Major Setback in Juul's Asia Expansion: Indonesia Sales Suspended Indefinitely

On February 25, news from Reuters reported that Juul Labs Inc. has halted the sale of e-cigarettes in Indonesia, citing concerns that it cannot prevent retailers from selling its high-nicotine e-cigarettes to young people in an unregulated tobacco market.
 
When Reuters inquired about Juul's marketing activities targeting local youth and in the other two Asian countries where the company operates (the Philippines and South Korea), Juul disclosed its plans for Indonesia.

Reuters' review of Juul's marketing in Asia found that the company promoted e-cigarettes in a manner similar to that which has angered U.S. regulators.

Juul stated in a release that it will indefinitely suspend sales in Indonesia until it can ensure that online and traditional retailers there increase and enforce age restrictions and compliance measures.

The company's decision to exit the world's fourth most populous market marks a significant setback for Juul's larger plans to expand in Asia. The region is seen as critical for the company's growth amid increasing legal and regulatory issues in the U.S. related to its role in the popularity of vaping among young people.

A former employee and another source familiar with its Asian sales strategy said Juul launched the product in Indonesia seven months ago, attracted by the country's loose regulatory environment.

According to these two sources and current Juul employees, the company's target customers are aged between 19 and 35.

A Juul spokesperson said the company only wants adult smokers to use its products.

Last month, Juul stated that it is reviewing its strategy and operations in South Korea due to disappointing sales. South Korea has conducted regulatory reviews of the company. Juul has also delayed its expansion plans in the Netherlands and New Zealand, stating that it is reviewing its overseas operations one by one.

In Asia, Juul continues to sell fruit and dessert-flavored nicotine pods, which have been criticized for their appeal to young people, and it has voluntarily withdrawn from U.S. store shelves.

In Indonesia, Juul has sold its products in cinemas and shopping malls frequented by young people, and in kiosks and Juul-branded fashion stores that mimic Apple stores. The company has also employed "ambassadors" (often attractive young women) to promote Juul in bars and nightclubs.

Just last month, Juul was installing service kiosks in office buildings in Jakarta to cater to young tech workers and was advertising Juul flavors in office elevators.

According to Reuters' comments on Juul products advertised on Asian e-commerce platforms, retailers in Indonesia and the Philippines allow the online sale of Juul devices and pods without age verification.

Juul stated that it does not authorize any sales without verification and has a team dedicated to removing unauthorized online listings.

Juul did not respond to Reuters' detailed questions about its marketing activities in Asia and its appeal to young people.

The company stated in a release that it is committed to reducing youth usage while enhancing the long-term potential for reducing harm to adult smokers.

The employee said that in recent months, the company has adopted a stricter marketing approach in the U.S., making it difficult for overseas markets like Indonesia to market in the same way and meet sales targets.

The informed source said that under the leadership of new CEO KC Crosthwaite, the company has taken a more cautious approach to international expansion, in contrast to the previous approach of quickly opening new markets.

The employee said the company is exploring expansion in Vietnam and Japan later this year.

A Juul spokesperson confirmed that the company is monitoring the regulatory environment in Vietnam but stated that there are currently no plans to launch there.

The spokesperson declined to comment on Japan.

International expansion is considered crucial for Juul's future, as the company's issues in the U.S. have led investors to significantly lower growth expectations. Marlboro maker Altria Group Inc. acquired a 35% stake in Juul Labs Inc. for $12.8 billion in December 2018, after which its value has plummeted by $8.6 billion.

Altria executives were initially optimistic about Juul's international prospects. In a conference call shortly after the deal with Juul was struck, Altria Group CEO Howard Willard stated that he expected Juul's international revenue and profits to eventually be as large as or larger than the opportunities in the U.S.

However, as some overseas regulators have taken note of the widespread criticism of Juul in the U.S., those prospects have dimmed. India banned e-cigarettes last fall citing the popularity among American youth, while countries like Malaysia are considering similar restrictions.

Until now, Indonesia has been seen as one of the company's biggest opportunities. The country has nearly 270 million people and is one of the highest smoking rates and weakest regulations in the world, with no penalties imposed for selling cigarettes to minors.

When Juul was established in Indonesia in July, the company's Asia-Pacific executive Ken Bishop acknowledged that attracting young adult smokers is crucial to its success locally.

He said: "Typically, this is where we are initially interested, and ultimately the product will appeal to any demographic, including long-term smokers."

Just before the screening of the movie "Charlie's Angels" in November in downtown Jakarta, dramatic teenagers watched an advertisement on an e-commerce website featuring the Korean boy band BTS, another for spicy noodles, and another for Juul e-cigarettes.

The voiceover said: "No odor, no tar, no mix," as the colorful screen flashed the mint and mango flavors of the American-made vaporizer.

Juul stated that "Charlie's Angels" is a movie rated for viewers aged 17 and older in Indonesia and has stopped advertising in cinemas over the past two months. Juul did not respond to questions about which age group its movie advertisements were targeting or why it stopped airing those ads.

According to three individuals familiar with its Asian marketing strategy, Juul hired 150 brand ambassadors through a marketing company to promote its products in nightclubs, restaurants, supermarkets, and convenience stores. Through a contract with Indonesian marketing company Nava Plus, ambassadors purchased Juul samples at luxury venues like Omnia Bali nightclub for 2,000 rupiah (approximately $0.15).

Nava Plus did not respond to requests for comment.

According to three sources, these efforts reflect Juul's aim to position the device as a fashionable lifestyle product for customers in their 20s and 30s. The campaigns reflect early promotions in the U.S. at music festivals and other events targeting young people, which later became the focus of government investigations into Juul's marketing.

Juul denies ever targeting youth in any country, but the company acknowledges that its early campaigns in the U.S. focused on young people aged 25 to 34, which company executives later called a mistake.

In August last year, Juul posted on Instagram promoting its largest Asian store in the Town Square Cilandak shopping mall in Jakarta, which drew cheers from the club, with dance music playing in the background of employee promotional videos, and a slogan that read "Come feel it now."

Juul stated that the Instagram post was made by the shopping mall and not the company, and did not clarify the presence of Juul store employees without Juul's consent. The company stated that it requested the post be removed after Reuters inquired.

The Town Square store is located across from an ice cream shop. Near another Juul store in a high-end Indonesian plaza, a miniature train carries children through the shopping mall.

Juul has also opened its own branded stores and kiosks in Indonesia, South Korea, and the Philippines, which feature a stylish and modern atmosphere. Buyers can have their names engraved on Juul devices for free, and the store staff are typically in their 20s, wearing black and white uniforms embroidered with the Juul logo. Three staff members at the Juul store in a prominent shopping mall in Jakarta told Reuters that they almost always serve customers of the same age.

Due to criticism, Juul has stopped selling these flavors in the U.S., which remain popular among young Juulers in Asia. 26-year-old Seoul photographer Sungwon Cho started using Juul in April because it is more convenient than traditional cigarettes and has no unpleasant odor.

"I like the sweet flavors," he said. "It feels like I'm smoking candy or jelly."