October 02, 2015

Walking the streets Cigarette Sales

Yeni Simanjuntak ([email protected])

Smokers keep on smoking The sales are stable When most of retailers – from fashion to stapple food business – complain about their sales declining due to economic slowdown, cigarette wholesalers have a different story. Smokers keep spending their money on cigarette. The cigarette sales are stable in Jakarta and small city in Java. According to the wholesalers, sales value remain stable and they maintain their 1% margin.

Cigarette price hike up to 3% The price hike is applied to all type of cigarettes, at range Rp50-Rp400 per pack or Rp3-Rp33 per stick (0.6%-3% price hike), in the last recent weeks. The cigarette price hike applied almost every two weeks in the last recent weeks.

Not much of trading down activity in Cigarette industry Surprisingly, in the midst of economic slowdown and cigarette price hike, A -mild (one of HMSP’s premium brand) still leads the market. There is trading down activity in Pekanbaru (a 2nd tier city) but not in Jakarta.

Figure 1. Cigarette Price Hike at Wholesalers Level The Prices Hike per Pack (Rp)

New Prices per Stick (Rp)

The Prices Hike per Stick (Rp)

779.17

787.50

8.33

1.07

100

779.17

787.5

8.33

1.07

9,850

100

812.50

820.83

8.33

1.03

9,350

9,450

100

779.17

787.5

8.33

1.07

Djarum Super—12*

12,400

12,500

100

1,033.33

1,041.67

8.33

0.81

Djarum Super—16*

7,950

8,000

50

496.88

500

3.13

0.63

Minak Djinggo Kuning—10**

5,600

5,700

100

560

570

10

1.79

Old Prices per Pack (Rp)

New Prices per Pack (Rp)

Djarum Coklat—12*

9,350

9,450

100

Djarum 76—12*

9,350

9,450

Djarum Coklat Filter—12*

9,750

Djarum Coklat Extra—12*

Cigarette Brands

Old Prices per Stick (Rp)

The Prices Hike (%)

Class Mild –12**

4,750

4,850

100

395.83

404.17

8.33

2.11

Class Mild—16**

6,925

7,000

75

432.81

437.5

4.69

1.08

Class Mild –16 Menthol**

6,925

7,000

75

432.81

437.5

4.69

1.08

Aroma—12**

13,000

13,400

400

1,083.33

1,116.67

33.33

3.08

Aroma Geser—12**

13,000

13,400

400

1,083.33

1,116.67

33.33

3.08

7,400

7,600

200

462.50

475

12.50

2.70

Aroma Slim –16**

Source: Cigarette wholesalers, TRIM Research.

PT Trimegah Securities Tbk - www.trimegah.com

Note: *will applied 5 Oct 2015, **applied 28 Sept 2015

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Cigarette Wholesalers Keep Earn Great Sales We went to cigarette wholesalers in West and East Jakarta recently, and found that the sales remain stable in the middle of economic downturn and cigarette price hike. The price hike is applied to all type of cigarettes, at range Rp50-Rp400 per pack or Rp3-Rp33 per stick (0.6%-3% price hike), in the last recent weeks. The cigarette price hike applied almost every two weeks in the last recent weeks with average Rp20k per baal (one baal consist of 200 packs or 100 packs, depends on the brand) or about Rp100-Rp200 per pack. We got two circular letters about cigarette price hike which addressed for cigarette whosalers or agents. Djarum Group, one of big cigarette producer, will apply Rp50-Rp100 price hike per packs or Rp3.13-Rp8.33 per stick (0.63%-1.07%), for at least its six types of cigarette starting next Monday or October 5th. Nojorono Group, another cigarette producer, has already applied new price for some of its products since 28th September with Rp75-Rp100 per pack or Rp4.69-33.33 per stick (1.08%-3.08%) price hike. Cigarette wholesalers said HMSP raised its A-mild (a cigarette that lead the market) since last month with about Rp50 price hike per pack or Rp3.12 per stick (0.33%). The recent economic situation and the cigarette price hike even can not push the smokers switch their preference brand to the cheaper one. A-mild (one of HMSP’s premium brand) still leads the market, followed with Gudang Garam Filter (GGRM), Dji Sam Soe Filter (HMSP), Djarum Super (Djarum Group), and U Mild (HMSP’s second line brand). One cigarette wholesaler told us that he sold four boxes of A-mild per day (one box consist of 600 packs) as usual. Nothing different so far. Since A-mild is still the favorite brand in Jakarta, it showed us that there is no trading down phenomenon happened in cigarette business, at least at the biggest city in Indonesia. Surprisingly, we had got the same testimony from modern retailer – i.e Indomaret and Alfarmart outlets – in Batang, one of small city in Central Java. In that small city, A-mild is still the favorite brand for smokers there. We also heard the same story from traditional retailer (waroong/small shop). According to retailers, the cigarette sales in Batang still stable. However, we heard the different situation happened in Pekanbaru, capital city of Riau in Sumatera. According to the cigarette wholesaler in Pekanbaru, cigarette sales volume in that city drop more than 50% since almost the last two months. Smokers at that city also tend to change their favorite cigarette with the cheaper one. Black Dunhill (RMBA’s cigarette) is the favorite cigarette recently there, replacing A-mild which now stood at second row. Black Dunhill is Rp4k cheaper than A-mild per pack.

