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[ FEATURE STORY]
Maintaining and gaining
A loyal customer base, product innovations and proper marketing
keep the loose-leaf category viable
By Tracy Cox
The loose-leaf tobacco category is holding its own in the smokeless-tobacco segment. While snuff chewing tobacco is most popular with smokeless users, the loose-leaf tobacco product also stands strong, with a loyal customer base.
Additionally, greater smoking restrictions, price advantages, and discount and flavor introductions bode well for continued sales of loose-leaf tobacco.
Overall, the smokeless tobacco segment has shown growth. A Smith Barney Citigroup report, “The Smoke Scene, U.S. Tobacco Trade Survey, First Quarter 2005,” included U.S. Smokeless Tobacco Co. and Swedish Match North America data estimating that the smokeless-tobacco category grew around 5 percent in 2004. Compared to a historic growth rate of about 2 percent, the smokeless category is faring well.
Product innovation and marketing are integral to a successful future for loose-leaf tobacco. “New products, unique promotions, original merchandising vehicles and visible point-of-sale will continue to surpass consumer needs and bring high profits to retailers,” said Jennifer Conner, associate brand manager, chewing tobacco, for Richmond, Va.-based Swedish Match North America.
Steady Sales 
Swedish Match can speak directly to the past and future of the loose-leaf category: the company’s Red Man brand celebrated its 100th anniversary in 2004. According to Connor, there are approximately 2 million users of chewing tobacco in America. The majority of loose-leaf customers are Caucasian men over the age of 35 who work blue collar jobs and earn an average household income of $44,000. These customers serve as a loyal base for loose-leaf.
Alex Goldman, vice president of House of Oxford Distributors, Somerset, N.J., said retailers need to know this product’s demographic. “Loose-leaf has a loyal customer base, mainly in lower-income markets,” he said.
These customers keep the loose-leaf category profitable for retailers, according to Connor.
“In 2005, total category dollar sales were just under $450 million, up .2 percent from 2004,” she said. The premium segment is responsible for 75 percent of the category sales and profitability, she added.
 Manufacturers have revived the category with flavor as part of an ongoing effort to satisfy this demographic. Flavor is not entirely new to loose leaf, as there has been flavoring added to many brands over the history of the category, including wintergreen, maple, apple, peach and others, but many manufacturers have said that revived interest in flavors has freshened the loose-leaf category in recent years.
“It’s the evolution and function of the marketing of this category,” said Michael Gold, president of Arango Cigar Co., Northbrook, Ill. “It’s the natural course, in the way that beers and vodka also have gone the flavored route.”
Henry Bailey, manager of Briar & Bean, Clarkesville, Tenn., agreed that the addition of flavor may be one of the reasons the segment is holding steady.
“A lot of my customers say they want a flavor instead of a regular tobacco taste,” he said. “Our Apple and Blue Hawaiian flavors do really well.”
Bailey said that though he can count on loose-leaf sales, he believes there is still room for the category to grow.
“We carry loose leaf and have always carried it,” he said. “I know our customers count on it. They complain when certain flavors are gone. One flavor was discontinued and our customers were so upset. It was like taking Coca Cola off the market. And people still ask for it.”
Vanilla, berry and peach are flavors that sell well, according to Craig Whitten, manager, Royal Pipe & Cigar, Norman Okla. In fact, flavor is the spice of life for his loyal loose-leaf fans, he said. “People want to try new things,” he said. “There is a segment of customers that like that.”
Innovative Marketing
The loose-leaf category calls for marketing techniques that go the extra mile. After all, there is a fair profit, Connor noted. Product innovation, promotions, placement and drawing attention to this category translate well to successful sales.
In April 2005, Swedish Match launched Red Man Silver Blend in the southern region as a test. This loose-leaf tobacco uses the same high-quality tobacco blend as the other Swedish Match loose-leaf products, except the sugars have been replaced with sweeteners found naturally in fruits.
“The Silver Blend test market results exceeded all expectations by offering a unique product that meets consumer needs,” Connor said. “We’re currently reviewing expansion scenarios.”
Ron Carroll is the marketing manager for Swisher International, Jacksonville, Fla., producers of loose-leaf chewing tobacco for more than 120 years, including well-known brands like Mail Pouch, Chattanooga Chew, Lancaster and Starr.
