The Pouch Proposition

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The Pouch Proposition

10/04/2010

In the solid smokeless segment, pouches are classified by some as a “hybrid” delivery system, capable of converting smokers and growing sales

As smokeless tobacco styles go, pouches are literally, pretty neat. Holding fine-cut tobacco in a small, teabag-like bag, they are less messy because the tobacco can’t fall through a smoker’s fingers or mouth and many come in the form of a spitless product, such as snus. These little “pods” of tobacco may be discreet to use, but they are popping out in popularity — as a neat alternative and choice for adult tobacco users from different walks.

Smokeless tobacco pouches are reportedly growing modestly in tandem with the overall smokeless category, a solid one for c-stores despite increased regulation and taxation. Annual per-store sales of smokeless reached $28,737 in 2009 for the channel, up slightly (just around 1 percent) over the year prior, according to Convenience Store News’ 2010 Industry Report. Perhaps more significantly, smokeless tobacco retained its leading place in other tobacco product (OTP) sales for convenience stores, making up 57 percent of the channel’s overall OTP pie.

“The smokeless category is what I talk about the most when I talk about emerging tobacco trends — and pouches are definitely a part of the category’s growth,” said Nik Modi, a tobacco analyst with UBS.

Both Philip Morris USA (PM USA) and U.S. Smokeless Tobacco Co. (USSTC) are committed to pouches in their respective forms of Marlboro Snus, and Copenhagen and Skoal pouch products that are traditional moist smokeless tobacco (MST) and pouched. “We feel that both these subcategories are major contributors to the growth of the smokeless tobacco category,” stated Greg Mathe, spokesperson for both companies at parent company Altria Group.

R.J. Reynolds Tobacco Co. (RJRT) is also invested in pouches in its snus and MST, with Camel Snus, Kodiak and Grizzly pouched products, and Camel Dip, which was introduced in non-pouched styles but added a third style/pouched in the first quarter of this year.

Pouches are “a growing segment we believe in as evidenced by our introduction of new pouch styles, as well as our snus, which has always been pouched to get the Swedish experience,” said David Howard, spokesperson for RJRT. “In the smokeless arena, the pouch segment is growing in popularity — it’s all about providing options for adult tobacco consumers.”

Pouches were pegged as a promising subsegment for the convenience channel in Convenience Store News’ annual Tobacco Best Practices roundtable, held earlier this year.

“Pouches are a significant part of growth [in OTP] because it’s an entry-level product and more palatable,” said John Mayer, product director for cigarettes and tobacco for McLane Co., speaking at the roundtable.

Joe Teller, senior category manager for Swedish Match North America, added he expects to see “tiers, brands and product assortment management,” as pouches become a more stable part of the business.

So who are the pouched people? What types of tobacco users are attracted to them? The good news is — it’s a variety of consumers.

A HYBRID?

Modi referred to pouches as “a hybrid — the transition phase between traditional smokeless and snus.” His thinking is that traditional MST users who try pouches of their favorite brand are getting “a cleaner form of smokeless tobacco, but they still have the same kind of behavior — they’re still spitting out the tobacco.” Some will stop there, finding pouches a more convenient form of MST. But others will be potentially one step closer to snus.

“Snus can have slower-turning SKUs for retailers right now, but I believe eventually, the category will follow the growth in pouches as consumers become more aware,” Modi said. “Folks using pouches for a long time are probably trying snus.”

In some cases, pouches have the power to convert a cigarette smoker to smokeless.

“The largest audience we’re seeing with Camel Snus is smokers,” Howard maintained. “But that’s been our approach — our communication with them has been about educating them about the attributes — that there’s no second-hand smoke, and that it gives them the option to enjoy tobacco pleasure when they can’t have a cigarette, without bothering others or having to spit, such as while waiting at the gate of an airport or while having dinner with friends.”

RJRT received a lot of feedback from smokers stating that it bothered them to be missing interaction with others and that they felt excluded as a smoker, according to Howard. It gave the company the incentive to market snus to smokers on a national level.

“It’s still very early on as a developing category, but we feel there is a lot of potential for future growth with snus,” he said.

PM USA is is also marketing Marlboro Snus primarily to “adult smokers who are looking for alternatives to cigarettes,” according to Mathe.

As for USSTC’s pouched MST products, those appeal to “folks who want a different way to enjoy smokeless tobacco or an easier way to manage that,” as well as those who “smoke and want an alternative, but rejected traditional MST,” Mathe added.

While the traditional smokeless consumer is male — 97 percent of smokeless tobacco purchasers are men, according to Modi — pouches also have the ability to sway more female use. “We’ll probably start to see a larger female profile for snus than traditional MST,” Modi stated.

HARM REDUCTION

It’s true that neatness and convenience are the out-in-front attributes of pouches, but there is an underlying strength gaining a lot of industry attention — harm reduction. While manufacturers and retailers are prohibited from making any “better-for-you” claims, pouches, as a form of smokeless tobacco and snus, are nevertheless the focus of reduced harm research. Snus has been scientifically shown to be 98-percent less harmful than cigarettes, reported www.tobaccoharmreduction. org, which is led by Carl V. Phillips, and his research group, in association with Brad Rodu, professor of medicine, endowed chair, tobacco harm reduction research at the University of Louisville.

Even more recently, a published study led by Dr. Karl Erik Lund of the Norwegian Institute for Alcohol and Drug Research found smokers who switched to snus (in an effort to quit smoking cigarettes) were almost three times as likely to have succeeded in their attempt as those who used nicotine gum.

However, as of June 22, 2010, the Family Smoking Prevention and Tobacco Control Act requires smokeless tobacco packages and advertisements to have larger and more visible warnings, one of which specifically states: “This product is not a safe alternative to cigarettes.”

Still, companies like RJRT view pouches and other innovative tobacco products as “important options” for the industry, according to Howard.

For comments, please contact Renée M. Covino, Contributing Editor, at [email protected]

Bottom Line

Pouches are small teabag-like bags holding fine-cut tobacco.

They are a growing segment of the expanding other tobacco products (OTP) segment.

For many consumers, pouches are a more convenient moist smokeless tobacco.