Bentoel Group is an Indonesian tobacco manufacturing company founded in 1930 by Ong Hok Liong, specializing in the production, marketing, and distribution of kretek (clove-flavored) cigarettes and other tobacco products.[1][2] As the second-oldest tobacco firm in Indonesia, it pioneered machine-rolled kretek production in the country and expanded into a diverse portfolio including hand-rolled kretek, white cigarettes, and international brands under its parent company.[1][3]The company, formally PT Bentoel Internasional Investama Tbk since its 1979 establishment and public listing in 1990, merged with British American Tobacco Indonesia in 2010, operating as a fully owned subsidiary of British American Tobaccoplc with approximately 85.55% direct ownership by BAT entities.[4] This integration enhanced its operations across Indonesia, where it maintains factories, subsidiaries like PT Bentoel Prima, and a market share positioning it as the fourth-largest cigarette producer at around 7%.[4][5] Bentoel focuses on consumer goods in the tobacco and nicotine category, adhering to BAT's international standards for sustainability and business conduct amid Indonesia's regulatory environment for the industry.[6]While the tobacco sector faces global scrutiny over health impacts and marketing practices, Bentoel has encountered localized challenges, including a 1987 class-action lawsuit alleging youthaddiction through advertising, though such cases reflect broader industry tensions rather than unique operational failures.[7] Its defining strength lies in kretek innovation, blending tobacco with cloves to cater to traditional Indonesian preferences, supporting BAT's multi-market strategy in over 200 countries.[3][8]
History
Founding and Early Development (1930–1960s)
Bentoel Group originated as a small, family-operated cigarettemanufacturingenterprise founded by Ong Hok Liong on September 10, 1930, in Malang, East Java, under the name Strootjes Fabriek Ong Hok Liong.[9][10] Initially structured as a home-based industry, it focused on producing hand-rolled cigarettes using local tobacco blends, incorporating early variants of kretek—clove-infused products that catered to Indonesian preferences for aromatic, spiced tobacco amid the Dutch colonial economy's influences on manufacturing terminology, as "Strootjes Fabriek" reflected Dutch words for "straw factory."[1] Early brands included hand-rolled options such as Burung, Kendang, Klabang, Turki, and Jeruk, distributed primarily through informal networks in East Java.[11]By the mid-1950s, the company had evolved from artisanal production, renaming to Hien An Kongsie before adopting PT Perusahaan Rokok Tjap Bentoel in 1951, marking a shift toward formalized operations post-Indonesian independence in 1945.[12][13] This period saw initial adaptations to mechanized processes to scale output, responding to growing domestic demand for kretek amid competition from other emerging local tobacco firms, though production remained labor-intensive with reliance on manual rolling techniques.[14] Family succession ensured continuity, with Ong Hok Liong's leadership emphasizing innovation in blending local clove and tobacco to differentiate from imported white cigarettes, establishing Bentoel as a pioneer in East Java's tobacco sector.[15]Through the 1960s, Bentoel's foundational growth solidified its regional foothold, with expanded facilities in Malang supporting increased hand-rolled kretek production tailored to post-colonial market dynamics, including rising consumer affinity for flavored variants over plain tobacco products.[9] The enterprise's early emphasis on quality control and local sourcing positioned it among Indonesia's nascent industrial tobacco players, though specific sales figures from this era remain sparsely documented in historical business records, reflecting the informal nature of pre-mechanized operations.[1] This phase laid the groundwork for Bentoel's resilience, driven by entrepreneurial adaptation to cultural smoking habits rather than large-scale capital investment.[10]
Nationalization and Post-Independence Growth (1970s–1980s)