Carroll said successful loose-leaf tobacco brands must possess three qualities: great taste, full tobacco flavor and an affordable price. Although Swisher said loose-leaf sales have been relatively flat over the past few years, promotions have worked well.
“As a whole, we have seen a small spike in our share, primarily due to aggressive promotional activities such as ‘buy two, get one free,’ ‘buy one, get one free’ and cents-off offers,” Carroll said.
Promotions are a reliable way to keep this category fresh. Swedish Match encouraged multi-pouch purchases with new promotions, and in early 2005 the company aligned with Rapala, a brand of fishing tackle, to create a limited edition Red Man fishing lure. The lures were complimentary with the purchase of a Red Man carton.
“The promotion was so successful that we are exploring ways to continue this partnership in the future,” Connor said.
Additionally, in an effort to appeal to consumers that enjoy hunting, in the fall of 2005, Swedish Match secured a co-branding partnership with Mossy Oak, a hunting supplier. With the purchase of a Red Man or Golden Blend carton, Swedish Match consumers received a free camouflaged hunting pack to carry hunting necessities. These successful ventures have created a successful path for Swedish Match’s future marketing.
“We will continue to explore new ways to align the Red Man brand with leading brands in hunting and fishing in order to deliver value to the loose-leaf consumer,” Connor said.
Product Placement
In many states “behind-the-counter” initiatives have forced retailers to take tobacco products from store shelves. The checkout kiosk area of the store may be more cramped and, as a result, chewing tobacco is often placed under the cash register and out of sight. Undoubtedly, this placement has negatively affected the sales of chewing tobacco brands.
Goldman emphasized the importance of product placement. “You have to show the customers that your product is fresh and kept properly, not just stuck on some shelf to get old and dusty,” he advised.
“Anything that retailers can do to bring the loose leaf within immediate eyesight of the consumer will increase their sales,” Connor agreed.
Swedish Match recently launched two pioneering display vehicles: a convenience-channel-specific merchandiser adapted to the limited space of convenience stores and the Red Man six-pack display that offers consumers a “buy 5 pouches, get 1 free” offer. This promotional display was targeted to high-volume independent stores and discount tobacco outlets in an effort to entice consumers to increase their average purchase of 2-3 pouches per visit.
“This promotion was extremely successful and resulted in a higher dollar ring and profit for retailers,” Connor said.
Retailers know that, as with any product, variety is important. More product selection results in more sales and repeat business. Category management best practices indicate that it is important to understand the category segmentation, product pricing, promotions and how these factors affect retailer assortment. Retailers also should know their brands, and there are more than 30 brands of chewing tobacco products, Connor said.
Retailers should also continue to offer consumers a variety of loose-leaf brands at competitive pricing. And retailers also should consider which products will bring the most profit and satisfy the largest percentage of the retailer customer base.
“For years, the premium segment has offered the best profit, accounting for almost 75 percent share of the dollar volume in the category,” Connor noted.
For this reason, retailer assortment should reflect the appropriate market segmentation of premium brands, value and price brands.
Discounts and Promotions
Retailers should carry premium stock, but also provide the choices that capitalize on lower cost. With increasing product costs and taxes, growth in smokeless is driven by promotional and discount segments. There has been slight growth in the lower-priced items as state OTP taxes continue to increase, according to Goldman.
With discounting, retailers should keep in mind the differences in product quality and brand loyalty, as well as unique taste profiles. Manufacturers advise promotion of loose leaf with promotions that appeal to both retailers, resulting in profits, and consumers, based on value. The smokeless category has been dominated by the moist-snuff segment and the loose-leaf product could benefit from the strength of this product.
“Industry volume seems to be stable and with the moist-snuff market experiencing more new users entering the category, it is a positive sign that loose leaf could see some crossover users, as well,” Carroll said.
Looking Ahead
Today’s non-smoking environment at the workplace and in other public places is a factor that bodes well for future sales of loose-leaf tobacco products.
Customers putting aside their cigarettes could mean a potential change to loose-leaf tobacco. Retailers should be ready with appropriate marketing, promotions and choice, meaning an appropriate assortment of premium and value-priced brands.
The loose-leaf tobacco segment is a tradition that goes back generations. And there is no need for an overhaul of the loose-leaf market, most industry insiders say.
“It’s a 200-year old market,” Goldman said. “Sometimes, the idea is that if it isn’t broke, don’t fix it.”
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