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RYO, MYO & Smokeless Tobacco: A Changing Tobacco Segment
Rising factory-made cigarette prices have given the RYO, MYO and smokeless tobacco segments a boost
By Lisa White
Although the National Association of Attorneys General (NAAG) recently reported that, in 2005, the number of cigarettes sold in the United States fell to its lowest level in 55 years, almost a quarter of this country’s adult population continues smoking.
This is good news for the roll-your-own (RYO), make-your-own (MYO) and smokeless tobacco suppliers, who have stepped up their efforts to attract new consumers that have been priced out of buying factory-made cigarettes.
"As cigarette prices and taxes increase, we are seeing both the RYO and MYO tobacco market grow significantly," says Kevin Dunn, executive director of trade marketing for Fairfield, NJ-based Robert Burton Associates. "We saw 10 percent growth of RYO tobacco in 2005 compared with 2004, and first quarter RYO sales for 2006 are up 4.7 percent over 2005."
Dunn says this is because smokers are considering these alternatives. "We feel RYO and MYO can be profitable solutions for retailers. Distributors need to get retailers on board with these products," he says.
Yet the RYO and MYO industry is not exempt from the struggles faced by cigarette producers. On January 1, 2000, the first Federal Excise tax on roll-your-own tobacco went into effect and shortly afterwards, the scope of the Master Settlement Agreement (MSA) expanded to include MYO/RYO tobacco.
Still, the savings appeal of the MYO/RYO categories have equaled record sales. "The category has grown 20 percent in the past year alone, and MYO is the fastest-growing segment in the entire tobacco category," says Mary Beth Glynn, marketing manager for Republic Tobacco, based in Glenview, IL.
She adds that sales for these items are particularly strong in convenience stores, which experienced a 36 percent increase between 2005 and 2006. "It seems that not only are retailers recognizing the importance of offering MYO options to their customers, but they are also enjoying average profit margins of 35 percent [for these products]," Glynn says.
According to Josh Kesselman, brand manager of HBI International in Vancouver, B.C., RYO products have a higher profit margin than MYO items. "With RYO products, retailers can triple their profit margins. MYO lines have lower margins of about double or less," he says. He attributes this to the between 30 and 50 leaves of rolling papers used for RYO cigarettes versus the 200 to 250 cigarette tubes for MYO.
Many note that consumers of MYO/RYO products have become as diverse as the marketplace. "In the past, rolling your own in our country was associated primarily with fixed and low income smokers, mixed in with a few post-war traditionalists and retro trendsetters," Glynn says. "RYO was a European thing, and that perception did not change until about 10 years ago. Although the most obvious feature is that of economy over packaged cigarettes, choice and customization are becoming important to consumers, as well."
As for the smokeless tobacco segment, more smokers are entering the category than ever before, says Chris Rebello, manager of category development strategy at U.S. Smokeless Tobacco Company, based in Greenwich, CT. "If we look at consumers that have been in our category for more than 11 years, 27 percent are people that smoked first. We also discovered that 62 percent of the people who used smokeless tobacco for less than a year are smokers."
Like the MYO/RYO segment, sales of smokeless tobacco is growing. According Rebello, premium smokeless tobacco sales in particular are up 7.8 percent year to date. "We have done a lot to revitalize the premium smokeless tobacco segment. In the second quarter of last year, premium smokeless tobacco sales were down 3.8 percent. This year, we saw growth of 2.5 percent in the second quarter," he says.
Rebello attributes this sales increase to the growing number of adult consumers in this category. "Through research, we discovered we were able to grow the smokeless tobacco consumer base from 4.7 million to 6 million adults. We also discovered that seven out of 10 new smokeless tobacco consumers chose premium brands," he says.
Dave Savoca, president of Darien, CT-based Smokey Mountain Chew, another smokeless tobacco supplier, agrees that the migration of smokers to this category has contributed to increased sales. "Most smokers start with pouches, so we’re seeing very good growth in the pouch segment. We also are seeing better quality smokeless tobacco at a value price. In some areas, the premiums are getting squeezed in favor of value brands. We are starting to see buy downs to make them more competitive," he says.
