Indonesia’s Gudang Garam launches low-tar cigarette
June 29th, 2007
KEDIRI, Indonesia, June 25 (Reuters) - Indonesia’s top cigarette maker, PT Gudang Garam Tbk (GGRM.JK: Quote, Profile, Research), played down concerns on Monday over government moves to cap industry output as it launched a low-tar cigarette to help lift its performance.
The mild cigarette segment has been dominated by Handaya Mandala Sampoerna (HMSP.JK: Quote, Profile, Research), a unit of Philip Morris, the tobacco arm of Altria Group (MO.N: Quote, Profile, Research), while Gudang Garam has focused on lower-margin mass market products.
Analysts have blamed Gudang Garam’s strategy for its declining performance, because the majority of its customers are more sensitive to prices. Rival Sampoerna, which targets urban smokers, enjoys a steadier revenue stream.
Widijanto, Gudang Garam’s marketing director, admitted that company had not sufficiently catered to the low-tar sector as he unveiled the “Surya Slims” brand. Surya means sun in Indonesian.
“We see an opportunity in this segment. That’s why we are following the demand from the market,” Widijanto said.
The executive, speaking at the firm’s home town in East Java, also said he was not worried by government moves to control output.
The government recently revealed plans to start limiting cigarette production to 240 billion sticks by 2010 in a tentative move to curb smoking in the world’s fifth-largest tobacco market, lifting the cap to 260 billion in 2015.
“We will do business as usual. We won’t be affected,” Widijanto told reporters.
The number of smokers in western countries has fallen, but in Indonesia, where cigarettes cost as little as $1 a pack, the number has risen to a third of its 220 million people from a quarter in the previous decade.
Nonetheless, Indonesian smokers have been increasingly opting for mild and low-tar cigarettes rather than the most popular clove cigarette, know as kretek.
Indonesians smoked an estimated 220 billion cigarettes last year, the same as in 2005 but below a peak of 239 billion in 2000, according to government data.
According to the World Health Organisation, about a quarter of deaths in Indonesia in 2005 were caused by tobacco, and 80 percent of lung and respiratory cancer cases were due to smoking.
But the industry remains a powerful lobby group, particularly since it is estimated to support employment of 7 million Indonesians.
The industry expects to pay 42 trillion rupiah ($4.8 billion) in cigarette excise taxes this year, up from 11 trillion in 2001.
© Reuters 2007
Entry Filed under: East Java News
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