Beyond Boundaries

Despite battling legislative issues, sales in the Other Tobacco Products (OTP) category have almost doubled from what they were 20 years ago. With more and more restrictions emerging about smoking in public places and the workplace, Swedish Match North America is taking great strides to capitalize on the shift towards smokeless tobacco products.

Swedish Match North America offers a wide assortment of Other Tobacco category products across three sub-categories: moist snuff, loose-leaf chewing tobacco and cigars. Its brands include Timber Wolf moist snuff and Red Man chewing tobacco, Garcia y Vega, White Owl and Macanudo cigars, in addition to matches and Cricket lighters.

Outside the Box

Striving to be the preferred category captain in the OTP category was not an easy task. The convenience store channel has traditionally been a data-poor environment as compared to the data-rich grocery channel. OTP companies like Swedish Match depend on wholesaler shipment data for category analysis rather than point-of-sale data, which needs to be reconciled across hundreds of convenience store partners. In addition, Swedish Match has 14 share of the OTP category, which means it competes for attention from retailers with larger tobacco companies. In other categories the largest suppliers are usually the best equipped at category management.

Despite these challenges, Swedish Match understood that doing category management within the OTP category could put it in a position to help its retail customers achieve sales goals, while meeting its own product goals. As a result, Swedish Match reorganized its company around category management beginning six years ago, shoveling much investment into enabling people, training, industry process and analytical tools.

The company implemented a trademarked and unbiased process called ProView with all retailers on all category management projects. The driver of the analytical work in the process is JDA's Efficient Item Assortment (EIA) by Intactix software. Swedish Match runs wholesaler shipment data from approximately 100,000 stores through JDA's EIA by Intactix software to perform assortment and space analysis to gain the highest return for the available space.

"The thing I like best about the tool is that you can quantify the impact of different assortment scenarios," says Joe Teller, senior category manager, Swedish Match. "You can quantify the estimated impact of a new recommended item mix that you are going to provide to the retailer and then you can make changes to it accordingly."

So far, So Good

Teller reports tremendous benefits since implementing the tool. "With the help of EIA, on the supply side our customers are reaping the benefits of reduced operating costs, inventory and out-of-stocks while realizing increased dollar and unit sales. Additionally, on the demand side, we're providing our retail customers with the optimal variety of items that best meet the needs of consumers in their local marketplace and shoppers in their stores."

Today, Swedish Match is doing category management with 195 retailers, up from 17 retailers just five years ago. "We estimate that we are taking advantage of around 80 percent of the available partnership opportunities out there right now," says Teller. He recently examined the results of 13 chains that implemented Swedish Match's recommended merchandise mixes across the moist snuff, chewing tobacco and cigar categories. Those retailers saw an average increase in sales of 20 percent to 40 percent, while Swedish Match realized a 70 percent to 100 percent increase in sales. "These results have exceeded expectations," says Teller.

More to Come

While category management is adding tremendous value to the OTP category, Teller believes that greater opportunities lie ahead once it overcomes one final hurdle: Automation.

Once Swedish Match's category management process is fully automated, there is no limit to the amount of retailers that it can partner with because bottlenecks won't occur.

Teller predicts that the number of retail partners it conducts category management with will swell from 195 to 400 once the automation hurdle is cleared. Swedish Match is currently looking into technology partners who can automate its presentations and analysis, and expects the project to be complete by the end of 2006.