US-based JUUL Labs forays into Indonesia to cater to 67m smokers

US-based e-cigarette unicorn JUUL Labs recently forayed into Indonesia to tap the market with the second-largest number of smokers in Asia, after China.

According to data available with the World Health Organization, about 35 per cent of Indonesia’s 264 million population smokes.

It is this large number of smokers that make the market attractive for both local and foreign cigarette producers, besides electronic cigarette manufacturers.

“We have been thinking about Indonesia for some time. It’s a really interesting and dynamic market,” JUUL Labs chief executive and co-founder James Monsees told DealStreetAsia. “We’ve seen vaping products… Vaping has also been embraced in Asia.”

According to Monsees, there are over 1 billion smokers globally, and in general about 70 per cent of those are interested in alternative cigarette products, while some have even stopped smoking permanently.

Indonesia, on its part, is increasingly embracing e-cigarette products.

“We are here in large part to learn as well. We know that we have a tremendously capable product that is a viable alternative to cigarettes. But we also know that we need to learn along the way. That’s why every country that we go into, we [always] build a local team, which is very much in touch with the culture and tradition, regulatory agencies and trends,” he added.

Juul, in Indonesia, will sell its electronic cigarette products through a partnership with PT Jagad Utama Lestari, a unit of PT Erajaya Swasembada.

However, the company that controls over two-thirds of the US e-cigarette market, is not devoid of competition.

Malaysia’s e-cigarette manufacturer NCIG International earlier made inroads into Indonesia with a more serious proposal: to build an e-cigarette factory worth $10 million.

Local media reported that NCIG’s factory will be built in Bandung, West Java, which is 150 km away from Jakarta. The company will produce a cartridge for the e-cigarette equipment along with its liquid products. Through the factory, the company will export the products into the Southeast Asian market.

And they are not the only players in the market. Besides foreign companies, there are a slew of SMEs too who are already producing vaping equipment in the country since  2013, way before the concept of e-cigarette was booming.

According to the president of Indonesia Personal Vaporizer Association (APVI) Aryo Andrianto, there are about 3,500 SMEs catering to the e-cigarette industry across the archipelago. These include liquid producers, accessories and devices manufacturers, distributors and importers, and also retailers.

However, Monsees said that the company is well prepared to take on the Indonesian market.

“We’ve only kept about 0.2 per cent of the global tobacco market. So, I don’t think there’s anywhere on Earth where we’re late than other cigarette producers [in Indonesia],” said Monsees, adding that the JUUL will continue to focus on serving the needs of the consumers in Indonesia.

“Currently we do not have any specific plans [to build factories]. We believe that consumers have a strong demand for these products. And we’re really just focused on meeting the needs of those people,” he added.

Road ahead

JUUL has been facing some backlash in its home country.

San Francisco became the first city in the US to ban e-cigarettes, saying that the harmful substances contained in e-cigarettes products could pose a danger in the lives of people – especially teenagers, as was reported by The New York Times. The city has also banned flavoured tobacco and cigarette products at pharmacies.

There is a regulation that’s currently in works in the US – if it comes into effect by 2020, then many stores will not be able to sell e-cigarettes products that are not approved by the FDA.

With a plethora of restrictions gripping the US market, the San Francisco-based JUUL is looking at an opportunity elsewhere. With the majority of smokers in the world living in Asia, the continent offers a rather attractive opportunity.

Before entering Indonesia, JUUL set up its presence in South Korea and the Philippines. Going forward, it wants to launch in other Asian markets as well.

“We want to be available everywhere. We want to achieve this mission and improve the lives of the world’s smokers, of which 50 per cent are in Asia. So, over a period of time, we want to be able to serve all of them,” Monsees said.

Apart from the US, they are also facing regulatory challenges in Japan, and India.

“I think to tackle the regulatory challenges anywhere in the world, the key tool is education. In any new innovation, or new product in the industry, [to give government and consumers] the understanding of the new technology…and the know-how to navigate on changes is always required,” he said.

He said when he first started the company with his co-founder Adam Bowen, there were almost no other tobacco alternatives products available at that time.

Monsees claims that his product is a game-changing one in the industry and one that has been a pioneer in the market.

Cigarette taxation

Indonesia has policies that limit smokers and cigarette producers in the country under the 2009 Health Law. While there are limitations in terms of cigarette ads that can be aired on TV channels, there are health warnings printed on each cigarette packs. Besides, there is also a ban on smoking in public places.

Despite this, the government’s effort in monitoring such activities remain weak as the cigarette industry’s contribution to the country’s tax revenue is high.

According to Indonesia’s Ministry of Industry data, cigarette excise has contributed 95.8 per cent or Rp 153 trillion ($10.9 billion) to the nation’s excise tax revenue last year. The figure increased from the previous year, which stood at Rp 147 trillion ($10.5 billion).

The Indonesian government currently imposes the maximum of 57 per cent tax on cigarette-related products, including e-cigarette goods.

This, in certain ways, is proving to be detrimental to the industry, especially the SME fraternity.

Reuters reported before that JUUL has met the Indonesian government, its Ministry of Finance, to seek its guidance on regulation to understand how their products would be taxed.

When asked, Monsees, however, declined to comment on the development.

“We are operating within the context and with respects to the law. The regulator wants to learn about our products and what we’re going to do, we are happy to share,” said Kenneth Bishop, President of Asia Pacific South at JUUL Labs.

Localised products

The price of a pack of cigarette in Indonesia is incredibly economical. For a little over $1, people can buy one pack of kretek cigarette or cigarettes made from a blend of tobacco and other spices, including cloves.

Most of the products are sold and produced by Indonesian cigarette conglomerate or companies and are targeted at the lower-middle-class.

Cigarette manufacturers, including HM Sampoerna, a unit of global cigarette producer Philip Morris; Gudang Garam; and Djarum; have been dominating the market for years.

Meanwhile, JUUL said that it targets a different market – rather evident from its price at over $35 (comes with the devices and the pods or the liquids) for its products.

“We are very much aware of it as the products deem expensive here and that’s true in a lot of markets as well. We recognize that the product that we’re bringing to Indonesia right now is not going to be affordable for every person,” he said.

Monsees said JUUL will also make an adjustment for the flavours that certain market is accustomed for.

“We are gathering our ability to observe how well the product is really serving the needs of the local market for local smokers. We find new ways to improve the product at the flavours or different nicotine strengths. We will evolve and innovate with those products for the needs of the local market,” said Monsees.

“For example, in South Korea, they embraced a very low strength, a low nicotine strength, while in the US where people are accustomed to fairly strong cigarettes, we offer [nicotine strength] 5 per cent and 3 per cent  for each [pod] product, this is the same strengths that we offer here [in Indonesia],” he added.

Monsees said the products will soon be available in Vape stores, or other selected convention stores.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.