KT&G invests big to turn Indonesia into Asia, Middle East production hub

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KT&G invests big to turn Indonesia into Asia, Middle East production hub

Published: 01 Oct. 2024, 15:03 Updated: 01 Oct. 2024, 16:10

CHO YONG-JUN
cho.yongjun1@joongang.co.kr

KT&G cigarettes sold in Indonesia [KT&G]

KT&G will invest 600 billion won ($454 million) in Indonesia by 2026 to construct new factories, solidifying the tobacco company’s growing presence in the country and allowing it to expand to other Asia-Pacific and Middle Eastern markets shortly.

With new hiring expected to total around 1,000, the production site symbolizes the Korean tobacco producer’s ambition to expand beyond its home turf.

“KT&G chose Indonesia as the company’s center of production for the Asia-Pacific market,” KT&G Indonesia’s president director, Jeong Yun-sig, said in a recent e-mail interview with the Korea JoongAng Daily. Indonesia is KT&G's best-selling market outside Korea, accounting for 22.6 percent of the tobacco company's total export numbers as of 2023.

KT&G earmarked 3.5 trillion won in capital expenditures for ramping up its manufacturing capacity at home and abroad, including the 600 billion won allocation for Indonesia.

KT&G's Indonesian plant in Surabaya, Indonesia [KT&G]

KT&G first entered the Indonesian market by acquiring local tobacco company Trisakti in 2011. As of 2023, the company sold 9.55 billion cigarettes — equating to 477.5 million packs — a whopping 159-fold increase from 2011.

As of last year, KT&G had the fourth-largest market share in the country at 4.4 percent, topping British American Tobacco and Japan Tobacco International.

The company currently operates 41 stores and 75 offices around Indonesia.

The tobacco company’s second and third Indonesian factories had their groundbreaking ceremonies in April in Surabaya. Upon completion, the Indonesian plants plan to produce 21 billion cigarettes — or one billion packs of cigarettes — per year. Indonesia will become KT&G’s largest overseas production base, producing 35 billion cigarettes annually.

“We have consistently invested in the Indonesian market, building a local R&D center and hiring experts for localization efforts,” the director said. “The localized version of Esse and new brands for the Indonesian market worked well for the company.”

KT&G Indonesia’s president director, Jeong Yun-sig [KT&G]

KT&G's significant growth in cigarette sales in Indonesia came with the introduction of new cigarette products. Esse Berry Pop, first launched in 2017, sold over 250 million cigarettes in the first year of its release.

Esse, first released in Korea in 1996, is the company’s most popular cigarette brand in its home market. KT&G introduced localized versions of its hit cigarettes, including Esse Berry Pop, a type of kretek cigarette popular in the region. Kretek are Indonesian cigarettes featuring a blend of tobacco, cloves and other flavors that give them a distinct spiced taste and heavy smoke. Over 95 percent of the cigarettes sold in Indonesia are kretek cigarettes.

The Korean tobacco company has released new types of cigarettes each year, including Juara in 2018, a cigarette inspired by the local sweet tea, teh manis. KT&G also released 21 new products in 2021 — which resulted in cigarette sales doubling from 4.84 billion that year to 8.48 billion in 2022 — followed by 11 new types in 2022 and eight new types in 2023.

Jeong said the company plans to strengthen its lineup by constantly releasing new products, including Esse Change Icy Double and Juara Click Mango, which debuted this year.

KT&G Indonesia’s president director, Jeong Yun-sig [KT&G]

However, the company has yet to release its electronic cigarette lineups in Indonesia, where they were legalized in 2023.

“KT&G also had to operate more agilely in the Indonesian market to reflect its local stores,” Jeong said, explaining that cigarette stores in the country open and close very frequently.

“Despite the strong competition in the global market, on top of the tighter cigarette restrictions worldwide, KT&G will continue to put efforts into the global market.”