BAT to focus on luxury brands to offset mid-range market losses

The Jakarta Post, Jakarta

The Indonesian unit of one of the world's biggest cigarette producers, British American Tobacco Plc., will focus on the sale of premium-brand cigarettes to offset losses resulting from declining sales in its mid-range cigarettes, a company executive says.

"We will focus on our premium brands. We believe we can win in the premium non-clove cigarette segment," Harold Paul Hutabarat, the marketing director of BAT Indonesia, said Wednesday.

Besides focusing on premium brands, Harold added that BAT Indonesia would also boost the sales of its new mid-range brand, Pall Mall, to ensure a recovery in the company's mid-range segment, which still controls around 80 percent of the mid-range market segment, despite declining sales volumes.

To support the production of Pall Mall cigarettes, the company's shareholders' meeting approved Wednesday the purchase of a Rp 1.8 billion second-hand packaging machine from Pakistan Tobacco Company, another subsidiary of the London-based BAT.

The company suffered a Rp 62 billion (US$7 million) net loss in 2006 as its net sales declined by 21.9 percent to Rp 509.7 billion, from Rp 652.5 billion in 2005.

In volume terms, total sales decreased by 15 percent to 4.51 billion cigarettes from 5.31 billion cigarettes the year before. Mid-range product Ardath lead the decline, with its sales falling by 28 percent to 1.78 billion cigarettes, down from 2.47 billion cigarettes previously.

"As people's spending power declined due to the fuel-price hikes of 2005, the consumers of mid-range cigarettes shifted to cheaper ones. This was the main cause of the loss," explained Harold.

Despite the poor performance, the company reported a significant growth in its premium-brand sales, which experienced 18.6 percent growth in market share and 16.6 percent growth in sales volume in 2006.

Lucky Strike, for example, showed a 13 percent increase in sales volume to 1.23 billion cigarettes in 2006 from 1.07 billion in 2005, while Dunhill notched up a 31 percent increase to 69 million cigarettes from 47 million previously.

Ian Morton, the president director of BAT Indonesia, refused to make a prediction regarding this year's sales volume, but said he believed the company's performance would improve as consumer spending power increased.

"The total market will grow in 2007. So there is a greater chance for us to grow also," he said.

According to figures from AC Nielsen, BAT Indonesia had a one-third market share in the non-clove cigarette segment in 2006. This segment is made up of more than 40 percent mid-range brands, and almost 30 percent premium brands.

BAT Indonesia dominated nearly the whole mid-range non-clove cigarette segment, and controlled almost 15 percent of the premium non-clove cigarette segment.

The company, which has 400 employees, operates a green-leaf threshing factory near Surakarta, Central Java, and a cigarette factory in Cirebon, West Java. (11)
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