Nov 16, 2016 12:22:43

Cigarette: Inside the Pack – Nov’16

- Our cigarette price survey reveals that many stories are at play in the retail price movements this month, including Gudang Garam’s new ex-factory prices that are yet to be fully reflected in stores. Bentoel is also slating with lower prices through Lucky Strike Mild 12 and the recent retail price drop on Dunhill Mild 16, which might disrupt the market for mild players.

- GGRM’s new ex-factory prices are yet to be fully translated to retail price. GGRM’s ex-factory price increase last week translates to a mere 0.8% MoM retail price increase (versus average ex-factory price increase of c.2%). This is partly caused by some brands’ ex-factory prices that were not raised, and the retail price responses toward raised ex-factory prices may not be complete yet – retailers expect further adjustment in 1-2 weeks. Mirroring the ranks of ex-factory price increases, Pro Mild 16’s retail price leads with +2.6% MoM, followed by Surya 16 (+1.3%), and GG International 12 (+0.5%). For two consecutive months, GGRM ranks last in the monthly retail price movement at +0.5% and +0.8% MoM in Oct’16 and Nov’16, respectively.

- Bentoel is still in with the cheap. The strategy of lower-price products seems to be maintained until the last breath by RMBA. Their retail price increase has been rather muted this year, up by a mere 6.2% YTD (vs. average of 9.3%), where half of the increase comes from last month’s 3.5% jump. Now available at all convenience stores and street vendors we visited, Lucky Strike Mild 12 emerged as the cheapest cigarette, retailing at Rp10,000 – even below HMSP’s U Bold in some areas. Lucky Strike Mild’s widespread distribution comes at the same time as Dunhill Mild 16’s retail price drop of Rp1,000- 3,000/pack to c.Rp15,000 at our survey stores, priced within Sampoerna U Mild’s level. The price drop could be part of their trade promotion strategy, but would still be disruptive to the market, particularly the mild players.

- The fewer is the shield. HMSP’s overall retail price grew by 1.6% MoM in Nov’16. We notice that A Mild 12’s retail price increase is accelerating to 5% MoM this month, while it also has the highest year-to-date increase among all brands at 24.2% YTD (vs. average of 9.3% YTD). HMSP previously mentioned that double-digit EBIT growth target this year is maintained even if it comes at the expense of premium brands’ market shares through further price increase. Meanwhile, A Mild 16’s price was flat this month. Trailing behind A Mild 12 is Magnum Blue’s retail price increase (4.7% MoM in Nov’16; 13% YTD).

- A peek at WIIM’s 2017. We notice that WIIM’s retail price starts to grow at a slower pace behind HMSP in Nov’16 (0.9% vs. 1.6%, respectively), potentially signaling the strategy for next year as to maintain pricing points, given ample room for 1 bn more cigarettes.
- Banderol price increases are seen on three brands: Magnum Filter 12 (+Rp800 to Ro13,450); Sampoerna Kretek (+Rp275 to Rp10,350); and Djarum Coklat 12 (+Rp100 to Rp10,350).