Following Indonesia's independence and the shift to Suharto's New Order regime, Bentoel Group adapted to economic policies emphasizing industrialization, domestic self-sufficiency, and controlled foreign influence, which favored local enterprises in culturally significant sectors like kretek cigarette production. As a privately held, Indonesian-founded company, Bentoel avoided the nationalizations targeting Dutch and other foreign assets in the 1950s–1960s, instead aligning with government directives for technological advancement in manufacturing. Between 1970 and 1980, Bentoel secured official approval to mechanize segments of its operations, a policy extended to select domestic producers to boost output amid rising demand for kretek products infused with local cloves.[16]Bentoel pioneered mechanization in the kretek industry by deploying the first automatic rolling machines in 1968, initially driven by labor disputes and shortages that intensified through the 1970s and 1980s. This innovation transitioned production from labor-intensive hand-rolling to efficient machine processes, dramatically increasing capacity to meet surging consumer needs fueled by population growth and low real prices. By importing European machinery, Bentoel and fellow major firms like Gudang Garam and Djarum scaled kretek output, with machine-made varieties surpassing hand-rolled by the mid-1980s, enabling Bentoel to dominate segments of the machine-kretek market.[17][18][19]Operational expansions centered on Bentoel's Malang facilities, where enhanced machinery supported workforce efficiency despite clove sourcing dependencies tied to national agricultural policies. Distribution networks broadened to encompass the archipelago, leveraging kretek's domestic appeal and integrating clove supplies from key regions like Central Java and North Sulawesi. These adaptations solidified Bentoel's role as a leading domestic tobacco producer, with production surges reflecting broader industry mechanization that elevated kretek from niche to majority market share by the 1980s.[20][21]
Financial Struggles and Restructuring (1990s–2000s)
In July 1991, Bentoel Group declared insolvency amid a liquidity crisis, revealing debts totaling approximately $300 million, split evenly between foreign and domestic banks, stemming from aggressive expansion and operational overleveraging in the competitive Indonesiantobacco market.[22] A rescue package of $100 million was promptly arranged by PT Citra Tenaga Utama, a firm controlled by Hutomo Mandala Putra (Tommy Suharto), son of then-President Suharto, enabling Rajawali Group to acquire control and stabilize operations; while critics highlighted crony capitalist elements in the intervention, it pragmatically averted immediate collapse by injecting capital amid limited alternative financing options in Indonesia's regulated banking environment.[23][24]The 1991 debt overhang persisted into the mid-1990s, culminating in a April 1997 settlement agreement with creditors under Rajawali's stewardship, which resolved outstanding obligations from the earlier default and restored creditor confidence without full liquidation.[25] Indonesian courts reinforced restructuring viability in related disputes, ruling that personal guarantees from Bentoel shareholders could not be enforced against individuals until the company itself faced a proven liquidity crisis, a precedent that prioritized corporate rehabilitation over punitive creditor actions in nascent bankruptcy frameworks.[22]The 1997–1998 Asian Financial Crisis exacerbated Bentoel's vulnerabilities, as rupiah devaluation and capital flight inflated foreign-denominated debts and squeezed domestic demand for kretek cigarettes, leading to intensified cash flow strains and operational cutbacks across Indonesia's manufacturing sector.[26] Despite these pressures, Bentoel avoided bankruptcy proceedings through internal cost-control measures, including supply chain efficiencies and selective debt renegotiations, which sustained production amid broader economic contraction; shareholder tensions surfaced in denied creditor meetings and guarantee litigation, but judicial interventions deferred aggressive enforcement, allowing focus on viability restoration rather than dissolution.[22] By the early 2000s, these efforts had repositioned the firm for recovery, underscoring resilience derived from asset optimization over reliance on external bailouts.