Growth in smokeless tobacco also continues to be driven by accelerated growth of the moist snuff segment, according to Tom Impastato, director of trade marketing for Swedish Match North America in Richmond, VA. "Research firm AC Nielsen reported that, in 2005, the moist snuff segment grew over 6 percent and year-to-date 2006 it has grown at an unprecedented 8.8 percent," he says, adding that price value brands continue to drive this growth. "These brands now account for nearly 40 percent of the moist snuff category volume and 95 percent of moist snuff segment growth."
Distinguishing the categories
One barrier suppliers have had to overcome is consumers’ confusion over distinguishing the MYO and RYO categories. Dunn says users of RYO products use papers and tobacco, while MYO products consist of cigarette tubes and an injector machine, along with the tobacco. "If you look at the U.S. versus Europe, the European categories are more developed. There, the RYO and MYO categories are more distinctive. Each uses a different kind of tobacco. For instance, RYO tobacco is a longer shag, whereas MYO tobacco has a finer cut. Here, the same tobacco is used for both RYO and MYO cigarettes," he explains.
Glynn says, for those unfamiliar with the categories, RYO is commonly misused as a reference for the entire category. "For the purposes of definitions, we would say that MYO refers to the injection process of making filter cigarettes, and RYO refers to the rolling process via hand or roller, making non-filtered cigarettes," she says.
As far as products and options in these categories, Glynn says the choices are many. "There is everything from your basic regular, menthol and light varieties of tobacco and filter tubes, to special flavors and an expanse of injector machines for making filter cigarettes. The tobacco options range from discount bags to super-premium European blends for hand rolling," she says.
To help educate consumers, Kinston, NC-based Rouseco regularly conducts rolling demonstrations in stores. "Before it was all about price point. Now, this category’s growth has to do with retailers becoming more educated on the ease in which their customers can make their own cigarettes. We have reps go into stores to show consumers how easy it is to make their own cigarettes and the benefits they can achieve by doing so," says Franklin Rouse, president.
Many consumers don’t realize that they can match the factory brand of what they’re smoking now, he says. "For example, if they’re smoking Marlboro, we have seven blends that they can mix together and achieve what they’re smoking at a cost savings using fresher tobacco," Rouse says.
What’s New
Along with education, new product introductions also have revitalized the RYO, MYO and smokeless tobacco categories.
Robert Burton Associates recently introduced 100 mm menthol tubes under its Premier Supermatic brand. The company also launched a new lemon flavored rolling paper, according to Dunn. "In addition, we launched a new brand of cigarette tubes in a light and menthol version. And we now offer new and improved features on our Supermatic injector machine. A precision H link allows for a more precise fit and the cutter is made of a more wear-resistant sealed plastic," he says.
Glynn says Republic Tobacco has unveiled TOP Menthol Filter Tubes and a TOP-O-MATIC Filter Cigarette Making Machine, which is a heavy-duty, tabletop injector designed for high-volume usage. "We also recently came out with an Ultra Light variety of our popular line of Gambler Cigarette Tobacco. As for cigarette rolling papers, we have just added a mango flavor to our family of Golden Wrap™ Tobacco Wraps. In addition, many new retail displays are available for virtually all of our product lines, from smaller JOB Cigarette Paper space savers, to floor racks that provide a "Make Your Own Center" for the full line of TOP Tobacco and accessories," she says.
HBI International sends out press releases to inform retailers about new products, Kesselman says. The company offers rolling papers made of rice, hemp, flax and pulp in various weights. "We offer flavored papers in 30 varieties. In addition, we have printed papers with a variety of graphics, including flames, skulls, butterflies, rainbows and anything you can imagine," he says.
In addition, the company’s natural line includes a rolling machine made out of biodegradable natural plastic, unbleached filter tips and brown natural paper made with unbleached fibers. "We offer retailers displays featuring neon signs, motion signs that look like they are moving and tiered racks," Kesselman says.
