Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:20} Can you provide some context to when you were re-launching snus for Swedish Match in the US?

{audio:0:00:28} Swedish Match is one of the oldest snus companies, building initially from a monopoly on the Swedish market for oral tobacco. It has been in the US for 30 years selling snus in very few select stores around the country, for expats, ice hockey players and others who know about the category product. The discussions we had at that time was what the key things were for us to be able to expand and grow the category in the US. At the same time, Camel was launching snus in the US in a novel metal can which was a bit of an innovation. The market for moist snuff is huge and still growing in the US.

{audio:0:01:27} Swedish Match should theoretically have a huge potential for a more modern pouch product which is not wet and does not drive saliva and spitting. Those was the major drivers and the situation we were in. The MST market was moving from loose MST into pouches and it was growing at double digits at that time, so it was a clear sign of consumer demand to sophisticate the products. There was demand for a product which was more discrete versus traditional chewing tobacco and MST. Many US Swedish Match US staff were interested in growing the business because they were doing traditional MST with Red Man as well as machine made cigars, but both those segments were not seeing any growth, so this was an opportunity for them to get a product which would sell better.

{audio:0:02:42} Why is the moist snuff market so big in the US and snus so small?

{audio:0:02:47} Tobacco, in every market, is both a traditional and a conservative market. Consumers find their favorite product and stick to it for a long time, perhaps a lifetime. Tobacco companies make very healthy margins so there is no demand or cost pressure to innovate and create new products when everything is working out well. Tradition is a very important part of it which is why you still see that the US MST market is very healthy and has huge margins. Looking at consumer demographics, many MST consumers mirror the traditional snus consumers in Scandinavia.

{audio:0:03:49} They tend to be more rural than urban, and have conservative values. In a situation where both companies and traditional conservative consumers are happy with what they have, it is hard to create a new product niche. The US MST market remains a conservative one. That is what the consumer base looked like in Scandinavia and the US.

{audio:0:04:26} What were the biggest barriers to US consumers adopting snus?

{audio:0:04:32} The first one was to get the message across about the difference between snus and pouched MST. The key difference – not going into the production technology which is a slightly different because it is pasteurized versus fermented tobacco – from a consumer standpoint, snus does not drive saliva so there is no spit. This was the key communicative message we put across, which Camel also did with their snus. You can go into a meeting or have drinks with friends without the need for spitting. The challenge was getting that message across to consumers with conservative and traditionalist values, and who like to spit.

{audio:0:05:26} A lot of hunting and fishing happens in areas where MST is popular, so spitting is part of the ritual that many MST consumers appreciate. The other challenge was getting the message across generally, because consumer communication is extremely expensive in the US. In the very limited areas you could communicate directly with consumers, it is a challenging space to be in. Swedish Match is a small player, with limited resources and limited ambition to invest.

{audio:0:06:15} Do moist snuff consumers enjoy spitting and using the product?

{audio:0:06:22} Yes, especially the traditional ones who use MST. The market for the past 15 years has been moving towards a higher share of pouches in the MST sector, but the traditionalists are very hard to convince. There are still almost 50% of MST consumers who will not switch because spitting is part of the tradition. We did a lot of consumer research and found that the MST users, who were working and living in urban environments, still used this when they went hunting, fishing or to the summer cottage where they have many family ties. My father or grandfather used MST and, therefore, so will I when I am back in my homestead, hunting or fishing. Traditions run deep in terms of how you use it and in which situations or environments.

{audio:0:07:26} How do you see that changing, given we are moving more towards pouch?

{audio:0:07:31} There will always be a significant number of consumers who like loose snus. Similarly, in the US for the foreseeable future, there will be a significant number of consumers who appreciate MST, both the sweet flavor and the spitting ritual. MST has grown over the past 12 years I worked with it, and you could say the same thing about snus, disregarding the past few years in Scandinavia. There is a strong demand and it is about cultural traditions. In a global world, you want something unique to strengthen your own local identity.

{audio:0:08:35} MST in the US is unique to the country and geography, which people appreciate. With nicotine pouches now booming, it will definitely take over at some point but it will not eradicate the market for snus or MST.

