Indonesia: Young and populous, but economically cautious

As part of our Asia's Top 1000 Brands report's deep dive into Indonesia's top brands, Nielsen has provided this look at the market's economic and consumer backdrop.

Home to 260 million people, the most populous country in the Asean community, Indonesia represents immense opportunities but in the midst of many challenges.  As a country reliant on export commodities, despite slowing commodity prices, Indonesia’s economy has performed consistently with GDP at 5% growth over 2017. Positive household consumption, investment, and a strong surplus between exports and imports have contributed to this performance. Consumers remain more optimistic than they were in 2016; however that optimism did not by itself increase their intention to spend.

Average wage growth is slowing across Indonesian society, and 75% of households still earning less than US$10,000 a year. Indonesia consumers are most concerned about the economy which has evolved into a new cautious behaviour in everyday spending.  Across all social classes, there are three key spending priorities for each group: Basic Food, Education and Leisure & Lifestyle. FMCG (packaged) spending has become a secondary priority especially among the lower social consumer class. Throughout 2017, FMCG consumption growth came under increasing pressure as prices increased. However, the FMCG Food sector still saw positive growth given its priority among all social classes. Small format stores are increasingly preferred by consumers because of the convenience and ease of access offered. Consumers are starting to avoid large format stores as a way to control their budgets by reducing impulse spending.

Consumer shopping behaviour is evolving as internet penetration grows. In 2017, 45% of Indonesians were connected to the internet - 80% via smartphones and its popularity is evident even among lower income groups. This new connected lifestyle is boosting e-commerce, especially in Electronic Products, Travel, Lifestyle, Fashion and IT Mobile. E-commerce contribution to FMCG is still less than 2%, but there has been rapid growth over the last three years.  For e-commerce to prosper in Indonesia there will need to be improved access to finance as currently only half of the population has access to the formal financial/banking system.

Indonesia is a country of opportunity, with more than 60% of its population aged under 35 years, many of whom are constantly connected.  It is pivotal for companies to adopt technology as a part of their total brand identity, not just a potential sales channel. Connectivity will change the very essence of the role a product or service plays in the lives of consumers. It will change the fundamental brand experience, as long as infrastructure is there to support the last mile of delivery.

Manufacturers must ensure they leverage all platforms – both physical and digital to reach old and new consumers from different economic classes, and ensure that promotion and pricing strategies are flexible enough to adapt in this increasingly competitive environment.