Wall Street Journal

[bakerbarber]

Anyone else see the article on smokeless tobacco in the Wall Street Journal this week?

It was primarily about Altria's push to regain market share with Copenhagen and Skoal. It said Copenhagen is coming out with a wintergreen longcut this fall.

Anyway, there was a comment by a Swedish Match exec. who said the big switch from smoking to smokeless tobacco like dip and snus is not driven by health.

I found the entire article extremely enlightening to how the industry "thinks" and if I can't find a link to the article I'll scan it this weekend and post it here.

[justintempler]

http://online.wsj.com/article/SB125251738940696199.html

SEPTEMBER 10, 2009.
Altria Adds Smokeless Flavor
By DAVID KESMODEL
Tobacco giant Altria Group Inc. plans to unveil a new version of Copenhagen this fall, one of several moves aimed at increasing the company's smokeless-tobacco sales amid tough competition from lower-priced brands.


U.S. sales of smokeless tobacco products, shown here at a Chicago convenience store yesterday, are expanding.David Kesmodel/The Wall Street Journal

Altria said at a Barclays Capital investor conference Wednesday that it will launch a long-cut wintergreen version of its Copenhagen premium brand to compete with Reynolds American Inc.'s fast-growing Grizzly long-cut wintergreen variety. Altria also said it plans to expand the number of markets where it is testing Marlboro Snus, a type of spit-free smokeless tobacco.

The moves come about eight months after Altria became the biggest U.S. player in smokeless tobacco by buying UST Inc., owner of the Copenhagen and Skoal brands, for about $10 billion. The deal gave Altria a foothold in a growing category of the tobacco sector, helping it counteract the prolonged drop in cigarette sales, where its Philip Morris USA unit is the U.S. market leader.

Altria is introducing the wintergreen version of Copenhagen because it has a relatively small stake in that segment, which is the largest smokeless-tobacco category. "It's the natural place for Copenhagen to go...and to begin to take some market share," Michael Szymanczyk, Altria's chairman and chief executive, said in an interview.

Altria has cut prices of Skoal and Copenhagen this year to better compete with discount moist-snuff brands like Grizzly. But the company has continued to cede market share to Grizzly and others. "I would have thought the trends would have been somewhat better," said David Adelman, an analyst with Morgan Stanley.

The UST deal did come with risks. Market share for Skoal and Copenhagen had long been slipping. In addition, Altria is paying high interest rates on its debt from the deal because credit was so tight at the time of the transaction.

Mr. Szymanczyk said the company has steadied the market shares of Skoal and Copenhagen after lowering prices for the brands by 62 cents per 1.2-ounce can in March. "Our objective was not to use price to grow the business, but simply to stabilize those brands," he said.

In the wake of the price cuts, the average U.S. price for premium moist snuff such as Skoal is about $4.15, compared with about $2.75 for discount brands such as Grizzly and Swedish Match AB's Timber Wolf, according to Morgan Stanley. That price gap of about 50% is down from about 100% in the second quarter of last year.

Grizzly's market share is a bit higher than Skoal's, though both are around 25%, according to analysts. Copenhagen's is about 24%. In all, volume for Altria's moist snuff products fell 2% in the first half, adjusted for tax changes and the discontinuation of certain products. Sales of Grizzly, which is only about a decade old, are up about 14% by volume this year, said Winton Jennette, vice president of marketing for Conwood Co., the Reynolds American unit that markets the brand. The strategy of offering "an everyday honest price," rather than pushing lots of promotions, is paying off, he said.

Industry volume for smokeless tobacco has been growing at 6% to 7% a year. That's in part because smokers are switching to snuff because of widespread smoking bans in public places.

Another reason some smokers are switching is scientific research showing smokeless tobacco is safer for users' health than smoking cigarettes. But Rich Flaherty, president of the U.S. operations for Swedish Match, said he thinks few Americans are aware of the difference. "I don't think it's a real major impact on the growth of smokeless so far," he said.

Altria's Mr. Szymanczyk declined to disclose the new markets where the company plans to test sales of Marlboro Snus. It has been testing the product in Dallas, Indianapolis and Arizona. The snus category is a small but growing segment of the U.S. tobacco industry.

Separately, Altria confirmed Wednesday that Daniel W. Butler, president of U.S. Smokeless Tobacco Co., the smokeless unit Altria acquired when it bought UST, is leaving the company. A spokesman said Mr. Butler decided to leave "with the integration of UST virtually completed." Veteran Altria executive Peter Paoli took over as president and CEO of the unit Sept. 1.

Write to David Kesmodel at david.kesmodel@wsj.com

[bakerbarber]

YOU THE MAN JUSTINTEMPLER!

[lxskllr]

Wintergreen Copenhagen's a bad idea; that's what Skoal's for. What's next, Super Frosted Strawberry?

[Liandri]

Copenhagen making a wintergreen flavor is just plain stupid. But they're probably going to try and directly compete with the Kodiak/Grizzly bunch.

Still stupid.

[bakerbarber]

Copenhagen making a wintergreen flavor is just plain stupid. But they're probably going to try and directly compete with the Kodiak/Grizzly bunch.

Still stupid.

I agree with you guys. It doesn't make sense. Price is still the factor. Copenhagen is stronger than skoal so perhaps a wintergreen with extra nicotine may do well. Sounds like robbing peter to pay paul.

[MN_Snuser]

I wonder if this new wintergreen will be Copenhagen (fiberboard tin) or Cope (plastic tin). Either way, I will be trying a can.

[snusjus]

I wonder if this new wintergreen will be Copenhagen (fiberboard tin) or Cope (plastic tin). Either way, I will be trying a can.

I assume it will be released as "Cope Wintergreen" in a plastic tin.