{audio:0:09:00} We can talk about pouches later, but how would you compare the customer demographic of a US moist snuff consumer versus a Scandinavian one?

{audio:0:09:15} In the beginning of the 19thCentury, snus was a hard-core blue-collar product, made from tobacco scraps used for the bourgeoisie who used cigars and pipe tobacco. It was a working-class product from the early 1800s to the late 1900s. The introduction of the pouch for snus in the mid-70s and the so-called white pouches in the late 1990s changed that. Over the past 25 years, there has been a complete social acceptance in the Scandinavian market for snus and we will see ministers and corporate executives using snus in the best restaurants, in meetings.

{audio:0:10:20} That is thanks to product innovation – the white pouch in particular – but also due to cigarettes and smoking significantly decreasing in all Western economies. There will always be demand for nicotine and people appreciate and respect that. That is what has happened in the Scandinavian market; full social acceptance of the consumption of snus. The US challenge is the spitting. MST is not nearly as socially accepted as in Scandinavia, so that will differentiate the markets in terms of MST never being big in urban environments, the C-suites or in high politics.

{audio:0:11:18} How do you compare the nicotine per pouch or consumption between snus and moist snuff and the health benefits around the products?

{audio:0:11:28} Both products are necessary, in the sense that consumers want the nicotine, but it is also a treat. In addition to nicotine delivery, there is the flavor experience and that you have something physical in your mouth, which creates the total experience for the consumer. US consumers see spitting as a ritual and is an important part of the consumption pattern, and they spend 40 to 50 minutes enjoying the MST product. In Sweden, it has become less of an enjoyable product, not like the Cognac you could have for 45 minutes to an hour.

{audio:0:12:30} Swedish consumers would spend 20 to 30 minutes, then take it out and if they are a super user or heavy consumer, they would simply replace it with a new one. It is much more of a nicotine delivery platform in the Scandinavian markets versus MST being a full experience of all the physical things including the spitting. That has developed with the white pouch.

{audio:0:13:02} How is the snus delivery mechanism different to cigarettes?

{audio:0:13:06} You inhale the smoke, which is burnt tobacco that goes straight into your lungs. That is how it is disseminated into the blood system, whereas snus goes through the mucosa. It is a slower process where you feel an initial kick in your brain within 30 to 40 seconds, as soon as you have moistened the pouch, but it takes a few minutes before the nicotine hits your blood system. That is why smoking is a pleasurable product and many people enjoy the physical ritual of holding it, lighting it and sucking it, and is a much more effective way of getting nicotine into your blood.

{audio:0:14:00} We usually say injecting is the quickest way of getting nicotine into the system, but smoking is the second most effective way, going through the lungs quickly into the vessels. Snus takes a few minutes before it gets into the system, so that is the difference in uptake.

{audio:0:14:20} If a cigarette consumer switches to snus, does the nicotine intake change?

{audio:0:14:30} Most standard snus products try to mimic the delivery and quantity of nicotine. There are weaker and stronger products, but that is typically what you are looking for. Nicotine differs from many other drugs in that you cannot over consume it. There are filters in the mucosa which limit the amount of nicotine that can enter the system. Many smokers have challenges because they do not get that six, seven second initial release into the system as they do when they first inhale a cigarette. You have to be patient and wait 30 to 60 seconds before you get that first delivery.

{audio:0:15:28} Smokers feel the nicotine urge takes a few minutes, then disappears, so they no longer have the urge. But the initial minute, whether MST, snus or nicotine pouches, they feel frustrated. I am not a smoker and started off with pouches, but that is what the research says.

{audio:0:16:10} Yes, injection is the quickest way but impractical. Smoking is really effective and oral tobacco is different and requires getting used to.

{audio:0:16:25} Does that limit the conversion of smokers who quit cigarettes?

