Altria buys into snus, a clever ploy or an obvious pivot?

June 19, 2019 3 Comments

The latest Altria acquisition was just announced and it looks like they are paying $372 million for an 80% stake in the global business of Burger Sohne, a Swiss tobacco company that makes a snus-like product called on! that the company hopes to rapidly expand into its various American retail chains and distribution network. 

If you're not familiar, snus is a smokeless tobacco product and is among the fastest growing tobacco derived nicotine products on the market today.  Snus which is pronounced snoose, like snooze with an S, rhyming with loose, is rather very similar to both snuff and chewing tobacco.

Chewing tobacco is typically made from long leaves of tobacco, and snuff is finely ground tobacco that is typically inhaled into the nasal cavity for quick delivery of nicotine.  Snus while also being made from finely ground or powdered tobacco, and sometimes sold loose, is more commonly found in small teabag-esque pouches placed between the lip and gum.

Altria already sells snus under its Copenhagen and Skoal brands, but it's newly acquired on! brand is similar to snus in that it is a nicotine pouch that is placed under the upper lip, but it is actually tobacco free. On! and similar pouches like Swedish Match's Zyn brand contain nicotine salts derived from tobacco and other food grade ingredients as filler and flavor enhancers. 

Data from Information Resources Incorporated shows that tobacco derived nicotine products grew an insane 250% last year, hitting a new high of over $60 million in sales. While this is tiny in comparison to actual combustible cigarette sales, it clearly indicates that as smoking fall further out of favor, people are looking for safer alternatives of nicotine like eLiquids and now increasingly snus.

While the on! pouches are in currently limited supply in America, that limit is over a thousand retail locations, and they are basically ubiquitous in Sweden and Japan. Snus interestingly is actually banned in the European Union, though an exemption was made for Sweden, where the product is more popular than cigarette smoking and has been a bit of a tradition for some time now. 

The tobacco giant plans to quickly expand distribution of on! and said the transaction with Burger Sohne includes a clause that allows it to begin distributing the smokeless product before the ink even dries on the deal. Once the sale is completed later in this year Burger Sohne will operate under a new subsidiary Altria created called Helix Innovations.  The obvious benefit here to the acquisition is that they don't have to deal with the FDA as that groundwork has already been done. 

Altria rightfully concerned with it's potential impending doom has diversified away from combustible smokes and now owns or has decently invested in the following reduced health risk companies; Skoal, Copenhagen, Juul, Philip Morris International's IQOS, cannabis producer Cronos, and now on! tobacco free nicotine pouches.

Is this the death throws of a company that has lost it's touch, or is it simply just pivoting to similar products now that cigarettes are becoming wildly unpopular?  Perhaps something more sinister, gobbling up all the alternatives to in the end price gouge them out of consumers reach leaving only the traditional combustible smokes?  What do you think?

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