(Bloomberg) -- A slew of Zyn competitors are rushing in to capitalize on troubles at the Philip Morris-owned brand, which is facing a run on supply for its popular oral nicotine pouches and a subpoena that prompted a halt in its online sales in the US.
“With Zyn’s falling-out right now, and manufacturing issues, we want to strike while the iron is hot,” Song Jo, a sales manager for California-based wholesaler Apex Distribution, said at the Alternative Products Expo trade show last month in Houston, where he was displaying oral nicotine pouches branded to former professional basketball player Dennis Rodman.
These imitators are the latest competitive threat to big tobacco companies like Philip Morris International Inc. in the US. Tobacco companies are focusing on the small but growing category of oral pouches to make up for declining cigarette sales and difficulties competing in the vape market. They also pose a challenge for US regulators, who will have to contend with another wave of unauthorized nicotine products after an explosion in demand for unauthorized flavored vapes since last year.
Oral nicotine pouches were a $6 billion market in the US last year and are expected to reach $18 billion by 2027, according to market research firm Euromonitor International.
Zyn’s sales volume jumped 80% in the first quarter, according to the company. Putting further pressure on supply, Philip Morris also decided to halt online sales nationwide in June after receiving a subpoena in the District of Columbia asking for information on the sale of flavored products that are banned there.
That’s created an opening for a flurry of new pouch brands, many of which are coming from China, to fill the void. Many of these manufacturers are following a playbook they used with e-cigarettes, where they were able to gain market share after the US clamped down on flavored vapes, stymieing Juul Labs Inc. and others.
Big tobacco companies are fighting back against the influx of flavored disposable vapes made in China, and they have started to take notice of the oral pouch competitors, too.
“The same way you’ve noticed a growth in illicit vape devices you’ve seen a growth in oral nicotine pouches,” said Steven Callahan, a managing director at Altria Group Inc. who leads enforcement efforts. Altria has said that vapes which haven’t gone through FDA review compete with its authorized product, NJOY.
Zyn has faced competition for years from established brands, such as Altria’s On! and Rogue from Swisher International Group Inc. Those products, as well as Zyn, have been submitted to the US Food and Drug Administration to evaluate, but the agency has yet to decide.
A spokesman for Philip Morris declined to comment on Zyn competition or whether Zyn is protected by patents. Philip Morris’ Swedish Match unit, which owns the Zyn brand, acquired the patent rights for nicotine pouches in 2016, according to a company presentation. It was bought by Philip Morris in 2022.
Rodman, the former basketball player, couldn’t be reached after the trade show, and a representative from the marketing department for Rodman pouches had no immediate comment.
Chris Howard, an executive vice president at Swisher International, said the FDA’s slowness in authorizing products has allowed illegal vape sales to proliferate, and he hopes the same thing doesn’t happen with oral pouches.
“I was at a conference a few months ago, and saw a dozen pouch brands that I’d never seen in my life,” he said.
The FDA has already been overwhelmed by a flood of unauthorized flavored vapes, many of which are from China. It says any product that it hasn’t authorized is being sold illegally but that it prioritizes enforcement of products with youth appeal.
William Chaw, a project manager at China-based tobacco materials maker Granch Biopack, said at the expo that his company makes pouches for the “L Vape” brand and plans to launch more brands in the US soon with names like “Zombie Nic” and “Pure Zyn.”
“We are selling more since Zyn has been selling out,” Chaw said.
--With assistance from Jacob Gu.
(Corrects to remove reference to current market share and change Euromonitor prediction to $18 billion.)
©2024 Bloomberg L.P.
