Sweden largest snuff market
Sweden is the world’s largest snuff market measured by per capita consumption. A substantially larger proportion of the male population uses the Swedish type of moist snuff called snus1 compared to cigarettes. The Norwegian market is smaller than the Swedish market but has in recent years experienced strong volume growth. The US is the world’s largest snuff market measured in number of cans and is approximately six times larger than the Swedish market. In Sweden and Norway, Swedish Match has a leading position. In the US, the Group is well positioned as the third largest player. Some of the best known brands include General, Ettan and Grov in Sweden, and Red Man, Timber Wolf and Longhorn in the US.
During the second quarter, sales increased by 17 percent compared to the same quarter of the previous year, to 1,087 MSEK (926), and operating profit increased by 15 percent to 463 MSEK (403). Sales and operating profit improved in Scandinavia as well as in the US. The operating margin for the total product group was 42.6 percent (43.6).
In Scandinavia, sales volumes measured in number of cans, increased by 6 percent during the second quarter compared to the second quarter of the previous year, as volumes increased in all markets (Sweden, Norway and Travel Retail). Sales revenues in Scandinavia grew by 8 percent in the second quarter, while operating profit grew by 5 percent as the production costs increased somewhat more than the net sales price per can. Since February, General White Portion snus has been available throughout Sweden in an upgraded “star formation” packaging, following the successful introduction of this redesign initiative in Norway in 2008. This new packaging has been well received in Sweden, and the product has gained volume during the quarter.
In the US, sales volumes during the second quarter were unusually strong and up by 21 percent compared to the same period in the previous year. Sales volumes toward the end of the first quarter of 2009 declined sharply due to trade destocking related to the US federal excise tax increase. This was reversed in the second quarter. Swedish Match consumer volumes as measured by ACNielsen for the year to date period through June 13 increased by 9.2 percent compared to the same period of the previous year. Market growth in the same period was 2.3 percent according to ACNielsen. The strong shipment volumes were a contributor to the sales and operating profit growth in the US snuff business.
From April 1, excise taxes in the US increased by 91.5 cents per pound (about 7 cents per can for most products). Swedish Match maintained pricing for most of the quarter, thus absorbing the tax increase. On June 23, Swedish Match snuff prices were increased by 7-10 cents per can, thereby compensating for the tax increase going forward and reverting to net prices closer to the levels before the increase.
For the first six months of the year, sales increased to 2,055 MSEK (1,727) and operating profit increased to 860 MSEK (716). Operating margin was 41.8 percent (41.5).
Swedish snus is moist snuff which is produced using a special heat treated process, much like pasteurization, as opposed to other snuff products for which a fermentation process is used.
