting for approximately 17 percent of this market. Swedish Match’s moist snuff volume measured in number of can equivalents was lower compared to last year. For the full year 2019, Swedish Match estimates its market share by volume of the moist snuff market to be approximately 8 percent.
1) Source: Swedish Match and industry estimates.
Highlights in the US
During 2019, Swedish Match expanded the availability of ZYN nicotine pouches nationally from the Western region base. By the end of 2019, ZYN was available in more than 67,000 stores. While the distribution footprint for ZYN expanded more than fourfold during the year, growing volumes for ZYN were also attributable to increased sales volume per store. Shipments of ZYN in the US amounted to 50.4 million cans for the year, up from 12.7 million cans in the prior year. Market data indicates that the national rollout markets trend consistently with, or better than, how the established Western region market performed based on comparable time in market. To handle the increased distribution and higher in-store velocities, Swedish Match has invested significant resources into US production capacity of ZYN, a project that was initiated in 2017. While the first phase of the project was completed in early 2019 when the US production facility became operational, the second phase was completed towards the latter part of the year. The third phase of the project is expected to be completed in early 2021, effectively doubling currently installed capacity and bringing total US-based manufacturing capacity to somewhat more than 150 million cans annually. Given the market success of ZYN, Swedish Match has recently decided to once again expand capacity. The fourth phase, which is planned to be completed in 2022, will involve building expansion as well as processing and packaging lines that will increase annualized installed capacity to more than 200 million cans.
In the US, the Company markets the General snus brand – an authentic Swedish snus, available in tobacconists, convenience stores, and other select shops. In October, Swedish Match became the first tobacco company to be granted authorization from the US Food and Drug Administration (FDA) designating eight General snus varieties, including its mint and wintergreen varieties, as Modified Risk Tobacco Products (MRTP). In reaching its conclusion, the FDA found that the designated General snus products, as actually used by consumers, will significantly reduce harm and the risk of tobacco-related disease to individual tobacco users and benefit the health of the population as a whole taking into account both users of tobacco products and persons who do not currently use tobacco products. The MRTP designation will allow Swedish Match to market the products with the following modified risk description – “Using General Snus instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis” – along with standard health warning statements required of all smokeless tobacco products.
For the US moist snuff market, while category volumes remained soft in 2019, growth in value terms increased. While the premium segment of the market declined, the value segment grew.1) There was continued intensive competitive activity among large competitors, especially in the value segment. While Swedish Match’s volume and market share declined for its higher priced brands in the value segment, the Company has maintained its position with its Longhorn brand, as well as strengthened its position with pouch products in that growing segment. Approximately 83 percent of moist snuff in the US is sold in the traditional loose format1), but over the past several years, the percentage of moist snuff sold in pouches has increased. Swedish Match estimates the growth in the pouch segment to have been approximately 3 percent in volume terms in 2019. While volumes declined for loose products, the Company experienced solid volume growth for its pouch assortment, again reaching an all time high market share of approximately 8 percent in the pouch segment.
1) Source: Swedish Match and industry estimates.
Geographies outside Scandinavia and the US
Outside the Group’s home markets, Swedish Match continues its efforts to establish snus and nicotine pouches in other countries, and the Company sees good opportunities for its snus and nicotine pouch products over the longer term.
In 2019, Swedish Match expanded the availability of ZYN on a limited scale to a number of markets outside Scandinavia and the US, and by the end of the year, the Company was present in stores in markets including Austria, Croatia, the Czech Republic, Estonia, Germany, Greenland, Slovenia, and the UK.
In addition to the rollout of nicotine pouches, Swedish Match is also continuing to establish a presence with snus in select markets. In 2019, Swedish Match has been selling snus in Malaysia and certain other markets and has during the year started to sell snus in Switzerland. Due to regulatory developments, the decision was made to exit the Canadian market for snus.
During 2019, the Swiss Federal Supreme Court ruled that the country’s ban on snus was illegal and unconstitutional, making particular note of the fact that snus is less hazardous than other tobacco-based products allowed on the Swiss market. The decision was enforced with immediate effect, and Swedish Match now sells snus on the Swiss market.
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.