How low can you go?

| September 1, 2017

Scandinavia’s market for combustible tobacco continues to shrink as consumers look for less harmful alternatives.

By Stefanie Rossel

Among the Scandinavian countries, Sweden and Norway stand out when it comes to low smoking rates. With only 7 percent of its population using cigarettes, cigars, cigarillos or pipes, Sweden remained best in class in 2016, according to www.statista.com, whereas Norway’s smoking prevalence stood around 12 percent, according to Statistics Norway. With a smoking prevalence of 20 percent, Denmark trails its northern neighbors but is still comfortably below the EU average of 25 percent.

The record-low figures are attributed to widespread health consciousness and the popularity in Norway and Sweden of snus, a pasteurized oral tobacco that is available as loose leaf and in pouches. In Sweden, snus has been used for 200 years. Throughout the rest of the EU, however, the product is banned. (Norway is outside the EU.)

Snus is believed to be significantly less harmful than smoking, but that knowledge hasn’t stopped Norway from subjecting the product to strict regulations. When it recently became the fourth European country to introduce standardized packaging for tobacco products, Norway explicitly included snus in the new legislation.

With the exemption of e-cigarettes, chewing tobacco, cigars and pipe tobacco, cigarettes and all other tobacco products are now sold in drab brown-green packaging, bare of manufacturer logos and with brand names in a standardized font. In addition, Norway’s Standardized Packaging of Tobacco Products Law (2017) requires packs to feature large health warnings with text and images showing, for example, diseased lungs.

Retailers have a transition period of one year to comply with the new legislation, the purpose of which is to prevent children and young people from starting smoking and using snus. Legislatures justified their decision by pointing to the dramatic increase in snus use among young people over the past 10–15 years. During the same period, they claim, many new snus products with appealing packaging designs entered the market. Swedish Match, which leads the snus and moist snuff category in Sweden and Norway, on July 7 filed for a temporary injunction, saying that the measure is disproportionate and inappropriate for the protection of public health.

In Sweden, the snus news has been more positive. In May 2017, Sweden’s Karolinska Institutet published a study that dismissed the causal relationship between snus and pancreatic cancer. The findings might support the pending legal challenge of the EU snus ban. In July 2016, Swedish Match had brought the challenge to the U.K. High Court; the company was joined by the New Nicotine Alliance, a nongovernmental organization acting as a third party in the public interest. In January 2017, the High Court referred the case, as the litigants had hoped, to the European Court of Justice (ECJ).

Given the low risk of snus compared to other tobacco products on the market, the plaintiffs argue that the ban is incommensurate and contravenes the EU’s right to a high level of individual and public health protection. While the legal challenge of the EU snus ban follows two earlier, unsuccessful attempts, it’s the first time that infringement of human rights is being brought forward as an argument.

EU member states and other stakeholders had until July 7 to make a submission to the ECJ commenting on the legal issues. In contrast to earlier occasions when the EU snus ban was challenged, the Swedish government this time chose not to submit an opinion, according to a press release from the New Nicotine Alliance Sweden, which was published in early August. Previously, Sweden’s government had pointed out health risks associated with snus; its opinion was believed to have influenced the ECJ to uphold the ban. The country’s silence may now facilitate a repeal. A ruling by the ECJ is expected in the first half of 2018 at the earliest.

A legendary love of snus

In both Norway and Sweden, the snus segment continued to grow in 2016, with pouched snus increasingly outselling traditional loose-leaf products. At the end of last year, portioned snus had a market share of 80 percent throughout Scandinavia, according to Swedish Match.

In Sweden, the number of snus users surpassed that of cigarette smokers in 2012. Approximately 1 million of the country’s 9.9 million inhabitants now consume the moist snuff. Swedish Match estimated the market comprised about 375 million cans in 2016, up by approximately 4 percent from the previous year. Some 56 percent of the snus market last year was dominated by premium products, but the economy and mid-priced segments continue to grow. Excise tax hikes for the product category stayed moderate; rates were virtually unchanged in January 2016 and saw a less than 1 percent rise in January 2017.

With a market share of 67.4 percent, Swedish Match dominated the domestic moist snuff market in 2016, followed by Imperial Tobacco Group (ITG), British American Tobacco (BAT) and Japan Tobacco International (JTI). Swedish Match leads the premium-priced snus segment with its General snus brand. The company’s other brands in Sweden include Goteborgs Rapé, Ettan, Grov and Catch.

Despite its dominance, Swedish Match has been losing market share in the snus category. In the premium category, its share shrank by 1.3 percentage points to 91.8 percent in the first six months of 2017 compared to the first half of 2016. In the economy segment, Swedish Match lost market share to smaller manufacturers. Its share decreased from 38.8 percent in the first half of 2016 to 36.5 percent during the same period this year.

