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With its non-tobacco Zyn product, Swedish Match is a leader in a growing category of alternative nicotine products
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With its non-tobacco Zyn product, Swedish Match is a leader in a growing category of alternative nicotine products

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Swedish Match North America’s mission statement, boldly posted in the tobacco company’s downtown Richmond office, says that the company is striving for “a world without cigarettes.”

The company, based in Sweden but with its North American headquarters in Richmond, sold off its cigarette business 21 years ago. While it still has a mass-market cigar business, Swedish Match has focused heavily on selling a variety of smokeless tobacco brands in the United States and its home country of Sweden.

Tom Hayes, a 14-year executive with Swedish Match who became president of its U.S. division last August, speaks earnestly about the mission statement as both an ideologically and financially sound goal.

“We are not content in just being a market participant,” Hayes said during a recent interview at the company’s Richmond office in the James Center. “We want to be a leader in providing consumers with more convenient, safer and innovative products for their needs.”

Swedish Match executives — as well as some public health and tobacco control advocates — have long argued that smokeless tobacco products should be viewed by consumers and treated by policymakers as a less risky alternative to combustible, smoked products such as cigarettes. They have talked about re-creating the so-called “Swedish experience” in the U.S.

Hayes points out that in Sweden — a country with a long-time cultural linkage to smokeless, pouch-tobacco products called snus — smoking rates are far lower than in other European countries, and smoking-related cancer rates are lower, too, even though there is a higher prevalence of smokeless tobacco use in Sweden.

However, re-creating the “Swedish experience” has been difficult in a U.S. and global tobacco market that remains overwhelmingly dominated by cigarettes, and where companies have trouble gaining wide consumer acceptance of oral products typically associated with chewing tobacco.

Hayes sees one of Swedish Match’s newest products as being its biggest step yet toward achieving its mission.

The product — called Zyn — is an oral, nicotine pouch product that Swedish Match introduced in limited U.S. markets in 2016 and has since expanded to retail sales at about 100,000 stores nationwide.

Unlike conventional smokeless products such as snuff, Zyn contains no tobacco leaf. The product consists of pouches that the user places between his or her lip and gums. The pouches are filled with powdery nicotine salts derived from tobacco, along with some flavorings and a few other ingredients.

“The big message is that it [Zyn] is without tobacco,” Hayes said. “It comes in an all-white pouch, so there is no teeth staining.”

It is also designed to be spit-free, which Hayes said enables it to be more attractive to a wider group of consumers.

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Swedish Match has tried before to build a bigger U.S. market for alternatives to traditional products such as introducing its General Snus brand here.

Snus [pronounced snoose] is popular in Sweden. It is sold in cans containing teabag-like pouches of pasteurized, flavored tobacco that the user places between his or her upper lip and gums.

Swedish Match first introduced snus at tobacco shops in the U.S. in 2007 and rolled it out to wider retail sales starting in 2011. In 2019, the U.S. Food and Drug Administration, which has regulated tobacco products since 2009, gave Swedish Match’s snus the agency’s first-ever “modified risk” designation.

The “modified risk” designation, which was based on extensive research submitted by Swedish Match, means the company can market eight versions of its General Snus brand tobacco as potentially less risky to a user’s health when compared with smoking cigarettes. But the FDA did not allow the company to change rotating labels on the product packaging that warn consumers about addiction and health risks.

Snus has gained customers in the U.S. However, compared to the overall moist snuff market of about 1.5 billion cans sold per year, snus as a product category remains a small share of about 60 million cans, Hayes said.

“Today, I would characterize the snus category as a somewhat niche category,” he said.

“It is fair to acknowledge that we tried for years and years to make snus successful in the U.S.,” Hayes said. “Ultimately, I think consumers did not quite understand it.”

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When Swedish Match started to offer its non-tobacco nicotine pouch product Zyn in several markets in the western U.S., the company was uncertain whether it would perform the same way as snus did.

“Snus eventually kind of plateaued,” Hayes said. “What we saw with [Zyn] nicotine pouches was it continued to grow and grow.”

As the company has expanded the retail presence of Zyn nationally, sales have steadily grown. The Zyn product alone is now rivaling Swedish Match’s overall portfolio of moist smokeless tobacco brands, which amounts to about 130 million cans of moist snuff a year in the U.S.

“In the western [U.S.] region, in the most recent third quarter [of 2020], Zyn alone was 30% of the total moist snuff category,” Hayes said.

“If you can replicate that on a national scale, you’re talking about a category that could be 450 to 500 million cans” per year, he said. “It is important to note that in this context, Zyn has only been in the market for a handful of years.”

