Granddad’s Tobacco Gets a Makeover

(Bloomberg) -- Chewing tobacco doesn’t enjoy the most refined reputation, a sticky black mess tucked into a corner of the mouth, the steady stream of spit making bystanders queasy. And yet, cigarette companies are rushing into the category to escape a growing smoking malaise.

To resonate with a young and fashion-forward audience, the humble oral nicotine has undergone a makeover, in some cases removing tobacco altogether. British American Tobacco Plc is pushing a brand called Lyft—slender white pouches, infused with eucalyptus and pine tree fibers, that release mint or berry flavor once discreetly tucked under the upper lip. The tobacco-laced sister brand Epok promises hints of tropical fruit or peppermint.

“For some of us, coming from a geography where there’s a bit less of a history of oral tobacco use, the ritual can look a bit alien,” said Vincent Duhem, BAT’s global director for the modern oral category. “There’s a widespread ritual in the U.S. and Scandinavia, but we’re starting to see that spreading in many places, like in Europe and Russia.”

The renewed interest in an established—albeit niche—product reflects the strains on an industry that’s woken up to the fact that its future may not lie in cigarettes. Volumes have declined by about a third since 2004 in Western Europe, and are expected to drop further through 2022, according to Euromonitor. That has set off a race to become a leader in next-generation alternatives. While vaping and heat-not-burn devices have become a popular and widespread means to wean people off cigarettes, the modern oral tobacco remains a fringe phenomenon, accounting for just 2% of BAT’s cigarette-alternative sales.

Marketing a product that’s not commonly used outside Scandinavia and the U.S. poses challenges, as consumers often confuse different variants of smokeless tobacco. What cigarettes, vaping and oral products all have in common is that they contain nicotine, and that health authorities consider all of them harmful, to different degrees. But like with vaping, there is no uniform regulatory approach, meaning the oral products are available in some markets but banned in others, making life harder for companies trying to sell them.

Modern oral products, wrapped in a white pouch, often contain less tobacco than traditional chewing tobacco or the Scandinavian snus variant, which is confined to Sweden and Norway but banned in most of the European Union. Snus is moist powder or ground tobacco administered the same way as the modern versions. Traditional chewing tobacco can still come in brown, loose form that can require spitting.

The slogans that seek to give the hesitant consumer an encouraging nudge towards modern oral tobacco highlight heritage and hipsterdom. Lyft trumpets its provenance as “straight from Sweden,” and targets “a generation on-the-go.” That’s a far cry from the redneck stigma attached to traditional chewing tobacco, or the grisly photos on cigarette packages warning of cancer and amputated limbs as a possible outcome of smoking.

Oral tobacco nevertheless comes with health risks, according to the U.S. Food and Drug Administration. It requires packaging to warn of the range of possible hazards, such as mouth cancer, gum disease or tooth loss, and that it shouldn’t be seen as a safe alternative to cigarettes. Across the Atlantic, the European Commission concluded that smokeless tobacco products in all its forms can cause cancer and is addictive.

“These products, along with e-cigarettes and heat-not burn, are uniquely designed to sustain addiction,” said Matthew Myers, president of the Campaign for Tobacco-Free Kids. “There’s no reason to think it’s a meaningful pathway to cessation or long-term switching.”

Swedish Match AB, a force in its home country where snus consumption is commonplace, has been selling its tobacco-free product Zyn in the U.S. since 2016, while BAT’s American subsidiary Reynolds introduced Velo last month. Even though the modern oral category is far smaller than vaping and heated tobacco, it’s lucrative. BAT said the gross margin per 1,000 oral nicotine pouches is about 2 to 3 times higher than per 1,000 cigarettes because it faces lower tax levies. Japan Tobacco Inc. and Imperial Brands Plc also have a product in race.

“The tobacco industry would love this to be a much bigger category,” said Nico von Stackelberg, an analyst at Liberum. “The industry is less likely to face massive litigation and it can be priced at a point where it’s very profitable.”

The way cigarette companies see it, oral nicotine offers several attractive opportunities. It’s discreet, odorless and can be consumed practically anywhere, be it in the office, a movie theater or on a long-haul flight. It’s predominantly a male phenomenon, meaning that there’s a huge untapped market of female consumers.

But even if the right dose of marketing captures the imagination of consumers, success ultimately hangs with regulators, especially in Europe, where the market is fragmented because of differing national rules and regulation. Switzerland, for example, doesn’t allow the sale of non-tobacco oral nicotine products, which is why Lyft isn’t currently available there, but it can be found in the U.K. or in Austria.

“Regulation is the key barrier to achieving a smoke-free Europe,” said Swedish Match spokesman Patrik Hildingsson. “You can squeeze cigarettes from two ends with this product, at the entry level and as an exit product. It’s the future.”

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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