(Corrects spelling of name in fifth paragraph of story originally published on June 26.)
June 26 (Bloomberg) -- Josh Pedigo likes to spit. The 27-year-old handyman from Wentworth, North Carolina, started using Skoal snuff when he was 10 years old, and now he spits even when he doesn’t have a wad of tobacco in his lower lip.
“It’s just a habit,” he said while building a dog fence -- and dipping tobacco -- in the heat of the afternoon.
Pedigo’s habit poses a problem for Swedish Match AB, the world’s largest maker of spitless tobacco called snus, as it accelerates its U.S. expansion. Traditional American snuff like Copenhagen and Skoal goes in the lower lip, triggering salivary glands that prompt users to spit to avoid swallowing tobacco juice. Snus, more popular than cigarettes in Sweden, is tucked in the upper lip and doesn’t require spitting.
Taking a dip of tobacco without spitting isn’t enough to convince the likes of Pedigo to switch to Swedish Match’s General, the top-selling brand of snus (rhymes with “moose”). The reluctance makes it harder for the Stockholm-based company to win consumers of American brands like Reynolds American Inc.’s Camel and Altria Group Inc.’s Marlboro and Skoal.
“It will be a long haul to get Americans to switch to the upper lip,” said Pat Shehan, owner of Tar Heel Tobacco, which operates seven tobacco stores in North Carolina and Virginia. “Americans use the lower jaw going way back to farmers chewing a big wad of tobacco.”
Mostly sold in pouches that look like miniature teabags, snus is used by more than a quarter of adult men in Scandinavia. Now, Swedish Match aims to increase its share of the $80 billion U.S. tobacco market, with some 42 million smokers. Americans buy 1.2 billion cans of smokeless tobacco a year, more than triple sales in Scandinavia, according to Swedish Match.
“It is a significant opportunity for us,” said Clark Darrah, a vice president in the company’s American division in Richmond, Virginia. “U.S. consumers are looking for a more discreet alternative to traditional tobacco products.”
Success in the U.S. could help boost Swedish Match’s sluggish shares, which have fallen 14 percent over the past 12 months. That trails the STOXX Europe 600 Index’s 15 percent increase as well as gains from Richmond, Virginia-based Altria and Winston Salem, North Carolina-based Reynolds American. The stock rose 0.3 percent to 236.5 kronor at 9:08 a.m.
Swedish Match’s plan includes selling snus in thousands more U.S. stores, doling out free samples, and cutting the price of General from the typical $3.79 a can to 99 cents in new markets from New York to Los Angeles. The company is also pitching snus as more convenient than smoking, which these days often means stepping outside, and traditional smokeless tobacco that requires spitting.
Swedish Match, which also makes cigars, matches and related products, hasn’t disclosed its spending on the U.S. snus expansion, but the company has said that the additional expenses hurt operating profit in the first quarter. Its snus and snuff unit last year accounted for 40 percent of its 12.5 billion kronor ($1.86 billion) in sales.
Before the commercial production of cigarettes, American farmers twisted tobacco into knots and nursed it for nicotine. Swedes brought their tobacco across the Atlantic in the 1900s, yet snus still holds a small share of a U.S. smokeless market dominated by moist snuff and chewing tobacco.
The snus market is about $175 million in the U.S. and has grown about 9 percent annually in recent years, according to Darrah. Over the past year Swedish Match has boosted General’s U.S. market share to about 7 percent from less than 1 percent. Camel snus dominates with about 81 percent, while Marlboro and Skoal account for the remaining 12 percent, Darrah estimates.
Steven Shaffer, a Greensboro, North Carolina, real estate investor, says he’s dipped snuff for almost 30 years.
“I like to spit,” he said. “It’s ingrained in my psyche,” said Shaffer, 47, who spits Reynolds’ Grizzly snuff into an empty plastic water bottle when in meetings and says he’s more likely to quit using tobacco than switch to a spitless product.
To get dippers like Shaffer to give its spit-free variety a try, Swedish Match passes out samples at hundreds of concerts, NASCAR races and other events every year, Darrah said.
The Swedish company started to sell snus in the U.S. in 2006, focusing on high-end tobacco shops. It aims to be in almost 20,000 U.S. stores by the end of this year, up from 13,000 in March. In stores, brochures advise users to place the snus “discreetly under your upper lip. Wait for a slight tingling sensation. Experience up to 30 minutes of satisfying flavor.”
Altria and Reynolds, the biggest U.S. sellers of tobacco, dominate cigarette racks in stores, leaving Swedish Match with less visibility and forcing the company to pay retailers for shelf space, according to Darrah. In a Sheetz Inc. convenience store in Greensboro, General isn’t in the tobacco display that stretches for about 20 feet along the wall behind the checkout counter. General’s sign, tucked in the corner of an adjacent wall, can be hard to spot among the clutter of brands.
General snus is more visible at retailers that devote counter space to small display coolers, which Swedish Match says are needed to ensure freshness.
With such a small presence in stores, the company is using direct mailings and social media marketing conveying that General “allows you to stay in the moment,” Darrah said. “You don’t have to miss out during a basketball game or at a party to step outside and smoke.”
Pedigo, the North Carolina handyman, came to that conclusion after first trying General snus last month. He said he’ll “probably keep a can of it around” for occasions when spitting isn’t appropriate, even though Skoal Berry Blend remains his regular dip.
“It would be really good to take to the movies,” Pedigo said. “You don’t want to be seen spitting in a can because they may throw you out.”
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