{audio:0:16:31} Absolutely. The research I did over the dozens of years I worked with oral tobacco, shows that the morning cigarette at home with the first cup of coffee can never be replaced. But as soon as I start the commute, get into the office or go to lunch, restrictions apply. Smoking restrictions were one of the key triggers for the expansion of the oral market. In places where restrictions are not as hard as they are in Western Europe, smoking is not coming down in the same way because the ritual and product quickly deliver nicotine.

{audio:0:17:27} How do the pouches for snuff and snus differ in the manufacturing process?

{audio:0:17:39} MST is cut tobacco which is fermented for up to two weeks, whereas snus is a pasteurized product from ground tobacco. There are products with fine cut tobacco but the traditional product is ground tobacco, which means you release moisture in the grinding, then the product is pasteurized. All snus are produced according to food standards, so it is a more refined product which also means the delivery is slightly different. Fine cut MST tobacco does not affect consumer perceptions but that is the difference in production techniques.

{audio:0:18:34} The second thing which differs between MST and snus is that MST is sweetened. They add molasses, flavors and sugars, so the product is bad for teeth health, whereas snus has no impact and is positive because it keeps the pH at a good level. MST does not do well outside the US and snus does not do well outside of Scandinavia. They are two very different production processes resulting in different products, but they are both used orally.

{audio:0:19:20} Can you manufacture them both in the same facility?

{audio:0:19:23} Swedish Match produced both MST and snus in the same facility, but in different parts of the plant. MST is naturally fermented in covered vats which are checked daily to see if the ingredients have developed to the stage where it can be used and packed. There are some common elements but, typically, no one runs them on the same production lines.

{audio:0:20:14} How do you compare the switch from cigarettes to heat not burn, vaping and snuff, given your consumer research background?

{audio:0:20:28} Cigarettes were invented in the late 1800s but during the 1900s through the World Wars and Hollywood movies, they became a global product. What changed that was US lawsuits during the 1990s, when big tobacco was sued by people who developed cancer. That is when the big companies split, such as PMI, Altria, BAT and Reynolds, and they realized they needed to find something else which would drastically reduce the risks of cigarettes. That is how e-cigarettes, heat not burn and vape came into the market.

{audio:0:21:25} Both big tobacco companies and smaller innovative ones developed alternative inhale products in the early 21stCentury, but the challenge with that is they are not allowed to be consumed where smoking is forbidden. As smoking bans continue to be put in place with higher restrictions, that triggered development into new areas. Snus have been around for a long time so was the first natural place to look. All the big tobacco companies bought up snus factories in Sweden to bring snus to their market and learn more about the product. Most of the tobacco companies have tried to launch snus outside of Scandinavia.

{audio:0:22:24} I worked for several years heading up the joint venture between Swedish Match and Philip Morris. A big challenge was, when you put it in front of consumers and they first opened the can, they encountered a non-appetizing smell and the product did not look tasty. When users put it in their mouth, they felt a burning sensation and the taste of ammonia. Today nicotine pouches are the next step in delivery of nicotine. It is a very simple product development to move from a product with a bad appearance, smell and taste. We removed all three and made it white, odorless and with an appetizing flavor. We solved the problem while retaining the same product. It is the same sized pouch with nicotine, but more successful.

{audio:0:23:29} The development of delivery platforms is common sense, and the reason it never happened earlier goes back to companies with healthy margins and happy consumers. There was no drive or rationale to innovate. Both the lawsuits in the 1990s and then the smoking restrictions triggered the change phase into oral tobacco.

{audio:0:24:03} How will the market share between e-cigarettes, heat not burn, vaping products, snus and moist snuff change over the next five years?

{audio:0:24:17} $100 billion has gone into developing products and building production capacities. What will hold a rapid switch over to modern oral tobacco is the investments which will be there for a long time. Everyone now understands that nicotine pouches are so much better for consumers because they can use it anywhere, independent of smoking restrictions.

{audio:0:25:13} A lot of marketing will go into heat not burn, vape and e-cigarettes for a long time, unless regulation puts an end to it, just like cigarettes will be around for a long time. In most markets, big tobacco companies are rationalizing and consolidating their production capacity as volumes go down. If this was a more consumer driven market, the change over the past five years would be that modern oral tobacco in the form of nicotine pouches could definitely be the biggest product in the nicotine and tobacco sector. But that cannot happen with the big investments and capital interests in production facilities of e-cigarettes and heat not burn.

