Low-Cost Cigarettes Have Positioned Indonesia Top In Global Cigarette Market

Posted on: Oct-2017 | By: QY Market Research | Consumer Goods & Retailing

Indonesia is the second biggest cigarette market globally. The reason behind this is the production of low-cost products. The increasing taxes has elevated the rates of the cigarettes by high margin owing to which smokers who are cost conscious have shifted their preference from premium brands to low-cost brands. This shift of inclination has severely affected the sales of Philip Morris International Inc. as large number of its rivals delivers a wide range of low-priced cigarettes.

In Indonesian market, there are two leading cigarette manufacturers—PT Gudang Garam and PT Hanjaya Mandala Sampoerna, the unit of Phillip Morris. Both of them have witnessed a huge drop in its shares. The performance of both the companies in stock market among another ten manufacturers around the globe has swerved respective to volume.

Sampoerna has reported a 1.6% drop in H1. On the yearly basis, it has witnessed a decline of 4%, while on the other side Gudang Garam saw a rise of 22%. Both the manufacturers make clove flavored standard white cigarettes, but the Sampoerna’s products are found more premium than Gudang Garam.
As per the report published by Kresna Securities, a packet of Sampoerna-brand cost around 17,000 Rupiah, which is a lot higher than the price of Gudang Garam that cost 15,800 Rupiah.

Rising preference of people towards low price products is increasing the growth of the cigarette makers. An analyst stated that in Indonesia the price of the cigarette will continue to rise. It can rise up to 7–8% every year, which is above the inflation rate.

When asked to respond to the relative performance and declining market share to Gudang Garam and Sampoerna, both of them refused to comment.

Indonesia is behind China in terms of consumption volume based on the revenue from the sale. It grew in 2016 and it is expected to grow again in 2017. The increase in excise taxes by the government is also driving the sale of low-cost Cigarette in the market.

Sampoerna’s witnessed a fall in its revenue in the H1 2017 that fell 1.6% compared to the year earlier to that, which makes up to 16.6 Trillion Rupiah. Gudang Garam is yet to disclose the Q2 earnings, which is expected to reflect weak sales.