According to Jeffrey Wagner, international director of corporate sales for Corona, CA-based New Image Global, the company recently introduced two new flavors in its EZ Roll Tube line. Wet Mango features a sweet mango taste and aroma, while Purple Haze is a grape and fruit blend. Other new product introductions from the company include the EZ Roll Eastwood Au Naturale line, Royal Blunts EZ Duz-It cigarillos and a new Atomic Blast flavored tobacco wrap in its True Blunt line.
Bambu Sales, Sarah Spielfogel, vice president of Bambu Sales, located in Westbury, NY, says flavored papers are selling well. "We offer vanilla; coconut; chocolate mint; peach; cherry; grape; banana; and strawberry flavors, all with natural glue," she says.
A new injector was introduced by Brea, CA-based GIZEH of North America to compliment the company’s Twister line. "We redesigned all of our tube boxes and some of our paper booklets and display boxes," says Rudiger Stuhlmuller, president.
At press time, Rouseco was preparing to launch its new barrier bag stand up pouch. Rouse says the pouch has more of a moisture barrier to help keep tobacco fresher. "It gives it a lot longer shelf life. We will offer both 6-ounce and 1-pound sizes," he says.
The smokeless tobacco segment also has seen a bevy of new product introductions. U.S. Smokeless Tobacco is test marketing Skoal Dry tobacco, a spit-free tobacco specifically marketed to adult smokers. The company also debuted Copenhagen Long Cut Straight in February and plans to relaunch Bandits moist tobacco. "Bandits will be reformulated to be neater, cleaner and more discreet," Rebello says.
Swedish Match recently introduced Timber Wolf Packs to compete in the growing pouch segment of moist snuff. "We also expanded our lineup of Longhorn Moist Snuff. The latest Longhorn rollout was the addition of Long Cut Natural to the portfolio, which now consists of six flavor/cut variations," Impastato says. The company supports its products with consumer sampling programs, in-store marketing and merchandising tools, and introductory offers.
When Smokey Mountain Chew recently introduced pouch products in wintergreen and mint flavors, it stumbled into a new market. "People are using this line as a flavorful dip mint to freshen their breath," Savoca says. "Due to company health insurance policies, many employees are required to be nicotine free. This line does not contain nicotine. Instead, it provides a tobacco-free alternative to people who are used to chewing."
Future Predictions
With cigarette prices continuing to rise, many RYO, MYO and smokeless tobacco suppliers foresee a bright future for their product categories.
"[The growth] is just starting," Dunn says. "There still is a lot of consumer awareness that needs to take place, because people are not familiar with these categories. But as retailers continue to devote more space in their stores to these lines, we foresee continued growth." Robert Burton Associates plans a direct mail campaign in the coming months to help educate consumers on its product offerings.
Glynn predicts that retail presence will strengthen, both with shelf space and displays as well as in-store promotions and support materials, as these categories grow.
However, if RYO taxes continue rising at the rate of factory-made cigarettes, Rouse predicts more growth in the MYO category overall. "Consumers will look for another alternative that is less costly," he says.
With cigarette giant R.J. Reynold’s recent acquisition of Conwood Sales, a smokeless tobacco company, some predict even more entrants into this segment. "It will put more of a spotlight on the smokeless tobacco category as a whole," Savoca says.
Rebello agrees. "As the convenience store channel continues to recognize this category as an important one, we are seeing more attention being given to this segment. As a result, there are new entrants providing these products. We look at this as a positive opportunity to continue to drive sales," he says.
With the many obstacles faced by tobacco companies in the last few years, including higher taxes and increased regulations, this positive outlook is good news for the beleaguered industry.
Supplier Sources:
- Bambu Sales, Westbury, NY, (516) 333-4080
- Gizeh of North America, Brea, CA, (562) 691-1957
- HBI International, Phoenix, AZ (866) 420-4372
- New Image Global, Corona, CA, (909) 371-8344
- Republic Tobacco, Glenview, IL, (847) 832-9700
- Robert Burton Associations, Fairfield, NJ, (973) 882-5500
- Rouseco, Kinston, NC, (252) 522-2783
- Smokey Mountain Chew, Waco, TX, (214) 914) 5531
- Swedish Match North America, Richmond, VA (804) 302-1946
- U.S. Smokeless Tobacco Company, Greenwich, CT, (203) 661-1100
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