Retailers Eye Indonesia as Next Big Market

A woman sorts shoes at a shopping center in Jakarta on May 15. (EPA Photo/Mast Irham)

A woman sorts shoes at a shopping center in Jakarta on May 15. (EPA Photo/Mast Irham)

With its stable economic growth, young population and growing middle class, producers of consumer goods are now eyeing Indonesia as the next big emerging market, experts said in Jakarta on Thursday.

Vijay Vishwanath, global head of consumer products at management consulting firm Bain & Company, said that the consumer product industry was entering a new era, with emerging markets now accounting for an increasingly large share of the revenue of major companies.

“This is now a dramatic shift,” Vishwanath told a consumer product dialogue in Jakarta, adding that “profitability in emerging markets may now rival if not exceed global average.”

He said that with a consumer base that was bigger than the United States and Europe combined, emerging markets are seeing millions of people moving out of subsistence poverty and entering the middle class, with growing disposable income.

Emerging markets in Asia include China and India, while Indonesia is one of the leading emerging economies in Southeast Asia.

Nader Elkhweet, a partner at in Bain & Company, echoed Vishwanath’s statements.

“In essence, Indonesia is the next big emerging market,” Elkhweet said.

Elkhweet said that Indonesian consumers were characteristic in six areas: willingness to pay more for brands, homogenous in what they buy, strong brand loyalty, preference for small packs, high purchase frequency and influenced by social media.

He said that one particular aspect of Indonesian consumer habits is that 85 percent of consumer product purchases are made in traditional markets, where brand options on the shelves are much more limited and requires companies to compete for shelf space.

Vishwanath said not only were differences observed between emerging markets and developed markets, but also that overall, there is a convergence of these markets too.

He said that the themes of convergence included an accelerated category consolidation with players increasingly looking to new creations to draw consumers and the rapid use of “premium” to drive sales.

Other themes include the polarization of consumer behavior toward a new consumption behavior that puts loyalty no longer on a single brand but on a set of brands and the increased importance of points of sale as purchase increasingly decided after the customers had entered the stores.

Elkhweet said that as with the emerging markets, the strategy to capture these new consumers was to establish “a category leadership, based on deep consumer, categories and retail landscape understanding.”

He said strategies includes developing innovation in local conditions, offering product adaptations, cost-effective marketing, getting ahead of the supply chain and staying on top of regulatory changes.

He added that many predicted that if Indonesia continued to grow at the current level, it could become the 9th largest economy in the world within 10 years.

However, he added that some challenges needed to be addressed, including infrastructure inadequacy and its workforce’s productivity.