Altria to Sell Clove-Flavored Marlboro in Indonesia

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PT H.M. Sampoerna, the Indonesian unit of the world's largest tobacco company, will begin selling clove-flavored cigarettes under the Marlboro brand name, two people with knowledge of the plan said.

The subsidiary of Altria Group Inc. will start selling filtered Marlboro Mix 9 from July 9, its first new brand in 18 years, said the people, who declined to be identified before an announcement next week. Clove-flavored cigarettes, known as kretek, dominate sales in the Southeast Asian nation, the world's fifth-largest tobacco market.

The launch may help Indonesia's largest producer of tobacco products win a larger share of the estimated $10 billion market for kretek cigarettes by attracting customers of PT Gudang Garam, owned by the family of Indonesia's richest man, and the Djarum Group. Sampoerna's sales growth has been cut by tax increases.

``It's a unique, shocking and good strategy,'' said Rezza Zulkasi, an analyst with PT First State Investments Indonesia in Jakarta, which manages 1.5 trillion rupiah ($167 million) in assets. ``People want to have the international brand, but also want the local taste.''

Niken Rachmad, Sampoerna's spokeswoman, declined to comment.

Oldest Company

New York-based Altria paid about $5 billion to acquire a 97 percent stake in Sampoerna from the public and the company's founding Sampoerna family in 2005.

Sampoerna, the nation's oldest cigarette company after being founded in 1913, is betting the new products will boost sales, which rose 1.8 percent to 7.3 trillion rupiah ($810 million) in the first quarter after surging 35 percent in the same period a year earlier.

The government raised the retail price, used as a benchmark for charging excise, for cigarettes twice in the 12 months to March. Indonesia will also begin levying a new tax on cigarettes in July.

``People tend to try new products,'' said Naya Tirambintang, an analyst with PT Danareksa Sekuritas. ``The overall cigarette industry isn't doing too well because of a number of tax increases, so a new product should help.''

Machine-Rolled

The new Marlboro machine-rolled cigarettes will be priced at 7,000 rupiah for a pack of 12 cigarettes, contain 30 milligrams of tar and 1.8 milligrams of nicotine, the people said.

Gudang Garam International and Djarum Super are sold at a slightly higher price. Djarum is controlled by Budi Hartono, Indonesia's second-richest man.

The company may find it difficult to attract Indonesian smokers who are usually loyal to tastes, said Felix Sindhunata.

``There have been a lot of new cigarette launches and none of them have really performed,'' said Sindhunata, head of research at PT Mega Capital Indonesia. ``A lot of smokers are loyal to the taste, not to the brand.''

Kretek cigarettes, which contain a mixture of tobacco and clove, a spice native to Indonesia, impart a sweet scent and emit eugenol, a chemical that numbs the effect of smoke in the throat.

Named after the crackling sound of burning cloves, kretek cigarettes contain double the nicotine and almost triple the tar of conventional cigarettes, according to a 2002 paper in the journal Pharmacology Biochemistry and Behavior.

With few restrictions on advertising or sales to young people, about a third of the nation's 230 million people smoke. Some Indonesians start as young as five, government figures show.

Twenty-five percent of all male deaths in Indonesia will be caused by smoking in 10 years, according to a 2006 study for the WHO published in The Internet Journal of Epidemiology.

The government expects to receive 42 trillion rupiah of taxes from cigarette production and sales this year. That's about 6 percent of revenue.

Sampoerna will start selling the kretek Marlboro in Java and Bali, the people said. Leo Burnett, a unit of Publicis Groupe SA, the world's fourth-biggest advertising firm, will help market the product. The ad agency created the ``Marlboro man'' advertisement campaign in 1955.

Dean Bramham, managing director of Leo Burnett Kreasindo Indonesia, couldn't be reached for comment at his office.