INDONESIAN tobacco retailers will be kept on their toes as e-cigarettes make headway in the market, according to Maybank Kim Eng analysts Janni Asman and Isnaputra Iskandar.
“Though we still believe that clove cigarettes will dominate Indonesia’s cigarette industry for some time to come, competition from electronic options may dent their share in some categories such as higher-priced mild and white products,” the analysts wrote in a recent report.
“We think regular machine-rolled products are likely to outperform, particularly the mid-priced brands, on the back of their value for money and stronger foothold outside the big cities.”
US e-cigarette market leader Juul launched in Indonesia in July, through a tie-up with telecom company Erajaya Swasembada, and has rolled out specialised stores in Jakarta and Bali.
“Although vaporising e-cigarettes have expanded rapidly in Indonesia in the past three years, Juul is the first high-profile brand to enter the market,” the analysts noted.
Tobacco giant Philip Morris could also make a play for the Indonesian market with its brand-name iQOS device, the analysts added: “Unlike vaporising products and Juul, iQOS has the advantage of being smokeless as its tobacco is heated instead of burnt.”
Maybank Kim Eng lowered its medium-term outlook on the industry from “positive” to “neutral”.
The analysts estimated that between 3 per cent and 5 per cent of the cigarette market - mainly the higher-end segments - face e-cigarette competition on “limited cost differences”.
Higher-priced products already face a barrier to sales growth if vendors pass on the cost increases from higher taxes to consumers, as expected.
The average selling price of cigarette products is expected to increase by between 5 per cent and 7 per cent between 2020 and 2021, faster than the estimated 3 per cent inflation. Sales volumes are projected to be flattish for the next three years.
Still, initial device investment and maintenance costs could be a barrier to e-cigarette take-up, the report added. Indonesian consumers’ preference for clove cigarettes could also “shield a big chunk of the tobacco industry from the shift to electronic options” for the time being.
Indonesia’s cigarette industry is expected to rake in revenue of US$24.1 billion in 2019, with annual growth of 4.8 per cent, according to industry database consultancy Statista.
Exports of cigarettes were worth US$931.6 million in 2018, Industry Minister Airlangga Hartanto has said, while cigarette excise taxes made up almost all income from excise duties nationally.