{audio:0:26:21} Is there a regulatory risk to the heat not burn space?

{audio:0:26:29} Could there be a regulatory challenge causing heat not burn not to grow?

{audio:0:26:38} That is possible but tobacco companies are very effective lobby organizations. The change from traditional cigarettes to heat not burn is significant and companies talk about 90% less risk versus traditional cigarettes. That is a compelling argument and both the UK and US regulators are interested in harm reduction arguments. The EU is revising the tobacco directive again, and typically do not see it in that way. They believe anything containing nicotine or tobacco is bad, so will try to contain it, but e-cigarettes have been part of the tobacco directive for six years so that will not change.

{audio:0:27:45} Heat not burn will probably be integrated into the revised tobacco directive. Sweden has proposed a legislation for nicotine products – the first market in the EU to do that – which will come into effect July 2022. There is a small risk any of these products will be banned in the European or US markets. New Zealand, Australia and Singapore are much more aggressive, but in the US and Europe, these products will be there for the foreseeable future.

{audio:0:28:31} How do Swedish Match position snus locally?

{audio:0:28:40} Swedish Match is by far the largest snus producer in Scandinavia, which is in Sweden and Norway, where it is allowed. In Denmark which is part of the EU, it is banned, but Finland is an enormously important market, both in terms of border trade and the ferries. It is a very profitable company which was a monopoly in the early 1900s. Looking at the listed companies on NASDAQ Stockholm, it is one of the most profitable over 10, 20 or 30 years. From an investor standpoint, Swedish Match is doing a fantastic job adding profitability and growth in the traditional segments too. From a volume standpoint, snus is going down, but the cigars they sell in the US is also a healthy business, although declining marginally.

{audio:0:29:43} Competitively, they have lost the market lead, but that is a natural development when you see the big tobacco companies coming into snus. They are more aggressive in terms of the few things you can do from a communication, marketing and distribution standpoint, but the outlook for Swedish Match is still very positive. Even without the pouches, it is a very healthy business and will continue to be. Swedish Match is no longer the leader in nicotine pouches from a branding perspective, depending on which markets you look at, but it remains a healthy business with high competition, but cannot stay at 70% to 80% market share.

{audio:0:30:41} Investors will be happy as long as you continue to deliver profits. With nicotine pouches, Swedish Match were first to market both in the US and Scandinavia. There is much more competition due to the focus from big tobacco companies, which will continue. In the US market, Swedish Match launched in 2016 and were relatively alone up until 2018. Today, both Altria and BAT are at the total universe of outlets, which is over 100,000 POSs that Swedish Match has been in for several years. They also have the production capacity to match. In 2020, Swedish Match had a 75% market share and are already down to 64% in the first half of 2021. That will continue to decline the more Altria, BAT and Reynolds market and distribute.

{audio:0:31:46} Swedish Match sold almost 100 million cans in the US last year and are building up to 200 million per year capacity, which they will sell. Both them and the shareholders will be happy, whether the market share is 60% or 25%, as long as the business remains profitable.

{audio:0:32:11} Do big players compete with a higher promotional activity, at a bigger scale?

{audio:0:32:19} Yes, it is a lot about distribution and placement at the POS. Altria and BAT have an enormous US sales force compared to Swedish Match, who have had the same sales force over the past 10 years distributing MST and cigars. From an investment standpoint, BAT is 40 times larger in terms of revenue, and can put more effort into POS materials and distribution, in terms of frequency and the education of store owners and clerks. It is natural to accept that, from a Swedish Match standpoint, if they are only a fraction the size of the big players, that is the market share they would have nominally, which everyone is happy with.

{audio:0:33:32} How do the point of sales in Sweden differ to the US for nicotine pouches?