Zyn sales are still less than 1% of the overall tobacco market, but Hayes sees a significant growth potential. He is even confident that Zyn could start to make a dent in the overall cigarette market — which is north of 11 billion packs a year in the U.S. — by attracting smokers to an alternative brand.

“This is where we see the big opportunity,” Hayes said. “We are not limiting our growth prospects to only those tobacco consumers that are moist snuff consumers. It is really any and all tobacco consumers — those that want a different experience, and arguably a less harmful one than what is otherwise available on the market.”

Hayes said Swedish Match’s research shows “virtually no one” buying Zyn who was not already a tobacco consumer. “That’s good from a regulatory perspective,” he said.

“When we think about our ideal consumer out there, it is an existing tobacco consumer who is looking for an alternative,” he said.

With sales of Zyn growing, Swedish Match has made investments at its factory in Owensboro, Ky., to produce the brand, upping the production capacity from about 20 million cans in 2017 to plans to have a capacity of more than 200 million cans per year by the end of 2022.

“This is a category that is going to get significant investments in the next several years,” Hayes said.

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Several other tobacco companies have now introduced non-tobacco, oral nicotine products similar to Zyn.

In June 2019, Henrico County-based Altria Group Inc. agreed to pay $372 million to acquire a majority ownership stake in a Switzerland-based maker of a pouch nicotine product called On!

Altria, the parent company of top U.S. cigarette maker Philip Morris USA, has since rolled out the On! brand to about 56,000 retail stores, as of the third quarter, achieving a retail share of 2.1 percentage points of the oral tobacco category in the first nine months of 2020.

The second-largest U.S. tobacco company — Reynolds American Inc. — also has introduced a competing product called Velo.

That means Swedish Match, which had the advantage of being the “first mover” in the category a few years ago, is now facing more competition from the biggest players in the tobacco industry.

Swedish Match is “well-positioned” within the emerging non-tobacco, nicotine pouch category, said David Sweanor, a professor of law at the University of Ottawa who follows Swedish Match.

“The key question for me is whether they can aggressively press home their advantage,” said Sweanor, who has followed the tobacco industry for decades and is a longtime advocate of policies aimed at switching smokers to non-combustible products.

“Big tobacco [companies] can get more product into more places faster because they have a big distribution network,” Sweanor said. “But Swedish Match does have a good network, too.”

“They were first” into the nicotine pouch market, he said. “They moved quickly, and I think they have a relative advantage because they do not have a cigarette market to try to protect.”

“That is one of the big challenges for the big cigarette companies,” Sweanor said. “Even they can see that this [tobacco] market is being hit by disruptive technology. For Swedish Match, that is only an opportunity. For a company like Altria or BAT [British American Tobacco, the parent of Reynolds], there is a downside because it can eat into their cigarette business, which is the cash cow.”

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Hayes became president of Swedish Match’s U.S. business last year after his predecessor, Rich Flaherty, retired.

The company has about 100 employees in Richmond, about 1,400 in the U.S. and 3,595 in the Dominican Republic.

Hayes, 54, grew up not far from Williamsburg and studied business at Wake Forest University in North Carolina. He started his career in Charlotte, N.C., with the auditing, consulting and tax services firm PricewaterhouseCoopers, now called PwC, where he had stints working in Fort Lauderdale, Fla., and in Baltimore.

He returned to Richmond with PwC in 2001 before taking a job as controller and chief accounting officer at Chesapeake Corp., a specialty packaging company that was based in Richmond. Chesapeake was sold in 2009 through a Chapter 11 bankruptcy process, but Hayes left the company in 2006 to become chief financial officer for the U.S. division of Swedish Match.

During his time at PwC, Hayes had provided auditing services for Swedish Match.

“I knew enough about the company, its management team and its culture to know this would be a great place to be,” he said.

He has since held several roles within the Swedish Match business, including chief financial officer of the U.S. business and CFO of the international business. From 2018 until last year, he was the company’s group CFO and worked in Stockholm.

“I came back to the states the first of October [2020] to take this position,” Hayes said.

He credits his predecessor, Flaherty, with setting the foundation and groundwork for the growth the company has been experiencing.

“We were considered pioneers when we launched our vision of a world without cigarettes,” Hayes said.

“We did it for two reasons — one was ideological and one was financial,” he said.

The financial part is that smokefree tobacco has been showing sales volume growth for 10 years.

On the ideological side: “We just believed that by providing consumers with less harmful products so they could still enjoy nicotine, it would be good for society,” Hayes said. “It would also be good for our shareholders.”

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