Acquisition by British American Tobacco (2009–Present)
In June 2009, British American Tobacco (BAT) acquired an 85% stake in PT Bentoel Internasional Investama Tbk, Indonesia's fourth-largest cigarette maker by volume, for $494 million from shareholders including the Rajawali Group.[27][28] This transaction valued Bentoel at approximately $580 million and established it as BAT's primary vehicle for competing in Indonesia's kretek-dominated tobacco market, where clove-flavored cigarettes hold over 90% share.[29][30]Following the acquisition, BAT integrated Bentoel into its operations, approving a merger in December 2009 that increased BAT's ownership to 98.26%, assuming full shareholder participation.[31] This enabled enhancements in manufacturing technology, regulatory compliance, and supply chain efficiency, leveraging BAT's global resources to bolster Bentoel's competitive edge against dominant local players. By 2021, BAT pursued further consolidation through a voluntary tender offer for remaining public shares, acquiring an additional 0.2% stake in phases during November and December, culminating in Bentoel's delisting from the Indonesia Stock Exchange in 2023 and full privatization under BAT's structure.[32][33][34]Under BAT ownership, Bentoel has maintained its position as Indonesia's fourth-largest tobacco company, with a market share of approximately 7% as of recent assessments.[35][36] Operational stability persisted through the post-COVID period, supported by adaptations in supply chains and expanded exports to 27 destinations by 2024, reflecting sustained growth in BAT's Asia-Pacific portfolio despite regulatory pressures on tobacco products.[36] BAT's strategic investments have focused on innovation in kretek production while navigating Indonesia's evolving excise tax regime and anti-smoking policies.[37]
Business Operations
Products and Brands
Bentoel Group's core products consist of kretek cigarettes, blending tobacco with ground cloves in typical ratios of 60-70% tobacco and 30-40% cloves, which generate a distinctive crackling sound from clove combustion and align with Indonesian cultural traditions of spiced tobacco use among adult consumers.[38][20]Kretek dominates the company's output, reflecting market adaptations to local preferences for aromatic profiles over plain tobacco, with machine-made variants comprising a growing share due to scalability while hand-rolled options preserve artisanal appeal.[39]Hand-rolled kretek brands include Bentoel SJT and Tali Jagat Raya, where manual blending and rolling by workers ensure precise clove integration for robust flavor retention, catering to consumers valuing traditional texture and potency over mass-produced uniformity.[3] These legacy lines, originating from Bentoel's early formulations, underscore the economic viability of kretek as a staple voluntary product in Indonesia, where such cigarettes sustain substantial adult market participation.[36]Machine-made kretek feature post-2009 innovations under British American Tobacco ownership, such as Dunhill Filter for full-flavored, higher-tar experiences and Dunhill Mild with lower tar content to accommodate shifts toward lighter options without diluting clove essence.[3][40] This evolution hybridizes global premium branding with Indonesian-specific clove-tobacco balances, enhancing accessibility via automated production that reduces weight per cigarette to around one gram or less compared to heavier hand-rolled counterparts.[20]White cigarettes, comprising a minor portion of Bentoel's offerings, include Lucky Strike and Dunhill International, focusing on filtered tobacco-only variants for diversification amid kretek's overwhelming domestic preference.[3] Local heritage brands like Bentoel Biru and Star Mild further exemplify adaptations, maintaining clove-forward identities that reinforce kretek's role in adult-driven consumption patterns unique to Indonesia.[41]
Manufacturing Facilities and Supply Chain
Bentoel Group's primary manufacturing facilities are located in Malang, East Java, Indonesia, where it conducts the production of both machine-made and hand-rolled kretek cigarettes involving tobacco and clove processing.[42] These operations are supported by more than 1,400 employees focused on manufacturing and related activities.[36]The supply chain emphasizes domestic sourcing, partnering with thousands of Indonesian farmers to procure leaf tobacco and cloves, which are then processed at the Malang facilities to ensure quality control through in-house handling. This vertical integration from farmer procurement to final production reduces exposure to import dependencies and mitigates volatility in clove supplies, a key input prone to domestic shortages.[43]Following British American Tobacco's acquisition of a controlling stake in 2009, Bentoel invested in facility upgrades, including the relocation of white cigarette production from Cirebon to Malang and enhancements to overall production capacity for both automated and traditional processes.[44] These improvements incorporated automation to scale output while preserving hand-rolling techniques essential for kretek authenticity, balancing efficiency with Indonesia-specific production methods.[44]
Market Position and Distribution in Indonesia
