How to Start a Nicotine Pouch Business

💡 Opportunity: Nicotine Pouch and Alternatives

🗂 Overview:

Nicotine’s popularity is on the rise whilst Alcohol & cigarettes are going in the opposite direction. It’s not a perfect link - for example, people quitting alcohol don’t swap it for nicotine and not everyone quitting smoking turns to nicotine pouches as a remedy - but it is an interesting trend that explores a shift in consumer mindsets, especially when it comes to Gen Z.

Both Nicotine and Alcohol can be incredibly addictive substances and both can lead to significant health-related side effects. This most certainly isn’t an endorsement of nicotine products.

This opportunity breakdown will explore opportunities within the nicotine industry and also alternatives that could be potentially better for people’s health.

The global nicotine pouches market size was valued at $1.99 billion in 2022 and is expected to grow at a compound annual growth rate (CAGR) of 35.7% from 2023 to 2030. That is an insane growth rate. That’s more than Fintech, Solar, Cannabis, VR Gaming, and Cyber Security across the same period.

Here’s a good graph showing that alcohol consumption per capita is decreasing:

Likewise, cigarette smoking is reaching record lows:

Whereas demand for nicotine continues to increase:

Companies like Zyn have capitalised on this trend and Gen Z has become a massive part of this growth. Likewise, Gen Z is increasingly less likely to drink alcohol (47% of Gen Z’s aged 21+ haven’t tried alcohol vs 36% of Millenials).

Watch a bit more about Zyn here:

Nicotine is also popular among the “health expert” podcasting community with Peter Attia speaking about it on his podcast and Andrew Huberman saying this:

However, the CDC has reported that nicotine can harm brain development in teens and young adults.

Whilst Zyn has captured a considerable share of the market, there are still some opportunities you should explore if you want to get involved in this switch. For example:

Nicotine pouches aren’t at the levels of vaping and e-cigarettes but If they do take off like vaping did, the growth potential is huge. Where Juul was the new Malboro, many are already calling Zyn the new Juul.

⭐️ Examples:

Over 800 million units of snus were sold between January and March 2022, compared to 126.06 million units between August to December 2019.

• ZYN shipped 105.4 million cans in the U.S. in their 2023 Q3 (up 65% vs 2022) generating $9b in quarterly revenue.

• Velo, owned by British American Tobacco, has about a 12% market share in the US vs Zyn’s 58%.

👎 Problems:

Why People Use Nicotine:

• Cigarette Smoking Addiction: Many turn to nicotine alternatives as a way to quit or reduce smoking traditional cigarettes, which are known for their severe health risks.

• Desire for Nootropic Benefits: Individuals interested in cognitive enhancement seek out nicotine for its nootropic effects, such as improved attention and alertness.

• Social Influences: Social factors, including peer influence or social media trends, can push individuals toward trying nicotine products.

• Stress and Anxiety Management: Some use nicotine as a means to manage stress or anxiety, despite the potential health risks.

• Looking for Discreet Options: Individuals seeking a more discreet way to consume nicotine, compared to smoking, might turn to pouches or gums.

• Healthier Alternatives to Smoking: Those concerned about the health impacts of smoking may look to nicotine pouches or gums as perceived healthier options, even though these too carry risks.

Problems with Current Nicotine Solutions:

• Unpleasant Taste: Many users find the taste of nicotine gum and some pouches unappealing.

• Gum Damage: Nicotine pouches can cause noticeable damage to the gums, often leading to irritation or other oral health issues.

• Addiction Potential: Despite being marketed as alternatives, these products can still be highly addictive.

• Limited Flavor Varieties: There is often a lack of variety in flavours offered, which can deter potential users looking for more palatable options.

• Health Concerns: There are ongoing concerns about the overall health impacts of long-term nicotine use, even in its "safer" forms.

• Stigma: Using nicotine products can carry a social stigma, deterring some potential users.

• Cost: Nicotine alternatives can be expensive, making them less accessible to some users.

🧐 Opportunities:

Opportunity #1: Healthier Nicotine Alternatives

The FDA has started to look into nicotine pouches and many believe it could be a similar outcome to what happened with Juul and vaping. At the very least, regulations will likely be tightened in the not too distant future.

On top of the regulatory aspects, dentists have reported that nicotine pouch users have noticeable gum damage.

This likely isn’t because of the nicotine itself and is more likely from the pouch form factor.

However, there’s also a large list of other harmful effects of Nicotine in general.

One of the main reasons for the explosion in the popularity of nicotine pouches is their use case as a nootropic for brain function which has become a huge selling point for people looking to improve their cognitive performance.

There are a few avenues you could take for this:

• Nicotine-Free Nootropic Gum (better for gums & no nicotine)

• Nicotine-Free Nootropic Pouches

• Nootropic Patches (either with or without nicotine)

Opportunity #2: Nice Tasting Nicotine Gum

As mentioned above, the pouch form can cause notable gum damage - this damage would be reduced in a chewing gum form.

However, most nicotine gum tastes horrible in my experience. There’s almost certainly room in the market for a gum version of Zyn. Potentially one that not only tastes better than other nicotine gum but has other potential benefits built in.

