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Indonesia, new frontier for consumer goods companies
Publication Date : 24-03-2014
In the world of consumer products, all eyes are on Indonesia. If the country can manage inflation and political instability, reduce regulatory complexity, increase labour market flexibility and improve infrastructure, it could become the globe’s next big prize. Over the next 15 years, Indonesia will gain 80 million new consumers, according to Euromonitor, accounting for 40 per cent of the new consumers in the Asean (Association of Southeast Asian Nation) over that period.
Faced with such a potential huge market, no multinational corporation (MNC) consumer products firms with global ambitions can afford to ignore Indonesia. Some local companies are proving formidable competitors as they invest heavily to reinforce their positions at home while expanding internationally.
Despite the vast potential and importance for global and domestic companies alike, catching the Indonesia growth wave isn’t a sure thing. Consumer goods companies that come out ahead will be those that understand the uniqueness of Indonesia’s consumer goods landscape and shopper behavior.
Making the most of the Indonesia opportunity begins by realizing that the country is a “winners take all” market today. Consumers are dispersed across the archipelago, infrastructure is poor and retail outlets are fragmented.
Traditional trade accounts for more than 80 per cent of grocery retail value, a situation that will not materially change soon. Thus, it’s costly to reach shoppers — companies need scale to win. Indonesia’s consumer product market is therefore highly consolidated, with the top four to six brands controlling 60 per cent or more of the market in many product categories.
Just as the business landscape is unique, so are its shoppers. To understand shopper behavior, we synthesized findings from a range of exclusive sources, including proprietary consumer insights gleaned from 7,000 households and developed through a partnership with Kantar Worldpanel. We also drew on analysis from Bain’s expert network and years of experience in Indonesia.
Among the findings: Indonesia’s shoppers are willing to pay more for branded products with quality or functional benefits.
Premium brands account for a large share of the market, and they are growing faster than non-premium brands in some categories — particularly in food and beverages.
Like shoppers elsewhere, Indonesians are not as loyal to brands as companies may think. In most categories they tend to choose from multiple brands for the same need or occasion — what we describe as “repertoire” behavior.
But Indonesians are more polarized in their shopping behavior than are consumers in many other emerging markets, including China. They are highly loyal in categories such as toothbrush and toilet tissue, but display a high degree of repertoire behavior in categories such as instant noodles and shampoo.
Our research suggests that buying behavior is surprisingly homogeneous across the country.
From a category perspective, this is unusual and has far-reaching implications. In most emerging markets, the contents of shoppers’ baskets differ significantly by city or province.
Also, Indonesians prefer small basket and pack sizes and make more frequent shopping trips than consumers in other emerging markets.
Finally, Indonesians heartily embrace social media and digital marketing. Consumers are highly receptive to digital marketing, using Twitter extensively to get information about products, and readily watching campaigns that brands air on Facebook or YouTube.
Understanding Indonesia’s consumer products landscape and shopper behavior is the start for any company hoping to win in this growing market. It’s an opportunity that is not limited to any particular type of company.
Large MNCs have done well and so have large local champions and new entrants. Also, there are many different paths to success: making local acquisitions, growing organically, creating new categories and innovating aggressively, for example. But we’ve identified the five rules that all winners observe.
• Be clear on where and how to win:
Companies that succeed in Indonesia begin by identifying imperatives (for example: gain share, grow the category or develop a premium offering) and determine how to achieve them (organically or inorganically) to ensure all efforts are focused on attaining scale and leadership.
• Truly understand the Indonesian consumer:
Winning brands ask themselves why consumers are attracted to certain products, how to use fresh consumer insights to guide innovation and marketing, and how to emphasize the quality and functional benefits of products to capture a premium. Indonesia’s market is evolving so rapidly that insights gained a few years ago may now be out of date.
• Attain the right distribution coverage to reach target consumers: Leaders develop extensive networks that enable them to reach customers all across the country at reasonable cost.
Successful MNCs often develop exclusive contracts with large local distributors, and leading Indonesian brands that can afford it often develop their own distribution networks.
• Win the battle for new consumers at each point of sale:
Given that Indonesian shoppers are not loyal in most categories, leading brands put as much or more emphasis on winning new consumers as they do on retaining existing ones.
For example, to attract repertoire shoppers, brands deploy compelling in-store strategies that influence consumers where they make buying decisions.
Ensure that human resources is an accelerator and not a bottleneck: In a talent-constrained market, winning companies focus on four areas: develop a talent-pipeline plan that is aligned with the business strategy; regularly assess talent to ensure each role is occupied by the best people; empower local leaders to make decisions that make sense in their particular contexts; and build a performance-based culture that is in sync with the company’s growth objectives.
The five golden rules highlight critical priorities, but they aren’t comprehensive. For example, companies must also manage supply chains to ensure access to the resources they need to operate.
But brands that apply these five rules will be far ahead of those that don’t in their ambition to achieve, maintain or expand a leadership position in Indonesia.