Bentoel Group maintains the position of the fourth-largest tobacco producer in Indonesia, holding approximately 7% of the national cigarettemarket share as of recent assessments.[35][45] This places it behind dominant kretek manufacturers PT Hanjaya Mandala Sampoerna Tbk (around 27-28% share), PT Gudang Garam Tbk (26-33%), and PT Djarum (19%), in a market where machine-made kretek cigarettes comprise about 75% of volume.[46][47][48]The company exhibits relative strength in premium and white cigarette segments, leveraging synergies from its integration with British American Tobacco (BAT) to market international brands such as Dunhill and Lucky Strike alongside local kretek offerings like Dji Sam Soe.[3] These premium products target urban consumers seeking higher-quality or imported-style cigarettes, contributing to Bentoel's competitive edge in non-dominant categories amid kretek's overall market prevalence.[49]Distribution occurs primarily through an indirect channel involving wholesalers and intermediaries, enabling nationwide reach to both urban retail outlets and rural warungs.[1] This network supports sales across Indonesia's archipelago, with Bentoel reporting revenues of IDR 4.31 trillion (approximately USD 275 million) in the first half of 2023, reflecting a 27% year-over-year increase driven by volume and pricing adjustments.[50] Limited export activities have expanded to 27 countries as of 2024, though domestic channels remain the core focus.[36]Competitive pressures include significant illicit trade, estimated to erode legitimate market volumes, prompting industry-wide responses such as enhanced packaging verification and collaboration with enforcement authorities, though empirical data indicate persistent challenges for established players like Bentoel against cheaper unregulated rivals.[51][52]
Ownership and Governance
Major Shareholders and Ownership Changes
Prior to British American Tobacco's involvement, PT Bentoel Internasional Investama Tbk was controlled by Indonesian investors amid financial difficulties in the early 1990s, with significant creditor influence due to debt accumulation. In 1991, Rajawali Group acquired control of the company at the request of the Indonesian government to facilitate debt restructuring and stabilization.[40][53] By 2009, Rajawali held approximately 56% of the shares, with the remainder distributed among other investors.[54]In June 2009, British American Tobacco (BAT) acquired an 85% stake for $494 million from Rajawali Group and other shareholders, marking the transition from independent Indonesian ownership to majority multinational control.[54][55] Following a merger with PT BAT Indonesia effective December 2009, BAT's ownership increased to 98.26%.[31] Subsequent tender offers and share purchases elevated BAT's stake to 99.74% by early 2010.[56]BAT's subsidiary, British American Tobacco (2009) PCA Limited, maintained controlling interest thereafter, holding 92% of equity shares as of 2020 following a rights issue.[57] In October 2021, BAT launched a voluntary tender offer to acquire an additional 7.52% stake for IDR 2.7 trillion.[58] On December 10, 2021, BAT terminated a total return swap arrangement, reacquiring legal ownership of the shares previously held under economic exposure.[56] Minority stakes were registered through PT Datindo Entrycom until the company's delisting from the Indonesia Stock Exchange on January 16, 2024.[59][34]
Corporate Structure and Leadership
Bentoel Group functions as a wholly owned subsidiary within the British American Tobacco (BAT) corporate hierarchy, with PT Bentoel Internasional Investama Tbk serving as the primary holding entity responsible for strategic oversight and investment decisions in Indonesia.[36] This structure integrates Bentoel into BAT's global framework, where ultimate governance authority resides with BAT's board, while local operations emphasize operational autonomy tailored to Indonesian market dynamics. Key subsidiaries under Bentoel's umbrella include PT Bentoel Prima, which manages core manufacturing and production activities, ensuring efficient supply chain execution for kretek and white cigarette brands.[1] This tiered setup facilitates BAT's standardized risk management and compliance protocols alongside localized decision-making, promoting governance efficiency through clear delineations of responsibility.[60]Leadership at Bentoel is led by President Director William Lumentut, appointed in July 2022, who oversees executive functions with a focus on integrating BAT's international tobacco expertise with Indonesia-specific market knowledge.[61] Supporting directors include Thomas Christian, handling finance and operations since July 2022, and Dinar Shinta Ulie, serving as director and corporate secretary from July 2021, both bringing specialized experience in regulatory compliance and financial strategy within the tobacco sector.[61] The board of directors comprises professionals with proven track records in manufacturing, supply chain, and local consumer goods, selected for merit-based competence rather than external quotas, ensuring continuity in operational leadership post-BAT acquisition.[62]The board of commissioners provides independent oversight, with Hendro Martowardojo as Independent President Commissioner since August 16 (year specified in appointment records), emphasizing audit and risk committees to align with BAT's global standards.[63] Bentoel's governance framework adheres to Indonesia's Company Law (Law No. 40/2007), mandating a dual-board system of directors for management and commissioners for supervision, augmented by BAT's enterprise-wide controls on ethics and anti-corruption.[64] This hybrid model supports merit-driven appointments and transparent reporting, as evidenced by annual disclosures on internal audit units reporting to the board of commissioners, fostering accountability without compromising commercial agility in Indonesia's regulated tobacco environment.[65]
