Indonesia Tobacco Market: Key Findings in 2022

Indonesia: Market in Context

Indonesia is the second largest cigarette market in the world, and is the largest market meaningfully accessible to international companies, given trading restrictions in China. Smoking levels remain high and despite threats to demand, sales continue to grow. This is partially indicative of the continued high economic importance of tobacco production, and a market environment that tends to be odds with global patterns.

In addition to the threat posed by rising inflation, future growth hinges on two main considerations – to what extent more restrictive tobacco control and excise measures can be expected to impact consumption, and to what extent the sale of reduced risk cigarette alternatives such as e-vapour and heated tobacco will start to shape demand.

Source: Euromonitor International Passport Database

Impact of the pandemic and rising inflation

According to Euromonitor International’s latest data, sales decline in Indonesia peaked at the height of lockdown in 2020. Reopening of stores, and some reduced pressure on discretionary spending have seen demand rise again in 2021. But economic pressures  – the lingering impact of the pandemic, tax increases and rising inflation – form a reality that threatens to worsen, with a concurrent negative impact on potential value gains, and demand shifting to cheaper tobacco alternatives, such as fine cut tobacco, or the illicit trade. It’s worth noting that demand for cigars deviates from this broader pattern; growth in 2021 was fuelled by higher-income consumers, less susceptible to growing inflation concerns and rising prices.  

Tax changes in 2022

Significantly, the government increased excise rates on cigarettes and other tobacco products, starting from 1 January 2022. For the industry, this could result in a decrease in cigarette production, or pressure to turn to other products, as the increase in excise duty can be expected to prompt more consumers to switch away from cigarettes. This impact will be more direct on middle- to lower-income consumers, who are likely to look for cheaper alternatives, such as trading down to a lower price platform, switching to fine cut tobacco or cutting down on their daily consumption. But despite this, volume sales of all tobacco products are expected to continue to rise throughout the forecast period, as the population of legal smoking age continues to rise, and smoking prevalence continues to rise.

Health concerns, new products and future growth opportunities

While growth for cigarettes is expected to remain strong, wider understanding of the inherent health risks associated with smoking were accelerated by the pandemic, directly feeding demand for alternatives considered less harmful, such as e-vapour products. Closed vaping systems are seeing particularly strong growth, on the back of relative convenience and ease of use, supported further by widening availability. Heated tobacco only entered Indonesia in 2020, but reached sales almost as high as those of e-vapour products in 2021. With factories being established in Indonesia and widening distribution, heated tobacco has strong growth potential in the country, although demand could largely be limited to wealthier consumers due to high prices.

For further insight and comprehensive market data, see the full report Tobacco in Indonesia. Related content is available here, covering the tobacco industry in a total of 80 research countries.

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