|
 But the future for main manufacturer Swedish Match may hinge on
efforts to convince U.S. authorities these small pouches, banned on
health grounds in the rest of the European Union, are less harmful
than most other tobacco products.
The strategy, closely watched by the tobacco industry eyeing
alternatives to traditional cigarettes, may be key for an iconic
99-year-old Swedish company seeing its dominance challenged in its
domestic market, where some 285 million cans were consumed last year
in a country of 10 million people.
"It could potentially be an important catalyst," Swedish Match CEO
Lars Dahlgren told Reuters, referring to an application with the
U.S. Federal Drugs Administration (FDA) to reclassify one of its
premium products as a lower health risk for consumers than
cigarettes.
"We consider it a milestone. It is an essential part of our
strategy."
Swedish Match is pushing for the "modified risk" status created by a
2009 U.S. law, the first application to be considered for such a
designation.
Snus differs from snuff, a dry powder often sniffed through the
nose. Snus is popular in Norway and Sweden and has grown from almost
nothing to some 50 million cans sold in the United States last year.
However, it has been banned in the European Union due to concerns
over mouth cancer.
Wedged under the upper lip for a nicotine hit, it is part of Swedish
culture. When Sweden joined the EU in 1995, it was granted exemption
from an EU snuff ban. Voters may never have accepted membership if
any snus ban had extended to Sweden.
The U.S. push is part of a move by the company to promote products
like snus -- and possibly e-cigarettes -- under a banner of "harm
reduction", having sold its own cigarette business 15 years ago.
With profits sliding at home over the last two years because of
cheap foreign competition, the U.S. market has become more important
as the EU shows no signs of lifting its ban.
"We've been waiting for growth there for a long time but this may be
the catalyst to give them the edge," said Erik Bloomquist, a
Berenberg Bank analyst. "The problem is that it could take two to
three years and that could blunt the impact."
SWEDISH SQUEEZE
While smoking is frowned upon, at business lunches Swedish
executives will often have a can of premium snus by their plate and
will pop one under the lip during meetings. In bars, young hipsters
drink and sample snus at the same time.
"First of all you can do it anywhere," said 24-year-old Ebba Stahre,
a Stockholm-based singer. She started using snus at the age of 15,
although it is banned at schools and not legally available to
under-18s.
"You don’t have to go outside to do it. It's socially acceptable,"
she said.
With a 71 percent market share in Sweden, its traditional home base
is being squeezed by foreign competitors like Japan Tobacco and
Imperial Tobacco. Only three years ago it had 85 percent of the
market.
"I think that snus has a big potential in the U.S. market even
without the FDA," Dahlgren said, adding he was looking at a three to
five year period to gain market traction, backed by a cigar business
offering it infrastructure and access.
With sales of 12.6 billion crowns ($1.7 billion) in 2013, snus
accounts for about 60 percent of Swedish Match profits thanks to
margins of around 45 percent.
Swedish Match trades at 13.5 times 2015 forecast earnings before
interest, tax, depreciation and amortization (EBITDA) on an
enterprise value basis.
That compares with an average multiple of 11.2 for seven of the
largest international tobacco groups, including Philip Morris
International, British American Tobacco and Imperial Tobacco.
The premium reflects speculation that the company could be an
acquisition target for the likes of Imperial Tobacco and has a lower
litigation risk than competitors.
[to top of second column] |
Swedish Match has sent a 100,000 page report to the FDA to support
its request for "modified risk" status for one of its best known
snus brands.
It argues snus not only presents less risk of tobacco-related
diseases like lung and oral cancer but that many smokers have
swapped cigarettes for snus. The Nordic country has some of the
lowest rates of tobacco-related diseases in Europe.
"The conversations with the FDA are far better than with the EU,"
said Sweden Match chief scientist Lars-Erik Rutqvist, who formerly
worked in epidemiological cancer research at Stockholm's Karolinska
Institute. "In the EU it was all political. In the FDA is has been
about science."
A ruling is due within a year. If the decision goes against Swedish
Match, the company says it is still set to push sales in the U.S.
market, but analysts say it may cut back on marketing expenses that
have eaten into profits.
Swedish Match has around a 10 percent U.S. market share for
smokeless products, some 4 million cans. A Handelsbanken Capital
Markets research note said if just one percent of American men used
snus, the U.S. market would be double that of Sweden.
But with snus the company faces intense competition from the likes
of Altria Group, with its Marlboro Snus brand, and there is
scepticism that consumers will accept any new kinds of products.
Americans have a stronger tradition of taking a form of snuff which
is placed under the lower lip and spat out.
COST OR QUALITY?
With a new center-left government in Sweden raising taxes on snus to
help pay for increased welfare, looking abroad is becoming more
important
At a factory in the Swedish city of Gothenburg, dominated by the
sweet smell of fresh tobacco, officials highlighted how they filter
out impurities. Even moisture from imported fresh tobacco is steamed
out and then reinjected with cleaner Swedish water.
"We want to be different, to keep up high standards," said Jerry
Bogestrand, head of product development.
But he added that cost, not quality, may increasingly be the main
selling point. "The most important issue is its price in the market,
and second is quality. The younger generation is far more price
conscious," said Bogestrand.
Some analysts argue Swedish Match should exit the U.S. to focus on
ensuring it does not lose more of the Scandinavian market. Others
argue it needs new products like e-cigarettes, a market worth some
$2.2 billion.
E-cigarettes, battery powered inhalers that heat nicotine in liquid
form to emit vapor rather than smoke, have led some to argue
authorities should accept smokeless products to help people wean
themselves off conventional cigarettes.
The company sells e-cigarettes through the brand in Russia, although
it is more cautious about the Scandinavian market.
"It's early days for the whole category but cigarettes have helped
putting harm reduction on the agenda of regulators. E-cigarettes are
potentially a product that could fit in with Swedish Match's
portfolio," said Dahlgren.
(Additional reporting by Helena Soderpalm, Robin Vetter, Anna
Ringstrom and Johannes Hellstrom; Editing by Keith Weir)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
