It's easy to conclude that popularity is the last thing a writer needs when jousting at the highest prize in the world of letters. I read a lot of literary fiction, and my response to most of the literature winners is "who?" Even the world of literature is often caught off-guard, having to scramble to translate the winner's work into English for the first time. Think there are debates over the peace prize laureates? There's as much argument over that big lit prize.
So what happened to poor JRRT? No, it wasn't a matter of popularity. I'm afraid to say that I agree with the judgment of the committee. Summing up Tolkein's work they said: "the result has not in any way measured up to storytelling of the highest quality".
Tolkein just doesn't hit the heights. I'm not saying every laureate does; few seem to these days in my humble... Tolkein was famous for not allowing his work to be edited, and it shows. His best-written work is the Silmarillion, and many of his fans struggle with that one. Yes, he crafted epic stories. He just didn't do it with epic craft in terms of the writing. His formidable talent was for world-building. In that realm he might just be the best there ever was.
Read literary fiction for decades only if you accept the risk of spoiling your enjoyment of some former favorite writers. I love the LOTR movies, beautifully done, paced well, story matched to the imagery JRRT never quite delivered. I did miss the Bombadil section, which seemed to me to be JRRT's most singular invention, and the one good line in the tome:
"And all the host laughed and wept, and in the midst of their merriment and tears the clear voice of the minstrel rose like silver and gold. . .until their hearts, wounded with sweet words, overflowed, and their joy was like swords, and they passed in thought out to regions where pain and delight flow together and tears are the very wine of blessedness."
A copyeditor could have fixed the punctuation.