Smokeless Tobacco Heats Up

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Smokeless Tobacco Heats Up

Philip Morris USA, RJ Reynolds Tobacco and U.S. Smokeless Tobacco have all developed and are now test marketing new smokeless tobacco pouches. Philip Morris is marketing Taboka and U.S. Smokeless is testing Skoal Dry, both made in the United States; while RJ Reynolds is importing its Camel Snus from Sweden, The New York Times reported.

The tobaccos -- all canned products with a dozen or so pouches -- are priced from $3 to $7.

A smaller player, Blue Whale based in King of Prussia, Pa., is also introducing a smokeless tobacco substitute made of black tea and nicotine extract this month, the newspaper reported. Because the product does not actually contain tobacco, it could be considered a food product by the U.S. Food and Drug Administration, which has no power over tobacco products. However, Blue Whale told the newspaper that the regulator ensured that agency approval was not required because of its nature as a smokeless tobacco substitute.

Whether the U.S. smokeless tobacco trend will really fire up has yet to be seen. In 2005, the OTP market saw a 9.1 percent increase in sales compared to 2004, with sales totaling $35,058 per store -- a $3,000 increase over the previous year, according to Convenience Store News' 2006 Industry Report. CSNews also forecasted numbers for fiscal year 2006 that showed stores can expect a 9.1 percent increase -- or a total of $38,248 in per-store sales for OTP products -- totaling $5.4 billion industry-wide in fiscal 2006.

But teaching old dogs new tricks may be difficult. "It would be a mistake to underestimate how difficult it is to get people to change their tobacco-consumption habits," Morgan Stanley analyst David Adelman told the The New York Times.

Margins for the products are positive. Citigroup analyst Bonnie Herzog said they "are another way for cigarette manufacturers to diversify the mix and improve margins." Operating margins for smokeless tobacco products can be 10 to 25 percent higher than cigarettes, she added.

Critics believe that these products do not offer any value for those looking to quit smoking, but rather serve as an alternative to use tobacco in places it has already been banned. "The products could encourage people to continue smoking who would have ordinarily quit," said Thomas Glynn, director of cancer science and trends at the American Cancer Society.

They also claim that new smokeless products will encourage non-smokers and teens to pick up the habit. Mitch Zeller, a health policy consultant, believes that Camel Snus' Web site is directed at young adult males. The Web site states that it found Snus is Sweden, "home of the world's best meatballs, massage and blondes."

"That's not harm reduction, that's harm creation," he told the newspaper.