Former Managing Director at Swedish Match
Frederik is a Former Managing Director at Swedish Match and has over 10 years experience in the smokeless tobacco industry. He was responsible for re-launching snus in the US for Swedish Match and led the JV with Philip Morris to commercialise smokefree products outside of Scandinavia. Frederik is now the CEO of Niccocino, a nicotine pouch company on a mission to reduce global cigarette consumption.Read moreView Profile Page
- The differences in cigarette and snus nicotine intake mechanism could limit the long term growth of smokefree products
- Nicotine pouches seem to be a larger opportunity than snus because of the lack of smell and improved taste profile
- The capex into heat-not-burn could limit the growth in smokefree products
- The large tobacco companies have large distribution and marketing advantages that limit Swedish Match's market share in the long run
- Potential value creation opportunity to spin out lighters and cigars as a separate business
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.
Can you provide some context to when you were re-launching snus for Swedish Match in the US?
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.
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.
Why is the moist snuff market so big in the US and snus so small?
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.
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.
What were the biggest barriers to US consumers adopting snus?
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.
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.
Do moist snuff consumers enjoy spitting and using the product?
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.
How do you see that changing, given we are moving more towards pouch?
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.
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.
We can talk about pouches later, but how would you compare the customer demographic of a US moist snuff consumer versus a Scandinavian one?
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.
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.
How do you compare the nicotine per pouch or consumption between snus and moist snuff and the health benefits around the products?
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.