Altria to boost output of high-tar clove cigarettes
Altria to boost output of high-tar clove cigarettes
Bloomberg, Jakarta
Altria Group Inc.'s Philip Morris division, the world's biggest cigarette maker, may increase production of cigarettes with higher tar and more nicotine as the company enters Indonesia's US$7.4 billion market for clove-flavored kretek cigarettes.
Philip Morris International Inc.'s $5.1 billion offer for PT HM Sampoerna, announced on March 14, would give the New York- based company 19 percent of the Indonesian market for kretek, the type favored by nine out of 10 of the country's 141 million smokers.
Altria Chief Executive Officer Louis Camilleri said he plans to invest in increasing kretek production capacity.
As U.S. sales of tobacco decline amid lawsuits and health concerns, Philip Morris is expanding in the world's fifth-largest cigarette market, where there is no age limit and few other restrictions on smoking.
Sampoerna's top-selling Dji Sam Soe brand, an unfiltered, hand-rolled kretek, has more than twice the tar and nicotine of Philip Morris's Marlboros.
Sampoerna, the nation's third-biggest cigarette maker, PT Gudang Garam, the biggest, and PT Djarum control more than 80 percent of the market in Indonesia, according to the Association of Indonesian Cigarette Producers (GAPPRI).
Only 8 percent of Indonesia's smokers prefer Western brands such as Marlboro, which Philip Morris this week said accounts for 50 percent of the non-clove cigarettes sold in the country.
"I wish we had the power to change the consumers," Matteo Pellegrini, Philip Morris's president for Asia Pacific, said on Monday. But "in Indonesia, kretek are part of the fabric and the tradition. The kretek market is growing."
Kretek cigarettes deliver more nicotine, carbon monoxide and tar than conventional cigarettes, the U.S. Center for Disease Control said in a July 2004 fact sheet on its Website.
Dji Sam Soe contain tar levels as high as 39 milligrams per stick and deliver as much as 2.3 milligrams of nicotine. That compares with 14 milligrams of tar and 1 milligram of nicotine in Philip Morris's top-selling Marlboro brand in Indonesia.
"With regard to kretek and whether cloves have more harmful compounds than tobacco, our internal assessment suggests that there is no difference whatsoever," Altria Chief Executive Camilleri said on Monday conference call.
"We have been very clear in every country in which we do business that there's no such thing as a safe cigarette," David Davies, senior vice president for Philip Morris, said on Tuesday by telephone. "A low-tar cigarette is no safer than any other cigarette and consumers should simply be guided by an understanding that there is no safe cigarette."
Indonesia produced 214.6 billion cigarettes last year, 196.2 billion of which were kretek, according to the GAPPRI.
Sampoerna sold 41.38 billion cigarettes last year, a 13 percent increase from a year earlier. Sales of its A Mild brand rose a quarter to 16.68 billion, while sales of Dji Sam Soe rose 4 percent to 16.81 billion.
Philip Morris this week said the 40 percent stake it bought in Sampoerna came mostly from shares owned by the Chairman Putera Sampoerna, 57, a grandson of the founder. Philip Morris said it is offering Rp 10,600 a share for the remaining 60 percent, and plans to complete the purchase within 90 days.