BAT's US subsidiary puts its faith in chewing tobacco

The creep of smoking bans across the Western world has prompted British American Tobacco's US subsidiary to splash out $3.5bn (£2bn) on a business that looks like reviving: the manufacture of chewing tobacco.

Once the preserve of baseball players and the rural poor, chewing tobacco appears once again to be taking off, with one federal government estimate suggesting one in five high-school boys are using it.

And yesterday, Reynolds American - the joint venture created through the merger of BAT's US business and RJ Reynolds in 2004 - said it would buy the privately owned Conwood smokeless tobacco group.

Conwood is being sold by the Chicago-based Pritzker family, who said the business would do best of all in the hands of an industry player that can throw significant marketing resources behind its brands.

These include a fast-growing, low-cost brand of moist snuff called Grizzly. Moist snuff, sometimes called dipping tobacco, is placed under the lip to give a nicotine hit.

"Conwood provides us with a significant, strategic platform within the growing moist-snuff category that would have taken years to build," Susan Ivey, the chief executive officer of Reynolds American, said. "The moist-snuff category has been growing at 4 per cent to 5 per cent for the past five years. Clearly, we're excited by this unique opportunity to gain immediate scale and strength in the category."

The Tennessee-based Conwood has annual sales of $450m and has been growing profits at 10 per cent a year since the start of the decade.

Tom Pritzker, the chairman of the Pritzker Organisation has been leading a break-up of the family's portfolio of businesses, and said Conwood would flourish under Reynolds American.

British American Tobacco itself is investing in moist-snuff products, known in Europe by the Swedish name snus, although these are banned across the European Union outside Sweden. The product could be popular in emerging markets in Asia, where smokeless tobacco products such as chewing tobacco are common.

US consumption of cigarettes has fallen almost every year since peaking at 640 billion cigarettes in 1981, according to the US Department of Agriculture. It fell 2.6 per cent in 2005 to 378 billion cigarettes.