Legal Issues and Controversies
1987 Class Action Lawsuit
In 1987, lawyer R.O. Tambunan filed Indonesia's first attempted class action lawsuit against PT Bentoel Remaja, along with associated advertising agencies and Radio Prambors, alleging that a 1986 Bentoel clove cigarette advertisement improperly targeted teenagers and contributed to youth smoking.[66][67] The suit claimed the promotional campaign, which depicted adolescents in a manner suggesting appeal to minors, violated consumer protections by endangering young people's health through encouragement of tobacco use.[68]PT Bentoel Remaja defended by asserting compliance with prevailing advertising standards and disputing any direct causation between the ad and health harms, emphasizing that tobacco products met regulatory quality requirements and that individual consumer choices were not attributable to marketing alone.[69] The district court dismissed the case, ruling that class action mechanisms lacked legal recognition under Indonesian civil procedure at the time, rendering the representative claim procedurally invalid despite the substantive allegations.[70][71]The lawsuit's dismissal underscored the absence of formalized class action provisions in Indonesian law until the 1997 amendment to the civil procedure code (UU No. 23 Tahun 1997), which later enabled such suits but required stricter criteria for commonality and numerosity.[72] It established an early precedent for challenging tobacco industry practices targeting vulnerable groups, influencing subsequent consumer advocacy efforts, though no liability was imposed on Bentoel and the case did not alter immediate regulatory standards for cigarette advertising.[73][74]
Debt Crises, Bailouts, and Shareholder Disputes (1990s–2000s)
In 1991, PT Bentoel Internasional Investama Tbk, the core entity of the Bentoel Group, declared insolvency amid mounting debts totaling approximately $350 million, primarily from foreign loans accumulated during expansion into kretek cigarette production and distribution.[24] To avert immediate collapse, the company secured a $100 million rescue package from PT Citra Lamtoro Gung Persada, a firm owned by Tommy Suharto, youngest son of then-President Suharto, which injected capital to restructure liabilities and sustain operations.[23] This intervention, while leveraging familial ties to the ruling regime, addressed a acute liquidity shortfall in a domestic banking sector constrained by high interest rates and limited credit availability, enabling Bentoel to negotiate extended terms with creditors rather than face outright liquidation.The 1997–1998 Asian financial crisis intensified Bentoel's vulnerabilities, as Indonesia's rupiah depreciated by over 80% against the US dollar, inflating the real value of its dollar-denominated obligations and triggering widespread corporate defaults across export-dependent industries like tobacco manufacturing.[22] By the late 1990s, accumulated debts exceeded several hundred million dollars, prompting aggressive creditor actions; however, a 1999 district court ruling in Malang, Bentoel's base, barred enforcement of personal guarantees provided by major shareholders to banks unless the company entered formal liquidation proceedings, a status it had not yet reached.[75] This decision, grounded in Indonesian bankruptcy law's prioritization of ongoing enterprise viability over individual liability, deferred personal asset seizures and bought time for restructuring, reflecting causal pressures from currency volatility that rendered immediate enforcement counterproductive for recovering full principal amid depressed asset values.Shareholder tensions escalated into legal disputes, culminating in a 2000 Central Jakarta District Court denial of an extraordinary general meeting request by a minority investor in PT Bentoel Prima, a key operating subsidiary, on grounds that the proposal lacked sufficient backing and threatened operational stability during debt workouts.[76] These rulings facilitated creditor negotiations, including debt-for-equity swaps and extended maturities, which ultimately preserved Bentoel's core assets and market position without forced asset sales at crisis-low prices. By prioritizing collective bargaining over fragmented shareholder actions or punitive guarantees, the company emerged with enhanced resilience, converting potential insolvency into a platform for later rights issues and foreign investment.[24]
Tax and Regulatory Challenges