Figure 2. Cigarette wholesaler outlet in East Jakarta

Source: TRIM Researh

PT Trimegah Securities Tbk - www.trimegah.com

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Cigarette Pricing Policy at Retailers Level

We also went deeper to cigarette retailers to find out more about cigarette sales recently. At retailers level, Amild from HMSP is still the favorite item, same as we heard from the wholesalers. We also found how cigarette price differ in the retailers level. At traditional retailers (warung or small shop), the price differ from one to each other, depend on how far the shop from the cigarette wholesalers location. We also found that cigarette price at modern retailers – i.e Indomaret and Alfamart outlets – tend to be cheaper than some traditional retailers shop (up to 5% cheaper). In terms of cigarette sales, there is no decline at the modern retailers, but traditional retailers that we visited experienced a decline. A small retailer at a residential area in East and West Jakarta said her cigarette sales drop more than 50% recently. She added that she can only sell two packs A-mild per day, a drop from five packs A-mild per day usually. We think the cigarette sales declining at traditional retailers is because their customers prefer to buy cigarette from modern retailers, which could be more convenient, or wholesalers directly in a way to get cheaper prices. It is not difficult for smokers to get access to cigarette wholesalers outlet since it located near market or residentials. Smokers who directly buy cigarette from wholesaler get cheaper prices than they get from retailer, but still the price is a little bit higher than the wholesaler prices for retailers (see figure 3). According to wholesalers, 10% of their sales are come from smokers directly and 90% from retailers. We also talked to several smokers at traditional market in West Jakarta about their preference place to buy the cigarette. The smokers told us that they prefer to buy the cigarette from wholesaler outlet directly since it much cheaper. This is probably because we asked those that happened to live nearby a wholesaler outlet.

Figure 3. Cigarette Prices at Wholesalers & Retailers per Pack (Rp) Cigarette Brands

Wholesaler Prices for Retailers

Wholesaler Prices for Smokers

Traditional Retailer Prices

Modern Retailer Prices

A-mild 16 (HMSP)

15,200

16,000

16,000-17,000

16,500

Gudang Garam Filter 12 (GGRM)

12,150

13,000-13,500

14,000

13,300

Dji Sam Soe Filter 12 (HMSP)

12,800

13,500-14,000

14,000

13,600

Djarum Super 12 (Djarum Group)

12,500

13,000

14,000

13,600

U Mild 16 (HMSP)

11,200

12,000

12,500

12,100

Source: Cigarette wholesalers & retailers, TRIM Research

PT Trimegah Securities Tbk - www.trimegah.com

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Figure 4. Cigarettes at modern & traditional retailers (above); activity at cigarette wholesaler in West Jakarta (below)

Source: TRIM Research

PT Trimegah Securities Tbk - www.trimegah.com

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