British American to face stiff competition
The tobacco firm's move into Indonesia is a positive one but we think it will face stiff competition
We view British American's acquisition as a positive move. Bentoel is Indonesia's fourth-largest cigarette manufacturer by volume and maker of the Star Mild and Country kretek brands, and Indonesia is the fifth-largest cigarette market in the world. The acquisition will give British American a solid foothold in the market for kretek, the clove-flavoured cigarettes smoked by around 90% of Indonesian smokers. However, Bentoel's share of the market is small, at around 5%, and its core brands have lost incremental share over the past five years. Furthermore, close rival Philip Morris International acquired Sampoerna in 2005 and now owns three of the leading five brands in Indonesia, holding a market share of around 30%. We expect Philip Morris to have significant scale advantages over its competitors in the kretek market, but we think this acquisition is a step in the right direction for British American's strategy of expanding its footprint in emerging markets.
