Home: Issue 6 2009 › Pipe dreams

Pipe dreams

20/12/2009 | Channel: Manufacturing

Having recently refurbished its internal operat ions, Scandinavian Tobacco Group remains the world’s leading producer of pipe tobacco

Scandinavian Tobacco Group is a Danish producer of cigars, packed tobacco for pipes and fine cut tobacco. The company was formed in 1961 by the merger of three Danish family firms with roots dating back to the 17th century. A fourth company, Nordisk BAT (the former American Tobacco Company), joined the group in 1972 and in the years that followed, the group further expanded its operations through acquiring a series of plants and brands. Whilst BAT has since sold its shares and bought itself out of the company, Scandinavian Tobacco Group has continued to grow. Today, its is the global leader in pipe tobacco and the European market leader in cigars.

Christian Hother Sørensen, executive vice president of Scandinavian Tobacco Group, elaborates on some of his company’s core markets: “We are extremely well positioned in both Europe and parts of North America. The main markets for us in both volume and profitability are France, Denmark, the Benelux countries, the UK, Canada and Germany, which is predominantly pipe tobacco. Whilst these markets comprise approximately 75 per cent of our total turnover, we are very much a global company – our cigar brands can be found almost anywhere that tobacco is being sold.”

Scandinavian Tobacco Group has undergone a reshaping process recently in order to build a common company culture, according to Christian: “Initially, each business sector operated as a separate company. We had a cigarettes division, House of Prince; a cigar division, Henri Wintermans; a pipe and fine cut tobacco division, Orlik; and a snus (smokeless tobacco) division, Fiedler & Lundgren. After selling off both our snus and cigarette divisions, we have been able to bring the remaining brands together as one, with one supply chain operation and one sales and marketing operation.”

The company has restructured its operations significantly in order to accommodate this change. Previously, it had five factories dedicated to cigar production – two in Denmark, two in Belgium and one in the Netherlands. Scandinavian Tobacco Group will be closing one of its Danish factories and replacing its two factories in Belgium with a new plant there that, when complete, will be the largest cigar production facility in Europe.

Christian discusses the advantages gained from taking this new direction: “This will clearly bring a lot of benefits to the business, as it will provide a much more efficient manner of operating. We are essentially replacing three factories with one, meaning we can produce the same amount with fewer resources. General overheads will be reduced – we won’t need to employ three plant managers for instance and we won’t have our materials in three different locations. Both our direct and indirect costs will be lowered significantly as a result.”

')";>

Taking innovative measures such as this are vital to the success of Scandinavian Tobacco Group, particularly within the changing tobacco industry. Christian explains: “The biggest issue faced by this industry is the legislation, which is forever getting tighter. Smoking restrictions have put pressure on both where and when you can smoke, meaning that people are smoking less in general - if a consumer does not have the opportunity to smoke during the working day, he or she is not going to go home in the evening saying ‘well I haven’t smoked all day so now I better smoke ten.’ In addition, packaging legislation has also become stricter, with compulsory health warnings becoming more graphic in nature. There are also some veins of thought that there should be a complete visibility ban, meaning that tobacco products can only be sold under the counter and not placed on display. These are issues that we always have to face both as an industry and as a company, and so we are always looking at new ways to develop and innovate both our products and their packaging.”

Innovation is one of the company’s many key strengths, with Christian believing its product specialisation to be another: “We are very focused on these three product segments compared to our competitors, many of which exist as part of larger cigarette companies. By definition, their focus would be on cigarettes, whereas we are able to focus on these three smaller tobacco segments.

We can therefore use all of our resources to create new product ideas and we can take advantage of cross-category synergies. Another advantage of Scandinavian Tobacco Group is that we are still a relatively small company in comparison to the other key players, and so we are able to adapt more quickly to changing market environments, taking quick decisions and thereby maximising opportunities.”

Christian’s positive attitude signals a bright future for Scandinavian Tobacco group, despite any difficulties brought on by the financial crisis. He concludes: “There have been some instances where customers are reverting to cheaper products, but on the whole we have not been hit badly at all. Our future target is to become the world leader in cigars, whilst continuing to maintain our strong number one position in pipe tobacco. We also intend on becoming a significant player in both the roll-your-own and make-your-own tobacco markets. With our current mentality, these goals are certainly achievable, and I expect a very exciting few years ahead.”

Scandinavian Tobacco Group
Employees: Over 94000
Products: Pipe tobacco & cigars