UPDATE 2-Swedish Match sees price war eventually easing

Wed Nov 14, 2012 11:38am EST

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By Anna Ringstrom

GOTHENBURG, Sweden, Nov 14 (Reuters) - Swedish Match AB believes a price war in Sweden's wet snuff market should eventually ease as rivals follow its price rises, its chief executive said on Wednesday.

The tobacco products group warned last month that price competition in Swedish-style wet snuff, called snus, w ould hit profit in the fourth quarter of 2012 and early next year.

But Chief Executive Lars Dahlgren expected a narrowing of the price gap between top and low-end snus to reverse the trend away from high-margin premium brands where Swedish Match has its largest market share.

"If we are right about the type of discounts that much of the competition is giving to the retailers, I don't think these price levels you see today are sustainable because much of the competition must be bleeding right now," Dahlgren said at the company's capital markets day.

Swedish Match shares, which dived after last month's warning, were flat around 220.80 crowns at 1617 GMT, compared with a year high of 295 crowns in July.

Dahlgren repeated the warning that fourth-quarter profit would drop after snus market share and premium snus volumes fell in the third quarter.

Swedish Match sells snus mainly in Sweden and Norway. It is put under the lip and sucked, mostly in small pouches.

Its snuff and snus unit accounts for more than half of group profit and a third of sales.

Swedish Match, whose main rivals in Sweden are Imperial Tobacco, BAT and Japan Tobacco, expects snus profit in Sweden to be hit at the start of 2013 due to users switching to lower-margin cheap snus and a decision not to raise prices on its premium snus in January despite a tax hike.

The firm will raise prices on its lowest-priced brand Kaliber at the start of 2013, hoping competitors will follow.

"If nobody else changes prices at the lower end, or even goes down (in price) we'll have to reassess and see how it impacts our plans," Dahlgren told Reuters.

He said the firm might raise prices on mid-priced and premium snus in Sweden later in the year.

OVERSEAS SNUS PUSH

Dahlgren said he was pleased with snus sales trends in the United States, the world's biggest wet snuff market, where Swedish Match is pushing to differentiate itself from rivals such as Altria Group Inc and Reynolds American Inc .

Rich Flaherty, head of the U.S. business, told Reuters Swedish Match would sell nearly 2 million cans in the United States this year, double 2011, and would further intensify the push next year as it seeks growth outside the mature Swedish market.

The firm, which sells roughly 170 million cans in Sweden annually, is also testing snus in Canada, the Russian city of St. Petersburg and in Tel Aviv in Israel through SMPM International, a venture with Phillip Morris.

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