Markets
BTI

Will the Pandemic Cause Smokers to Switch to Snus or Nicotine Pouches?

Tobacco is often viewed as a recession-resistant segment of the market because no matter how bad things get, smokers will typically continue smoking -- perhaps even more so. Yet because COVID-19, the disease caused by the novel coronavirus, has been found to strike smokers harder than the rest of the population, many may begin rethinking their habit in earnest. 

With Altria under fire for its investment in the much-criticized Juul Labs electronic cigarette and British American Tobacco suing Philip Morris International for patent infringement over its IQOS heat-not-burn tobacco device, snus and nicotine pouches may become the means by which smokers finally break away from cigarettes.

Zyn nicotine pouches

ZYN nicotine patches. Image source: Swedish Match.

The move away from cigarettes ...

Snus is a moist powdered tobacco typically sold in small pouches that are stuck between the lip and gum. It was already among the fastest-growing tobacco products on the market. Sales in 2018 surged 250%, and Nielsen says it's becoming a $400 million business, accounting for 4.5% of all tobacco sales this year.

While British American Tobacco is the snus industry leader with its Camel brand, Swedish Match last year became the first company to earn a reduced-risk label from the Food and Drug Administration when eight of its General brand of snus were approved for the designation.

That should give it a big competitive advantage, but as the industry continues to evolve, it may be nicotine pouches that prove to be the real category killer.

... And then from tobacco

Tobacco-free and lozenge-size, nicotine pouches are quickly gaining traction with users. Swedish Match rolled out the ZYN brand nationally last year and has attracted an 87% share of the market. 

It was the big splash made by Swedish Match that helped push Altria to acquire the international business of Burger Sohne for its on! brand of nicotine pouches. So worried was Altria about being left behind that it made sure it was able to start selling the pouches even before the deal closed.

British American is also investing heavily in nicotine pouches. Last year it narrowed its potentially reduced-risk product portfolio to three brands: Vuse, for vapor products; glo, for heated tobacco; and Velo, for nicotine pouches (or what it calls modern oral products).

It may be coincidental to the pandemic landing here, but there has also been an increase in television advertising surrounding the Velo brand, although the tobacco giant did announce last summer it would be expanding its introduction of the brand.

As consumers self-isolate, precautions to prevent upper respiratory illness as a gateway for COVID-19 infection are rising. Smoking indoors increases risks not only to smokers, but also to those around them through secondhand smoke.

Moreover, e-cigs awoke consumers to the fact there are alternatives to tobacco for nicotine consumption, and these nicotine pouches could be the clear winner since they are arguably even safer than snus because they're tobacco-free.

The big opportunity

Yet there are risks. In the assault on teen use of e-cigs, flavored tobacco products came under fire. Federal, state, and local regulators and politicians began banning their manufacture and sale. But some states are going further than others.

California is proposing to ban every flavored tobacco product, regardless of whether it is derived from tobacco or nicotine. Also, no matter how a person consumes them, they would be illegal. That would virtually wipe out the nicotine pouch market as ZYN and Velo only offer citrus and mint flavors, though the latter also makes a potentially permissible unflavored version .

Yet as many smokers consider the enhanced risks to them during the pandemic, there is a good chance nicotine pouches will become the preferred alternative to cigarettes.

{%sfr%}

10 stocks we like better than British American Tobacco
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and British American Tobacco wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of March 18, 2020

 

Rich Duprey owns shares of Altria Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

BTI MO PM NLSN SWMAF

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More