{audio:0:33:39} It is not that different. Swedish web sales are gaining ground quicker than the US, where it is more of a traditional convenience store or petrol station kind of product. That is because Sweden is a more advanced country in terms of the population, especially if you look at MST users in the US who are not so used to buying everything through their phones. Sweden is more digitized so there is a difference in distribution, otherwise it's very traditional. Convenience stores in both countries have similar restrictions and appearances.

{audio:0:34:37} Swedish Match are losing market share in nicotine pouches in Scandinavia, and in some sub-categories they also seem to be losing share in snus. How protected is their snus position in Sweden or will they lose share as the big players increase theirs?

{audio:0:35:05} It has to do with how interested BAT, KTI and Imperial are in focusing on snus. There is still a long way for nicotine pouches to overtake the snus market in Scandinavia, but it will happen at some point. At that point, tobacco companies will have to decide whether to forget about snus and leave it to Swedish Match and focus everything on nicotine pouches. That is absolutely plausible but has not happened yet because snus is still the big product, but that would be a smart choice because it is a better product. Newly educated urban Scandinavian consumers in the nicotine space choose nicotine pouches. The big growth potential could be quick or it could take several years until nicotine pouches come close to or even overtake snus.

{audio:0:36:26} It was 14% in July 2020 and now it is 21%; it is crazy how quick it is growing.

{audio:0:36:35} As you see other markets in Europe grow from a nicotine pouch standpoint, it makes sense for the big tobacco companies to focus on nicotine pouches and drive the continued conversion of the snus consumers to nicotine pouches. That could result in Swedish Match going the same way it has in the US, in some sectors. It is a declining segment and not competitive, but Swedish Match are one of few players who are well-positioned to do that.

{audio:0:37:38} There is no first mover advantage for Swedish Match because once they get some traction, the big boys blitz the market with marketing and better POS placement and it simply becomes too difficult to compete with them?

{audio:0:37:53} The products are all the same, even though some have patents. Swedish Match acquired a patent in 2016, Altria in 2019, and BAT has patents for the VELO and LYFT products. Imperial have no patent and JTI are sub-licensing part of a patent, but there are many smaller players. There is an interesting one in Poland, called 77, who is developing the nicotine pouch market there, online and in stores throughout Scandinavia. There is nothing inherent in the product which could give you first mover advantage, or any key advantages whatsoever.

{audio:0:38:43} It comes down to what consumers prefer. Smaller or larger, wetter or drier or stronger or weaker nicotine content. The key differentiator at this point is flavors, because that can be communicated from a regulation standpoint. As new regulations arrive in Sweden next year, that will be the sole thing you can communicate. That is a change from consumers who are traditional, who throughout the 20th Century of cigarettes, e-cigarettes and snus, they found their product in terms of strength, size and flavor, and stuck with it for life.

{audio:0:39:45} Today, there is more interest in trying out new flavors without having a favorite you buy regularly. Younger consumers are used to this with many other products including microbreweries and energy drinks. Seasonal products are an innovation in the nicotine pouch space, but does not exist in the snus or MST spaces.

{audio:0:40:21} Does having a great flavor give one a sustainable competitive advantage?

{audio:0:40:26} No, it comes down to traditional factors in the cigarette and tobacco market share. Distribution and pricing are two of the key drivers of competition.

{audio:0:40:52} Do Swedish Match have any advantage of prime placement of POS?

{audio:0:41:05} On the contrary; but depending on markets they have hundreds of sales reps and can replace stock more often. In the end, that is what it comes down to and that is the position Swedish Match has on the Scandinavian markets in Sweden and Norway. They have the largest sales force which is why they are still the market leader. They can be in the store more frequently and can position products well. They can bring stock and talk about products; your sales network and distribution is a key determinator in the cigarette industry.

{audio:0:41:51} Why did Swedish Match not have first mover advantage in pouches in Scandinavia?

{audio:0:42:00} Swedish Match, like all tobacco companies, are very conservative and traditional. I was part of the process when they acquired the patent for the nicotine pouches in 2016 and launched them a year later in Scandinavia. Many people in the organization thought it was an interesting product, but that traditional snus were much better. That will be the case with any new products in any organization. Some champions are excited about the opportunity of creating something new and pushing the limits, but if your product is appreciated by consumers and brings you fabulous margins, why would you invest hundreds of millions without knowing what will happen?

