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Snus: A New Stimulus for America’s Tobacco Industry?
April 15, 2008
I was at the local Sheetz gas station when I noticed a new form of tobacco near the counter: snus. If you’re not familiar with snus, it’s a Scandinavian version of dipping tobacco, only without the need to spit, and is steam-cured instead of fire-cured, which greatly reduces the number of carcinogens in the tobacco. In other words, it’s like dipping tobacco, minus all the bad parts. Could this signal a turnaround for America’s ailing domestic tobacco sales?
R. J. Reynolds (RAI) recently announced that they will be expanding their test marketing of Camel-brand Snus, and Philip Morris (PM) has been successful in their efforts to market Marlboro-brand snus. Snus use has exploded in Sweden, and most likely due to its professional air, has become a white-collar vice. The white collar market for smokeless tobacco is obviously untapped in America, and both R. J. Reynolds and Philip Morris see this as a way to add a new niche to their offerings. However, with snus selling at a price point of around US$5.00 - as compared to cheap dipping tobacco like Skoal which can be had for under $2.00 a tin - it will be necessary for tobacco manufacturers to target richer consumers. If they fail to entice those with fatter wallets to start using smokeless tobacco, then this experiment simply will not work.
In all likelihood, it probably will not be the savior of the American tobacco industry, although it will most likely have positive effects. Domestic sales of tobacco products have been declining for years (around 2 or 3% annually) as more and more people quit smoking and fewer and fewer people start. However, smokeless tobacco use has already been increasing (around 4 or 5% annually) from a small base. Most growth for the large tobacco conglomerates is coming from overseas (especially China), and growth in the non-smokable forms of tobacco would add only a small amount to their bottom line.
Additionally, snus would have to really grow in popularity, as it has in Sweden, in order to add substantially to the demand for tobacco and increase its bulk price. However, growing in a large, heterogenous market like the United States will require massive investment in marketing and advertising, as compared to a small, homogenous market like Sweden where word of mouth is more important. This will act as a drain on any profits to be made from American manufacturers selling snus domestically.
The public perception of tobacco as causing cancer is also going to be difficult to erase, leading to fewer new users trying snus. Although Swedish studies have shown that snus can actually benefit public health by providing a painless way to transition away from smoking cigarettes, others maintain that no amount of nicotine is harmless and there should be a zero-tolerance policy towards it.
American snus also tends to have more carcinogenic nitrosamines than traditional Scandinavian snus, up to 60 times more according to Wikipedia. This negates any benefits of having a “safe” alternative to cigarettes. In addition, the addictive nature of nicotine is well-known, and of course I recognize the dangers of all tobacco products and do not condone their use. However, by looking at the macroeconomic consequences of snus introduction, which are basically inevitable, we may be able to help make better predictions of the economy… and hopefully better our investments.
Bill Laboon does not own shares of any company mentioned in this article.
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