In 2019, the Tax Justice Network, an advocacy group focused on curbing corporate tax avoidance, published a report alleging that British American Tobacco utilized intra-group loans to its Indonesian subsidiary, PT Bentoel Internasional Investama Tbk, to generate deductible interest expenses that reduced taxable profits, potentially depriving Indonesia of approximately US$14 million in annual corporate income tax revenue between 2013 and 2015.[77] The report highlighted Bentoel's historical operating losses, which allowed such interest deductions to offset future profitability without immediate tax impact, framing this as part of broader transfer pricing and thin capitalization strategies employed by multinational tobacco firms.[77] Bentoel rejected these accusations, stating that its tax positions fully complied with Indonesian law and that no tax avoidance occurred.[78]Academic analyses have similarly scrutinized Bentoel's financing structures, noting that high debt levels from parent-company loans—reaching thin capitalization thresholds—enabled interest deductions that lowered effective tax rates, though these practices were described as legal optimizations rather than outright evasion absent specific authority rulings.[79] No public records indicate formal audits or penalties imposed by Indonesiantax authorities on Bentoel for these arrangements as of 2023, with the company affirming ongoing adherence to income tax (PPh), value-added tax (PPN), and other fiscal obligations in its disclosures.[80]Beyond corporate tax scrutiny, Bentoel has navigated escalating tobaccoexcise duties, which Indonesian regulators have raised annually to curb consumption and boost revenue; for example, multi-year hikes contributed to the firm's reported profit declines and financial distress from 2019 to 2023, exacerbating pressures amid the COVID-19 pandemic.[81] These regulatory shifts, including a 15% excise rate on certain products by 2023, have strained margins without evidence of non-compliance by Bentoel, though the company has emphasized its role in remitting substantial excise contributions as part of legal operations.[82]
Economic and Regulatory Impact
Contributions to Indonesian Economy and Employment
Bentoel Group directly employs over 1,300 workers as of February 2025, with initiatives to enhance female participation in managerial positions.[83] The company's operations, centered on kretek cigarette production, extend to indirect employment through supply chain partnerships, including procurement of tobacco leaves and cloves from local farmers, which bolsters rural livelihoods in agricultural regions.[45]In Malang, East Java—home to Bentoel's primary manufacturing facilities—approximately 70% of the workforce comprises local residents, fostering economic stability in the area.[84] The firm has invested in community infrastructure, including the management and development of Sengkaling Recreation Park since 1975 and distribution of hundreds of computers to local entities via corporate social responsibility programs.[85][86] These efforts, alongside MSME empowerment programs like the Empower Academy launched in Malang in 2025, support small business growth and environmental initiatives in the region.[87]
Engagement with Tobacco Regulations and Industry Dynamics
Bentoel Group has adapted its operations to comply with Indonesia's evolving tobacco control measures, including restrictions on advertising and requirements for health warnings on packaging. Under Government Regulation No. 109 of 2012 and subsequent updates, tobacco advertising is permitted on television and radio only during specific late-night hours, while bans apply to promotions targeting youth and certain public spaces; Bentoel, as a major kretek producer, aligns its marketing strategies accordingly to avoid penalties.[88] Packaging laws mandate pictorial health warnings covering at least 40% of principal display areas prior to 2024 expansions to 50%, with Bentoel implementing these on its brands like Dunhill and local kretek variants to meet national standards influenced by British American Tobacco's global compliance frameworks.[89][90]The company engages in efforts to combat cigarette smuggling, which empirical data indicate undermines legal sales and state revenues amid high excise taxes. Illicittrade, including untaxed and counterfeit products, accounts for significant market distortion, with losses estimated in tens of trillions of Indonesian rupiah annually, as higher taxes incentivize evasion rather than reduced consumption—a regulatory failure highlighted by industry analyses showing cheaper illegal options increasing youth access.[91][92] Bentoel, integrated within BAT's operations since 2005, supports anti-smuggling initiatives through supply chain tracking and collaboration with authorities, arguing that enforcement gaps, not legal production, exacerbate public health risks by flooding markets with unregulated products lacking quality controls.[7]Indonesia's tobacco dynamics reflect tensions between kretek's cultural entrenchment—preferred by 95% of smokers for its clove-tobacco blend—and international pressures from bodies like the WHO, which advocate stringent controls despite the country's non-ratification of the Framework Convention on Tobacco Control.[93][94] Bentoel leverages protections for hand-rolled and machine-made kretek, as seen in Indonesia's WTO challenge to U.S. flavor bans in 2009–2010, emphasizing adult consumer choice and economic contributions over alarmist narratives that overlook empirical evidence of persistent smoking rates under partial restrictions.[95] Industry perspectives, including those from stakeholders like Bentoel, critique disproportionate regulations for ignoring causal realities such as cultural acceptance and illicit substitution, prioritizing realistic harm reduction via regulated products over unattainable prohibition.[96][97]