Opportunity #3: Launch in Untapped Markets

Sometimes you don’t need to reinvent the wheel and instead just launch in untapped markets.

You can find some regional insights here.

Nicotine pouches are generally least popular in markets where there are strong regulations against nicotine products, low awareness of alternative nicotine products, or cultural preferences for traditional tobacco products. Here are some areas where nicotine pouches may face lower popularity:

1. Asia (excluding Japan and South Korea) - Many Asian countries have strict regulations regarding nicotine products, including bans or significant restrictions on the sale and marketing of smokeless tobacco and related products. Additionally, the cultural preference for traditional smoking methods can limit the adoption of alternative nicotine products like pouches.

2. Middle East and North Africa - Similar to Asia, this region often has stringent regulatory environments for nicotine products, combined with cultural norms that favour traditional forms of tobacco use such as cigarettes and waterpipes (shisha).

3. Latin America - While there's a variation within the region, many Latin American countries have robust anti-tobacco laws and lower awareness of nicotine pouches. Moreover, economic factors may also play a role, as alternative nicotine products are often more expensive than traditional cigarettes.

4. Parts of Africa - Despite the growing tobacco market, the awareness and availability of nicotine pouches in many African countries are still low compared to traditional tobacco products. Regulatory frameworks also vary significantly, which can impact market entry and growth.

Some of these markets where these types of products are severely limited should be seen as an opportunity for an alternative product to be launched that provides similar results.

🛠 How to Build:

Research the Market:

Start by analyzing current trends in nicotine consumption, especially among younger demographics like Gen Z.

Use data from market research firms, public health databases, and industry reports to identify which nicotine products (pouches, gum, patches) are gaining popularity and why.

Pay attention to consumer preferences on flavour, form factor, and perceived health impacts.

Research the Product:

Based on your market research, choose a specific product type that aligns with consumer needs and stands out in the current market—whether it's a healthier nicotine alternative or a better-tasting nicotine product.

Consider the technical aspects of product development such as the formulation of nicotine or nootropic ingredients, flavouring, and packaging design.

Research the Legalities:

Ensure compliance with all local and international regulations concerning nicotine products. This includes licensing, health warnings, age restrictions, and marketing practices.

Consult with legal experts to navigate the complex regulatory environment and anticipate any potential legal challenges or changes.

Create Some Samples:

Develop a prototype of your product. Work with manufacturers to create small batches of your nicotine gum, patches, or pouches. Use these samples for internal testing to refine the product based on feedback regarding taste, effectiveness, and user experience.

Explore Go-to-Market Strategies:

Zyn's go-to-market strategy offers valuable insights for launching nicotine products successfully:

• Targeted Demographic: Focused on younger, health-conscious adults.

• Strategic Distribution: Tested in specific receptive markets before national rollout; utilized online and physical stores.

• Influencer and Social Media Marketing: Engaged health and wellness influencers and Gen Z social media personalities to create buzz.

• Product Sampling: Distributed free samples extensively, both online and at physical events where the target demographic congregates.

• Health-Focused Messaging: Emphasized the absence of tobacco leaf, marketed as a cleaner alternative, and maintained ingredient transparency.

• Customer Engagement: Built a strong community through active social media engagement and responsive customer interaction.

🚀 How to Grow:

Here’s a great case study on how Zyn approaches marketing.

Here are the main points:

• Product Differentiation: Zyn introduced a unique tobacco-free nicotine pouch (unlike Snus), highlighting its innovative features and distinct value proposition which created a new demand in the market.

• First-to-Market Advantage: The above product differentiation allowed Zyn to capitalize on being one of the first tobacco-free nicotine pouches in the market, which allowed them to establish a strong brand presence early on. If you can create an alternative, you’d potentially have this advantage too.

• Social Media: Zyn leveraged has become hugely popular on social media. But they don’t use influencers or partnerships with celebrities. They’ve capitalised on Gen Z hype - read more about “Zynfluencers” here.

• Strategic Distribution: Leveraging Swedish Match's pre-existing distribution network in the US, which was well-established from prior partnerships, allowed for efficient and extensive market penetration upon Zyn's launch.

• Retail Partnerships and Promotions: Collaborating with retailers for strategic placement and promotions to increase product visibility and accessibility. Zyn ensured prominent display placements within retail stores, increasing the likelihood of impulse purchases and reinforcing brand recognition.

• Consumer Education: By educating consumers about the benefits and safety of using a tobacco-free product, Zyn was able to differentiate itself from traditional nicotine products and attract health-conscious users.

• Customer Feedback Integration: They actively used customer feedback to adjust and improve both the product features and marketing strategies, ensuring that consumer needs and preferences were continually met.

• Sampling Campaigns: Product sampling played a crucial role, particularly in targeted demographics and locations, encouraging first-time trials and facilitating feedback for product refinement. Providing free samples at music festivals, university campuses and so on could be an effective strategy. Look at Red Bull as another example of this.

• Focused Marketing Messages: Marketing campaigns emphasized Zyn's freedom of use ("Can't smoke, Can't vape, Can Zyn"), health benefits as a tobacco-free product, and convenience, aligning with consumer trends towards healthier lifestyle choices.

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