Border Trade Closure Raises Swedish Match into Pandemic

There are several reasons why the Swedish tobacco company Swedish Match is not only coping with the pandemic, but also appears to increase profitability somewhat by 2020 thanks to it.

The main reason is the success of tobacco-free products in the United States. But there are also direct corona effects that have been shown to be beneficial.

First, the company has faced the practical challenges of production and delivery, in addition to the closure of a cigar factory in the Dominican Republic for a couple of weeks. CEO Lars Dahlgren is grateful for that.

In addition, it highlights two main reasons why the coronavirus appears to have had a cautiously positive imprint on the results and not the other way around.

One is that cross-border trade in the Nordic countries has more or less ceased. This means that Norwegians have to buy their snus at home in Norway, where it is significantly more expensive than in Sweden.

– They seem to have used snus as much as before, but in Norway there is no low price segment and they have paid much more for their snus. Taxes are high there, but we as suppliers also get slightly better prices because it is generally an expensive country, says Lars Dahlgren.

That, and non-tax-free trade, raises the bottom line throughout Scandinavia. On the other side of the Atlantic, in the United States, where the corona virus has hit at least as hard as here, the result is also surprisingly positive, according to the CEO.

Chewing tobacco, for example, whose volume tends to decline slowly year after year, has increased slightly during the pandemic. The same applies to cigars and American loose snus, both of which, according to the CEO, sell better than expected.

– There is no one who has the exact answers, but I think it is one thing that chewing tobacco, for example, is a product that may be more suitable in a home environment than in the workplace, says Lars Dahlgren.

– Since then, Americans have also stimulated consumption with what is practically helicopter money, so it is likely that some have felt that they had a little extra money in their wallet when they refueled the car or something like that, he adds .

That said, the CEO still wants to end the pandemic soon.

– Neither we nor anyone else want this situation, but it seems that we and other companies and industries can see, at least in the short term, a certain positive financial effect, says Lars Dahlgren.

The United States is by far the largest company market outside of Scandinavia in terms of snus, but sales are stagnant and have been doing so for several years. Best for the white nicotine servings, or Zyn, as they are called.

It’s like snus even though the bags are white and contain no tobacco. It has been sold in the US since 2014 and its growth has been strong. Before the end of 2020, Swedish Match expects to have sold 100 million cans.

This can be compared to the entire US market for Swedish snus, which is estimated to be around 60 million cans in total per year. From the beginning, the idea with the launch was that Zyn would primarily appeal to snus users and tobacco chewers. That even smokers became interested so quickly was a positive surprise.

– That was what we expected in the long term, because that is what has been seen in Scandinavia. But we didn’t expect it to be that fast, says Lars Dahlgren.

In three years, he believes the entire market for nicotine servings in the United States could reach 500-600 million cans.

The CEO also sees great potential in Europe long-term. But he is also concerned about future regulations.

Not precisely because they are coming, he welcomes it, but if there is no uniform regulation for the entire EU, there is a risk that it will become a disorderly market.

– There are a number of countries, including Sweden, that are completely devoid of regulations and we don’t think that’s a good thing. This in itself makes it less cumbersome in the short term, but it is not sustainable in the long term, says Lars Dahlgren.

He hopes that in future the EU will include nicotine portions in its tobacco products directive in the same way as it did with e-cigarettes, which do not contain tobacco either.

– It is also something that I think Swedish politicians should fight to push forward. It could be Sweden’s revenge for this absurd export ban we have on snus (within the EU, editor’s note). It is as much about the economy as it is about home employment, but also about public health in Europe, to offer better alternatives to consumers.

The UK has been talked about in the past as a post-Brexit post-Brexit market for snus, are you looking at it?

– Obviously, it is positive if the UK steps in and removes the snus ban, but commercially I think it matters less. The market in the UK will grow quite significantly in the future, but it will mainly be the nicotine servings, says Lars Dahlgren.

He often highlights the health benefits of nicotine servings for cigarettes and points to the UK authorities who, according to him, have clearly shown interest in alternatives to cigarettes. Among other things, through the NHS health authority, which recommends e-cigarettes for those who want to quit smoking.

– I would have really liked them to stay in the EU for a number of reasons, one of which is that they are a rational and objective voice when it comes to our questions about the relative risk between different products. On the other hand, they can now become a pioneer country and come out early with their own clear regulation for nicotine servings, which justifies the relative risk.

You have the impression that Zyn’s target group is old smokers who want to quit smoking, isn’t it true that you also want to bring in new non-addicted people?

– Depends on the market you are looking at, Dahlgren responds and points to the US as an example.

There are so many American cigarette and snus consumers that the potential to attract them is enormous.

– If instead you take Norway, where a quarter of younger men use snus and hardly anyone smokes anymore, and it is even more extreme among Norwegian women, then clearly we like to see women and men over 18 years choose to consume snus or nicotine bags. There is nothing to knit under the chair. But they must do so as adults and as a conscious choice, says Lars Dahlgren.