{audio:0:43:00} That is what you saw with Swedish Match initially and still today, to some extent. They differ from tobacco companies in that they have dedicated resources to product and market development, and are only focusing on nicotine pouches. Looking at the Scandinavian market several years down the road, the big tobacco companies could focus on nicotine pouches as that market has overtaken snus, and Swedish Match could focus on the snus market. They are rapidly losing market share to BAT and VELO in the US, because they are nowhere near them in terms of sales and distribution muscle.

{audio:0:43:57} How does the delivery mechanism of nicotine differ with snus?

{audio:0:44:06} With snus, you have ground tobacco and nicotine pouches are nicotine extracted from tobacco. Depending on technology, it is put back into cellulose. The key difference in the delivery is the moisture level. Traditional snus is 50% water, which means that it is quick. Once you put it in the mouth and put physical pressure on the pouch, nicotine is released and is taken up by the mucosa. Nicotine pouches contain as little as no water at all to around 10%. That means your saliva has to moisten the nicotine pouch, so the initial release takes longer, but after several minutes there is no difference.

{audio:0:45:09} Many consumers appreciate that, in markets other than Scandinavia and the US. The fact that the taste of snus is immediate is not appealing. Once you put the nicotine pouch in, the only thing you sense is the aromas or flavoring agent, which is always positive and ranges from menthol and berry to coffee or caramel.

{audio:0:45:47} Does it smell when you open the can?

{audio:0:45:50} Some nicotine pouches smell, but it needs moisture and many flavors, and is a positive smell, whereas with snus, when you open the can you smell ammonia.

{audio:0:46:11} Why would this product not continue to grow as it is today?

{audio:0:46:20} Regulations are the only thing that could halt growth. E-cigarettes and heat not burn vape had a good run but consumers cannot use it when they would like. Pouches are simply a better product; you can use it whenever you like and your hands are free. It is unlikely you will see regulation in the US or Europe, where tobacco companies are effective lobbyists.

{audio:0:47:14} One could argue that pouches are safer than e-cigarettes or heat not burn from a harm reduction standpoint because it takes away the carcinogenic risk of burning tobacco. There was almost a ban for e-cigarettes in US last year, so you need consumer research over time to prove they are a better product, but once that is done, pouches will still be equally good or better. I do not see a risk that they will be banned and am convinced the nicotine pouch market will continue to grow for a long time.

{audio:0:48:08} Why are they healthier than e-cigarettes?

{audio:0:48:12} For e-cigarettes, it is the quality of nicotine and other ingredients in the liquid. Most liquids are produced in China and regulators and authorities are yet to be convinced the quality throughout the production process is safe and monitored to ensure the ingredients are not harmful on the human system. That work is not convincing anywhere in the world yet. The pouch contains cellulose, nicotine, flavoring agents and a few stabilizers, all of which are already food approved ingredients, which is not true for e-liquid. That is why you can already say that nicotine pouches will have an easier path to being recognized by regulators, as a safer product than e-cigarettes.

{audio:0:49:44} What is your forecast? I think pouches are 2% nationally in the US?

{audio:0:49:55} It is 7% in the West; what do you think pouches could get to by 2030?

{audio:0:50:02} I do not know, but the Scandinavian market will overtake snus within five years. Smoking restrictions are everywhere in urban areas – the transportation systems, streets and all buildings – so pouches should be bigger than all other tobacco products, including cigarettes.

{audio:0:50:31} Are they switching from snus to pouches or is it mainly from cigarettes?

{audio:0:50:38} Some are switching from snus, but many have been using snus in lieu of cigarettes because they are restricted. Finally, there is a better product, so they switch for that reason. They never liked snus but used it as a substitute or to complement their smoking. Younger people move straight into nicotine pouches without trying cigarettes or snus. The youth want to explore all drugs, including nicotine, and will try whichever is the most popular. 50 years ago, it was cigarettes; 15 to 20 years ago it was vape and today, it is nicotine pouches. You see this in Switzerland, the UK, the Czech Republic and wherever nicotine pouches are prevalent.

