Dhe Marlboro manufacturer Philip Morris apparently sees a great future for a traditional Scandinavian alternative to cigarettes: snus. The US group wants to take over the Swedish manufacturer Swedish Match for at least 15 billion dollars. This would give Philip Morris a low-tech alternative to its tobacco evaporator “Iqos”, which is supposed to ensure a smoke-free future for the cigarette company.
The original main product of the traditional Swedish Match group, founded in 1917, are snus bags, paper packets filled with a mixture of tobacco and salt. The product is clamped behind the upper lip.
This allows users to get nicotine into their bloodstream for up to half an hour. In the US, Swedish Match markets an advanced product under the Zyn brand, which contains nicotine but no tobacco and is therefore said to be less harmful to health.
The product is likely to have sparked the interest of Philip Morris primarily because Zyn sales in the US have increased significantly. On the morning of May 10, Swedish Match reported a 50 percent gain for the US market. The Swedes now make well over half of their sales in America.
Across the group, Swedish Match achieved currency-adjusted sales growth of 16 percent to 18.5 billion crowns (1.74 billion euros). This is worthwhile for the company, because almost half of every Krone turnover remains as an operating profit.
Zyn success a problem for Philip Morris
For Philip Morris, Zyn’s success in its home market is a problem. Because the Swedes are gaining market share in the highly competitive future field of smoke-free products.
And at an impressive pace: Zyn has only been on the US market since 2017. Nevertheless, twelve percent of all smokers in the western United States buy at least two cans of the sachets a month, the company calculates.
Swedish Match is now also marketing Zyn in Germany – with flavors such as mint and espresso. The advertising promises that users can wear the bag under their upper lip in everyday life without being noticed.
“Zyn is a product innovation that we believe has the potential to end the ‘market monopoly’ of cigarettes,” the manufacturer explains.
Philip Morris actually wants to define the future of smoking himself. Since 2014, the “Iqos” tobacco vaporizer, which has been developed at a cost of many billions of dollars, has been the means to do this. In contrast to the usual e-cigarettes, the devices do not vaporize liquid, but tobacco.
This happens at a lower heat than with classic combustion. As a result, fewer pollutants are released than with a cigarette – but more than in the e-cigarette evaporator, which most competitors rely on.
Scandals got in the way of the tobacco companies pushing through such new products: the health authorities in the USA registered several deaths in connection with vaporizers. Although these were probably due to the addition of unauthorized cannabis oils, they damaged the image of the new products.
In addition, the vape brand Juul attracted attention with aggressive marketing on social networks for sweet flavors with a high nicotine content, which were particularly popular with young people. The brand, which has since been bought by the tobacco company Altria, is still involved in legal disputes in several US states. She withdrew from the German market.
Classic smoking is considered a discontinued model
The success of Swedish Match now shows that a relevant number of smokers appear to be satisfied with a less sophisticated solution. The snus market in the USA is growing significantly faster than the vaporizer market – albeit from a much lower level.
Meanwhile, competitors of Philip Morris are also on the market with their own snus offerings. For Swedish Match, however, the business is so promising that the group wants to spin off its traditional cigar business.
Because classic smoking is considered a discontinued model. Smoking bans and severe advertising restrictions are hitting corporations worldwide. After all, according to the Federal Ministry of Health, around 127,000 people die every year from the consequences of tobacco consumption in Germany alone.
Health protection works, however: the smoking rate halved between 2001 and 2018 to 24.8 percent. Young adults in particular smoke significantly less often than they used to. In the long term, the declining number of smokers cannot be offset by price increases alone. A general ban on cigarettes is also looming on the horizon.
Zyn fits Philip Morris’ strategy
With their new offers, the cigarette companies, which are among the most profitable companies in the world, officially want to offer smokers a lower-risk alternative. In fact, this could save their threatened business model with the narcotic nicotine.
To what extent the alternative products of the tobacco companies actually contribute to health protection is controversial. Consumer advocates warn that these products are not without risk, but tempt young people to consume nicotine and make them dependent. They turn against the advertising promises of the cigarette companies and advise people to stop smoking completely and thus break away from the tobacco companies.
The manufacturers disagree. Not only do they spend a lot of money on the development of their new products, they also invest heavily in lobbying to achieve exceptions, for example in advertising.
Swedish Match is also officially allowed to market its tobacco pouches in the USA as a lower-risk product. Zyn thus fits into the strategy of the Philip Morris group, which appears in the public eye as a champion for a smoke-free future – and already uses its core brand Marlboro for “Iqos” tobacco sticks. Another brand extension to snus would be conceivable.
Swedish Match shares rose by more than 20 percent
The possible combination also convinces the stock market. The US business newspaper “Wall Street Journal” was the first to report on Philip Morris’ interest in buying. Both companies have now confirmed the negotiations.
The Swedish Match share then rose significantly by more than 20 percent. JP Morgan analysts put the probability of the acquisition going through at 50 percent.
Philip Morris has already made several acquisitions this year, including a British manufacturer of inhalation drugs. However, the Swedish deal would be significantly larger.
The purchase would also have an impact on Sweden as a business location: With the takeover, a heavyweight of the Swedish leading index OMXS30 would disappear from the Stockholm Stock Exchange and be merged into Philip Morris. With sales of $31 billion and a stock market valuation of $154 billion, the tobacco company is ten times as valuable as Swedish Match.
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