Shifting categories

Snus manufacturers have kept busy making their portfolios comply with the requirements of the revised EU Tobacco Products Directive (TPD2). Sweden’s parliament adopted the bill for transposing TPD2 into national law on April 6. In addition to stipulating graphic health warnings for cigarette packs, the law now mandates two health warnings on snus containers and bans the specification of the amounts of tar, nicotine and carbon monoxide on the packaging of tobacco products.

The value of Sweden’s entire tobacco market shrank from $3.34 billion in 2015 to $3.33 billion in 2016, according to Euromonitor International. The individual product categories experienced significant shifts in 2016. In value terms, cigarettes remained the leading category with sales of $1.94 billion, down from $2.04 billion in 2015. JTI, which is present in Sweden with popular brands such as Blend, Right, Camel and Level, continued to lead the category in 2016 with a market share of 39.6 percent, followed by PMI (31.4 percent) and BAT (26.8 percent).

Cigars, cigarillos and smoking tobacco decreased to $122.2 million in 2016 ($157.8 million in 2015), whereas the smokeless tobacco category, the majority of which is snus, rose to $1.21 billion in 2016 from $1.14 billion in 2015.

The Swedish vapor market has recorded solid growth since the product became legal in February 2016, after the country’s Supreme Court rejected pharmaceutical licensing. Its retail value was estimated at $47.7 million in 2016.

Sales ban on vapor products lifted

Developments in Norway have mirrored those in Sweden, albeit on a smaller scale. The overall tobacco market retail value shrank from $2.07 billion in 2015 to $2.01 billion last year, according to Euromonitor statistics.

Increasingly strict regulation and the stigmatization of smokers combined with long-standing health concerns about combustible tobacco contributed to a further decrease in Norwegian cigarette consumption. The cigarette market was valued at $1.03 billion in 2016, down from $1.08 billion one year earlier. The majority of the 2016 market was held by BAT, with a share of 51 percent, followed by PMI (33.6 percent), ITG (11.2 percent), JTI (2 percent) and Scandinavian Tobacco Group (0.5 percent).

The cigars, cigarillos and smoking tobacco category shrank to $334.9 million in 2016 from $362.8 million in 2015.

The country’s smokeless tobacco market, by contrast, rose from $595.7 million in 2015 to $629.9 million last year. In 2016, Swedish Match again led the category, with a share of 53.5 percent, followed by ITG and BAT. Just like in its domestic market, Swedish Match has been losing ground in Norway. In the first six months of 2017, the company’s share of the Norwegian market dropped to 51.9 percent, down from 54.1 percent in the same period of 2015.

For the vapor products category, Euromonitor noted a retail value of $13.4 million in 2016. It will be interesting to see how Norway’s tobacco and vapor markets will develop following the introduction of plain packaging and the legalization of e-cigarettes in December 2016.

Danes love cloud-chasing

Although its smoking prevalence is higher than those in other Nordic countries, Denmark’s tobacco trends are similar to those experienced by its neighbors. Due to declining cigarette consumption, anti-smoking campaigns and growing health awareness, the retail value of Denmark’s entire tobacco market contracted to $1.95 billion in 2016 from $2.12 billion in 2015, according to Euromonitor.

While still representing a majority of the market, the cigarette category declined from $1.78 billion in 2015 to $1.7 billion last year. With a 72.5 percent market share, BAT led the market in 2016, followed by PMI (17.4 percent) and JTI (7.9 percent). ITG and Von Eicken held market shares of 0.2 percent and 0.1 percent, respectively.

Smokeless tobacco products shrank by $1 million in 2016 from $13.9 million in 2015. The decrease in the segment is due to a new law banning Swedish-style snus from Jan. 1, 2016. Just like Sweden, Denmark had received an exemption when the EU banned snus in 1992 but only for the sale of loose snus, not portioned snus. Following several warnings and, in 2014, a lawsuit by the European Commission, the Danish government prohibited sale of pouched snus. Sales of loose snus are still allowed. The ban effectively wiped out a subcategory that, according to Euromonitor, in 2015 was worth dkk20 million ($3.16 million).

The only category that bucked the downward trend in the Danish tobacco market was vapor. Its retail value rose to $70.4 million in 2016 from $41.8 million in 2015. The boom was driven by the legalization of nicotine-containing vapor products in June 2016.

The impressive growth rates in the segment set Denmark apart from its Nordic neighbors. According to Euromonitor, e-cigarettes are emerging as a direct competitor to combustible cigarettes in the small country.

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