{audio:0:51:36} When you get to 55 or 60, you start to think about your health, and that is the other switching point in the consumer cycle. Many of those people are choosing pouches as a palatable way of getting nicotine. Nicotine replacement therapy pharmaceutical products such as gums and patches will always be there, but nicotine pouches are more appealing and could replace many of those products. Snus could never do that because of the smell, taste and appearance, but nicotine pouches could cut into those traditional pharmaceutical products.

{audio:0:52:29} The price is also significantly lower than gums, sprays, lozenges and patches. I worked with the product for a long time, but even if I had not and were presented with everything I know, there is no limitation to how big it can get. There are billions of dollars invested in the production capacity of traditional cigarettes, heat not burn and e-cigarettes, and those investments will need to be managed in a profitable way by tobacco companies. That is truly holding back expansion.

{audio:0:53:22} How do you expect the pricing of ZYN to evolve in the US?

{audio:0:53:26} I am not familiar with the price dynamics in the US or Scandinavia. In the UK, Japan Tobacco were very aggressive on pricing with their Nordic Spirit product and had the lowest price point by far. They have an enormous share of between 60% and 70%. The distribution footprint and price are the key drivers to market share in tobacco, and once the category matures, I am sure they will also be the key determinants of market share there.

{audio:0:54:14} Swedish Match is a player in the US and ZYN will do well. Will the bigger companies, who own distribution, undercut ZYN making them a smaller player?

{audio:0:54:35} In 2020, the total US market was over 150 million cans. The first half of 2021 was 125 million cans, most of which was driven by BAT and Altria. Swedish Match is still growing and will be happy to continue to grow. If the market is one billion cans, five to six years from now, Swedish Match will be very happy with 250 million cans per year with healthy margins, but they will be down to a market share of 20% to 25%. What is important for Swedish Match is to grow the business and be profitable, which I am sure they will.

{audio:0:55:27} How do European regulators look at pouches, from a regulatory standpoint?

{audio:0:55:35} Sweden will be the first market, in Europe, to regulate pouches by July 2022 and the regulation is a copy of the snus regulation. That means no consumer communication outside stores. The quote is, in sight consumption, so very factual. You can only communicate this is mint or gooseberry flavor. Once that is in place within the EU, the Cassis de Dijon principle means if a new product is regulated in one market, it should be allowed to be sold within the same framework in the rest of the Union. You would imagine someone saying this is not healthy and we do not want this product in our market from a public health standpoint.

{audio:0:56:34} That is an opportunity for markets to actually stop it or regulate it even further. The tobacco directive is being revised again, and with the Swedish law already proposed and likely to be in place before they are done, I think the tobacco directive will include the regulation, the same as it is proposed in Sweden. Everyone is building capacity for nicotine pouches. The UK and Switzerland are the biggest markets outside of Scandinavia, but Czechoslovakia, Slovenia and Germany have had some challenges.

{audio:0:57:24} Why would Denmark or Germany allow pouches and not snus?

{audio:0:57:29} Snus is banned in the EU, which goes back to 1994 when Sweden joined the EU. Sweden put it to the EU that unless they could continue to sell snus, they would not join. It was a very public negotiation at that time and all politicians were saying it was a no-no. We had a referendum and it was overwhelmingly positive to join the EU, but on the condition that snus would be continued to be sold. That is what happened and it remains the only product which does not enjoy the freedom of movement in the union.

Swedish Match, Snus, & Smokefree Tobacco Products

Former Managing Director at Swedish Match

inpractise.com/articles/swedish-match-snus-and-smokefree-tobacco-products

Swedish Match, Snus, & Smokefree Tobacco Products(September 2, 2021)

Fredrik Laurell

Former Managing Director at Swedish Match

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Interview Transcript

Fredrik Laurell

Former Managing Director at Swedish Match

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Swedish Match, Snus, & Smokefree Tobacco Products(September 2, 2021)