Product quality and price drive category
Not surprisingly, with smoking bans breaking out all around us and taxes making the sky the limit on cigarette prices, smokeless is one area of the tobacco industry that’s doing pretty darn well. David Sutton, of Altria’s media affairs, isn’t willing to tie category growth to any specifics, however, either in terms of why the market is growing or if certain areas in the category are growing or shrinking. “It’s hard to pin down, but clearly what’s happening is that there’s growth in the category across the board,” Sutton says, adding that it’s hard to spot any category shifts because of the growth in the category itself.
Altria is now strong in the smokeless category, following its acquisition of U.S. Smokeless Tobacco Co. in January 2009 and the on-going test marketing of Philip Morris USA’s Marlboro snus in Indiana, Arizona and the Dallas-Ft.Worth area of Texas. USST’s Copenhagen and Skoal brands account for almost half of the smokeless tobacco market. Though Altria is optimistic about category growth, they’re continuing to stick to their earlier estimated long-term growth rate for smokeless products of 7 percent.
This might be way too conservative. “Our [smokeless] business went up about 25 percent over last year,” says Fred Hoyt, who owns 18 Smoke N Go and Cheap O Depot stores in Louisiana. “People are looking for a way to enjoy tobacco products in an environment that prohibits smoking.” He thinks cigarette price increases due to taxes and the fact that people are looking to cut back and use tobacco in a more controlled manner have something to do with the growth spurt. “The manufacturers are discounting too, which is helping drive sales up,” Hoyt says.
He hasn’t noticed one particular type of smokeless doing better than another. “We sell everything,” he says. “They’re all doing better. The [bans] are driving more of the tobacco users, people who enjoy it, to try the smokeless product [and] I think a lot of people like them.”
Clark Darrah, director of global brands at Swedish-Match N.A. whose main smokeless brands are Timberwolf, Redman and Longhorn has noticed an important trend. “What’s new this year is that the price-value brands represent almost half the category,” he says. “There has been no growth in the premium brand segment. … Consumers entering the category are willing to choose a non-premium brand more than ever before,” he says, giving non-premium brands “increased legitimacy.”
“We do not have any premium brands,” Darrah says. Timberwolf and Redman are value-priced brands and he’d consider Longhorn a sub-value brand. Timber Wolf and Longhorn Moist Snuff come in cans, Redman Chewing Tobacco in pouches. Thanks to a Redman joint venture with Lorillard, there is now also a Redman Moist Snuff. That product also comes in cans.
Darren Schwartz, who owns 28 Smoker’s Choice stores in the New York-Pennsylvania area gives Conwood’s Grizzly brand credit for carving out that value-price path in the smokeless market. Up ‘til then, smokeless had been a much higher-profit area for manufacturers, he says. “When Grizzly came out … it was absolutely humongous,” Schwartz says. “It’s a great price and a great product.”
“The growth and the strength of Grizzly continues today,” says David Howard, director of communications for Reynolds American Inc., speaking on behalf of Conwood Company and R.J. Reynolds Tobacco Company, both operating companies of RAI.
“Grizzly is not only the No. 1 brand in the moist snuff category, but Grizzly wintergreen long cut is the No. 1 selling style of moist snuff on the market today.
“The price may get their attention, it’s the product that keeps them coming back,” he says. “It’s an honest product at an honest price.”
Among other smokeless products, Conwood also produces Cougar price-value and Kodiak premium moist snuffs.
Working with Conwood, Reynolds this year introduced the new Camel Dip, which is a traditional moist snuff product and available in two styles: a dark-milled fine cut with a rich tobacco flavor and a wintergreen widecut, an innovation in the traditional moist cut, where you’d normally find fine cut and long cut. The advantages of the wide cut are better packing and more flavor, Howard says. It also has a packaging innovation—inside the metal puck is a plastic liner that helps ensure freshness. Camel Dip is a premium product, priced similarly to Skoal or Copenhagen, he says.
Copenhagen itself is launching a new product available in retail nationally as of Nov. 9, 2009, though when it will arrive in specific areas or stores remains to be seen. The new Copenhagen will be that winning combination of long cut tobacco and wintergreen.
“That’s the first wintergreen offering from the Copenhagen brand,” Sutton says. At present, Copenhagen is the leading MST brand in the natural flavor segment, which represents 34.4 percent of the total MST category, he says. Schwartz thinks the launch is a good move. “They made a real good decision in coming out with Copenhagen Long Cut Wintergreen—a top brand and top flavor,” he says.
Snus—you don’t lose
“In Sweden over the last 15 to 20 years, there’s been a decline in cigarette smoking and an increase in snus,” Darrah says. “They say there’s been a reduction in tobacco-related diseases, which some feel was a result of that. In 2002, the cancer warning was abolished on Swedish snus.”
Given the similarities in the current American market—increased smoking restrictions, a more regulated environment and a higher relative price of cigarettes vs. smokeless, he expects the switch to snus to emerge in the United States as well. “With the decline of cigarette sales in the U.S., people are looking for other alternatives,” he says. “Snus probably is the best product for their needs.”
Swedish Match has a joint venture with Philip Morris International in Stockholm for a snus product and is testing a snus brand called Triumph in Ohio and Georgia in convenience stores, Darrah says. The brand was started in late 2007/early 2008 and so far has been performing up to company expectations. “It’s how we want to approach snus in the U.S.—the product, brand and merchandising,” he says.
Swedish Match also has General, which Darrah says is the only authentic snus product sold in the U.S. “We have the No. 1 snus brand in the world,” he says, adding that it is also No. 1 in Sweden, where people consume more snus per capita than anywhere else in the world. Up until now, General has been sold mostly at tobacconists, but Swedish Match now has a few tests going with some discount tobacco outlets.
Of course, RJR has an interest in the success of snus too. It introduced Camel Snus in April 2006 in limited markets, added additional markets in 2007 and 2008, and rolled out nationally in the first quarter of 2009. “We’re very pleased with the early indications that this is a product that adult consumers enjoy that is RJR,” Howard says.
“Here we have a brand, Camel,” he says. “It’s an iconic brand name that adult smokers are familiar with. It’s also known for innovation. Now we can provide premium markets not just with cigarettes, but with snus, creating with one powerful brand, a total-tobacco brand.” Not only do the new smokeless, spitless products provide people with the opportunity to enjoy tobacco at times they can’t smoke, they also meet societal expectations, he says.
Schwartz is also enthusiastic about Camel Snus. In the beginning, he says, the snus were more of a high-end product and it was very hard to get consumers to try them. More recently, trial offers at very low prices have been enticing people to try them and they like them. Schwartz thinks if they can get the pricing right, the product will move. Even the idea of having to store the product in a refrigerator, which Schwartz thinks is a bit of a gimmick, he thinks could work to sell the product. “Everything I’ve heard about it has been positive,” Schwartz says. “It already has brand recognition. … The market for it has increased. It’s a great alternative. … One good thing about pouches and snus, there’s more and more women that use moist snuff.” |
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