Comparison U.S. Smokeless Tobacco Players: No. 1 UST and No. 2 Conwood...

June 19, 2008 - UST Inc. (UST Inc. is a holding company for its principal subsidiaries: USSTC and International Wine & Spirits Ltd.) produces and markets moist snuff brands (MST) such as the premium brands Skoal, Copenhagen and the value/priced (discount) Husky brand. Skoal has been rolling out various new brands MST including mild flavors like Citrus Skoal- designed to both convert smokers and add new younger consumers to its base. Its winery division grew 25% on extremely UST high volume last quarter. In an April 2008 article on MSN Money USSTC president Daniel W. Butler said: This marked the seventh consecutive quarter of premium volume growth. I am especially pleased to see that despite a challenging economy and new price value entrants, premium volume trends remain strong and there has not been an acceleration in the price value segment. In fact, that’s not entirely true. Low priced smokeless tobacco has been gobbling up market share from UST for several quarters now, as this RealMoney.com article points out: UST has had significant losses in market share to rivals like No. 2 player Conwood, a unit of Reynolds American, which is focused on the price-value segment with its low-cost Grizzly brand.

Ten years ago, UST owned more than 80% of the smokeless tobacco market. By late 2004, the company's market share had slipped to 68%. Today, it's less than 60% and trending down. And the trend has no reason to break, yet. Sure, there is ALWAYS brand loyalty. I’d be naïve to doubt that. But, if we are in a recession, you can bet that the discount dip will creep its way up the income brackets Reynolds American first quarter 2008 profit was disappointing.. This is not the Conwood division’s fault; the producer of Grizzly posted double digit volume growth, according to the Winston-Salem Journal. In fact, Conwood has huge growth opportunities, making up only 4% of revenues in 2006. Altria (MO), better known as Philip Morris USA, is testing its own smokeless tobacco product. If market penetration proves difficult for big MO, will either subsidiary be ripe for acquisition by the tobacco giant? ( Altria falling short on growth because of slowness in developing smokeless tobacco products..) Reference: Smokeless Tobacco Players: Who Will Come Out On Top?, Steve Farrington, Seeking Alpha, 6/18/2008. We hear from c-store personnel that MST users continue to switch from premium brands like Skoal, Copenhagen and Kodiak to low priced brands like Conwood's Grizzly ($2.19/can) and NOT UST's Husky (99cents/can). Sales of Grizzly are bound to increase as a result of its new promotion - buy one can and get a free pocket knife. Related news brief: Where's The Growth in Smokeless Tobacco Products. (TobaccoWatch.org)