Philip Morris to challenge local cigarette giants<\/p>\n
Rendi A. Witular, The Jakarta Post, Jakarta<\/p>\n
The acquisition of PT Hanjaya Mandala Sampoerna, the nation's
\nsecond-largest cigarette producer by volume, by U.S.-based Philip
\nMorris International Inc. is set to make the competition in local
\ncigarette industry stronger.<\/p>\n
With kretek (clove) cigarettes accounting for 92 percent of
\nthe market, Philip Morris -- the producer of non-clove cigarettes
\nsuch as Marlboro -- says it is well aware it cannot lead the
\nmarket here without also producing cloves.<\/p>\n
\"Kretek is part of a tradition in Indonesia. It will be
\ndifficult for us to change that. Our partnership with Sampoerna
\nis aimed at strengthening our presence in the kretek cigarette
\nindustry,\" said Philip Morris Asia Pacific President Matteo
\nPellegrini in an interview recently.<\/p>\n
Philip Morris, an international tobacco unit of U.S. consumer-
\ngoods giant Altria Group Inc., announced it had offered a total
\nof Rp 48 trillion (US$5.2 billion) to buy out Sampoerna.<\/p>\n
Last year, publicly listed Sampoerna controlled 19.9 percent
\nof the market share, with its top-selling brands the hand-rolled
\nDji Sam Soe and the machined-rolled low tar A Mild.<\/p>\n
The brands are aimed at the middle and upper-income markets.<\/p>\n
With little health regulations or taxes on cigarettes, unlike
\nthose in more health-conscious countries, there is promising
\ngrowth in the cigarette market here. Pellegrini said Sampoerna,
\nunder Philip Morris, would now have the capability to expand its
\nmarket share towards middle and low-income smokers.<\/p>\n
\"We are looking for all opportunities here, and definitely we
\nwill expand our market share to all market segments,\" he said.<\/p>\n
The middle- and lower-end market segment is the largest base
\nfor cigarette giants like East Java-based PT Gudang Garam and
\nCentral-Java based PT Djarum -- the country's largest and third
\nlargest cigarette producers, respectively.<\/p>\n
Last year, cigarette consumption here reached 213 billion
\nsticks with Gudang Garam, Sampoerna and Djarum accounting for 68
\npercent of the market share.<\/p>\n
Sampoerna took over the rank of the second-largest cigarette
\nproducer from Djarum last year, with an increase in market share
\nto 19.9 percent from 18.3 percent in 2003, while Djarum ranked
\nthird with its share dropping to 18.2 percent from 18.7 percent.<\/p>\n
As for Gudang Garam, although it remains at the top of the
\nlist last year, its growth volume was lower compared to
\nSampoerna. Gudang Garam recorded an increase of only 1.44 billion
\nsticks, compared to 7.03 billion sticks booked by Sampoerna.<\/p>\n
\"With a vast global experience in the cigarette industry,
\nSampoerna under Philip Morris will definitely become a tough
\nchallenger for Gudang Garam, especially if they also engage in
\nthe lower-end market,\" said an analyst with BNI Securities.<\/p>\n
The analyst said, however, that it would be difficult for
\nGudang Garam and Djarum to topple Sampoerna in the middle and
\nupper-end of the market.<\/p>\n
\"Middle and upper-end markets are more sophisticated than
\nthose at the lower end. Aside from that, as the country's economy
\nis growing and those who used to smoke cheap cigarettes will
\neventually turn to more expensive ones,\" the analyst said.<\/p>\n
Indonesia is the world's fifth-largest cigarette market after
\nChina, the United States, Japan and Russia, with 141 million
\nsmokers.<\/p>\n
Analysts have projected that the number of smokers are likely
\nto grow by at least 5 percent this year.<\/p>\n
\"The decision to acquire Sampoerna is in part attributable to
\nlimited smokers in the developed countries amid rising production
\ncosts due to higher excise tariffs imposed on the product,\" said
\nthe analyst.<\/p>\n
The decline in the number of smokers in the U.S., Western
\nEurope and Japan are primarily driven by health concerns,
\ngovernment regulations in anti-smoking drives, and serious
\nlitigation from non-governmental organizations over the negative
\nimpact of cigarettes.<\/p>\n
Top cigarette producers
\n(in million sticks)<\/p>\n
2003 2004<\/p>\n
1. Gudang Garam 63,290 64,731<\/p>\n
2. HM Sampoerna 35,558 42,594<\/p>\n
3. Djarum 36,285 39,066<\/p>\n
4. Bentoel 3,865 4,138<\/p>\n
5. Noyorono 3,775 5,974<\/p>\n
6. Philip Morris 9,103 8,370<\/p>\n
7. BAT Indonesia 5,553 5,426<\/p>\n
8. Other non-clove 3,406 4,000<\/p>\n
cigarette producers<\/p>\n
9. Other clove 33,127 39,673<\/p>\n
cigarette producers<\/p>\n
Total 193,962 213,972<\/p>\n
Source: The Association of Indonesian Cigarette Producers
\n(GAAPRI)<\/p>",
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"sponsor": "Okusi Associates",
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