Giants cough as poor smokers swith brands

Rendi A. Witular, The Jakarta Post/Jakarta

Poverty has not stopped the poor from smoking -- the latest market research shows they have just switched to cheaper non- branded cigarettes, which is giving the country's traditional tobacco giants a proverbial kick in the butt.

And ironically, these smoking habits, the experts say, are also an indication of the relative health of the economy; they show that the poor, stuck with their cheap tobacco, cannot taste the benefits of the recent economic growth.

As the cigarette companies' largest market declines, the fight now is for the buyers from the middle- and upper-income brackets, the statistics show.

This shift of smokers' appetites in the lower-end market segment, the largest base for giants like PT Gudang Garam and PT Djarum Kudus, is reflected in data issued by the Indonesian Association of Cigarette Companies (GAAPRI), in which the market share of these companies has declined in the third quarter of this year.

Publicly listed Gudang Garam and non-listed Djarum are the nation's largest and second-largest cigarette producers respectively. Both companies have lost market share to publicly listed PT HM Sampoerna, the country's third-largest cigarette producer, and to smaller producers of budget "no-name" cigarettes.

Sampoerna is known for its cigarettes aimed at the middle and upper-income market, such as the hand-rolled "Dji Sam Soe" and machine-rolled low tar "A Mild".

According to GAAPRI, the market share of Gudang Garam for both hand-rolled and machine-rolled cigarettes has declined to 34 percent in the third quarter from 37.2 percent in the same period last year.

Its rival Djarum has also suffered a drop in market share to 18.8 percent from 19.1 percent.

Meanwhile, Sampoerna enjoys an increase in market share to 21 percent from 19.1 percent.

The statistics also show other producers; the non-branded products and international makers of "prestige" brands -- Philip Morris Indonesia and British American Tobacco -- are enjoying a higher market share; from 24.1 percent in the third quarter last year to 25.4 percent in the same period this year.

While things may be getting sweeter for the underdogs peddling their addictions to the middle classes, the results show that life for the poor, whatever they smoke, remains a drag.

"Higher economic growth, which is supposed to fuel higher consumer spending, has not necessarily helped drive up consumption for low-income people," said Gudang Garam director and corporate secretary Heru Budiman on Friday.

"Our cigarette production is likely to remain flat this year. The higher economic growth has only affected the middle- and upper-class buyers," said Heru.

The industry's total output for both the hand-rolled and machine-rolled tobacco is expected to reach about 196 billion sticks this year, still below the pre-financial crisis level of 198 billion sticks in 1997.

The Kediri-based Gudang Garam produced 50.6 billion sticks of cigarettes in the first nine months of this year, relatively flat in growth compared to 50.3 billion sticks it produced in the same period of last year.

For the full year, the company has expected to produce some 63 billion sticks, from its installed capacity of 110 billion sticks per year.

Heru said the projected higher economic growth of 5.2 percent next year would mean nothing for the poor unless there were sufficient jobs for them.

"The higher economic growth it turns out is only being enjoyed by those with the middle and upper incomes, while those in the lower income bracket remain poor," he said, adding that the urban areas would be the main sources of growth next year.