Sampoerna's focus is on Indonesian domestic market

An extraordinary general meeting of shareholders of PT Hanjaya Mandala Sampoerna on Wednesday appointed Martin King as the new president director, replacing the fourth generation Michael Joseph Sampoerna. In a special interview with The Jakarta Post's Leony Aurora, King, accompanied by director Angky Camaro spoke on the company's strategy after Philip Morris took control of 97 percent of their shares.

Question: What obstacles do you expect to meet here in Indonesia? Martin King (MK): I am new in Indonesia and I have a lot to learn about the Indonesian market. That's why I'm very happy that with the combination of the board today (Wednesday), we were able to ensure that the key talents of Sampoerna like Pak Angky Camaro here are staying on with the company to lead the most important part of the company, which is the domestic Indonesian tobacco business.

Together with the Philip Morris people that have a lot of experience from many different markets, we have a very strong management team to deal with any of the challenges in the market place and really keep growing this company to be the number one tobacco company in Indonesia.

Sampoerna has been very successful. It had just finished the first quarter of 2005 with a big growth of 13 percent. It's a company with a very strong brands in A Mild and Dji Sam Soe and you put that together with brands like Marlboro and the knowledge of Philip Morris International and I'm confident that we're going to overcome any challenge.

Also in excise?

Angky Camaro (AC): The government has learnt from its experience that if excise is raised too aggressively, the industry, as well as clove and tobacco farmers, will hurt. It happened in 2002, 2003, where sales were at their lowest. Then they (the government) stopped raising excise.

In 2004 and 2005, there has been recovery, although sales have yet to reach the level of 2000.

If excise is not raised aggressively, the government's income will increase and the industry will still be able to grow. It's a win-win situation.

But if excise is raised too aggressively, it's a lose-lose situation; the government will get less money and the industry's sales volume will decline.

The government should be wise in increasing excise in line with the increase in buying power. More than that, the government will get less and hurt farmers.

How do you see competition from Gudang Garam and Djarum?

MK: Well, they are very strong competitors, so you have to have a lot of respect to your competitors. On the other hand, Philip Morris and Sampoerna make a winning team that I don't think the competition will be able to beat.

Gudang Garam and Djarum have brands for the lower market, while Sampoerna and Philip Morris' brands all go for the middle and upper markets. Are you going to launch new products to capture the lower market?

MK: We're not going to comment on specific strategies in specific brands. We wouldn't want to tip off the competition.

I can assure you that Sampoerna and Philip Morris are always looking for new brands and new opportunities and we'll continue to do that. Both companies in the past always tended towards premium brands, but we understand that we have to compete throughout the spectrum.

We'll continue to grow the company to be number one in the country and to do that, you have to look through all opportunities.

Which Sampoerna brands do you feel need to be strengthened?

MK: The two biggest brands of Sampoerna are Dji Sam Soe and A Mild. A Mild was up over one share point in the first quarter this year and continues the growth that it has had for some time.

Dji Sam Soe is the premium brand in Indonesia. It really commands a premium price and is a very strong brand that continues to win market share. So together, I don't see them needing fixing. It's not a situation that needs 'let's change this let's change that'. It's a situation of continuing success and making sure that we reach for an even higher market share.

Do you think it is possible to reach higher market share without going to the low-end market?

MK: For sure. Sampoerna has been doing that for many years.

To increase it to become above Gudang Garam?

MK: We're not going to specifically talk about which price tiers we're going to compete in or which brand we're going to launch.

AC: Sampoerna's success is in the premium. Fifteen years ago, Gudang Garam was 20 times bigger than Sampoerna in terms of volume sales. Now it's close, we're number two with premium products. Not to mention that with regional autonomy, regencies get richer.

The growth is there, as the money is there now, not in the cities. I was surprised when I visited Pangkalan Bun (Central Kalimantan) that they don't sell one-stick cigarettes like in Jakarta. They sell full packs of cigarettes.

How will you expand your consumers?

MK: Our focus is to win over market share, adult smokers, from our competitors. To do that we'll build our brands, both from Sampoerna and from Philip Morris.

How long do you think it takes to get to be number one?

MK: Well certainly within a few years. Less than five years.

What's your sales target for this year?

MK: We can't talk about forecasts. But our target is to continue to grow.

What's your estimate on the growth of smokers in Indonesia?

MK: Indonesia is the fifth largest cigarette market in the world and it is still growing.

AC: Per head it's still small. The United States, for example, has 250 million people and sells 400 billion sticks per year. Indonesia has 200 million people and sells 200 billion sticks per year. I think the industry, in terms of sales volume, will grow some 5 percent this year.

Will you change the proportion of Sampoerna's cigarette sales abroad and domestically?

AC: We export our brands to Myanmar, Malaysia, and we produce the cigarettes there. Ninety-five percent of our cigarettes are sold in the country.

MK: I think our focus is the Indonesian domestic market. We'll certainly look to develop international markets, where Philip Morris International will help with that, but our focus going forward is here in Indonesia and to move this company to be the best in Indonesia.