Key economic/demographic statistics
| Inhabitants (mn) |
227.862 |
| GDP (USD mn) |
483,176 |
| GDP (% real growth) |
6.1 |
| Consumer price inflation (%) |
7.1 |
| Consumer spending (USD mn) |
285,675 |
| Retail sales, net (USD mn) |
178,923 |
Source: Planet Retail 2008
Key retail and consumer products companies
| |
Retailer** |
Category |
Multinational / Domestic |
Sales revenue 2007 (US$m) |
| 1 |
Matahari Putra Prima |
Dept Store & Supermarket |
Domestic |
1050.3 |
| 2 |
Hero Supermarket |
Supermarket |
Domestic |
553.4 |
| 3 |
Ramayana Lestari Sentosa |
Dept Store & Supermarket |
Domestic |
526.1 |
| 4 |
Mitra Adiperkasa |
Franchisee & Distributor |
Domestic |
293.8 |
| 5 |
Alfa Retailindo |
Mini Mart |
Domestic |
259.1 |
| 6 |
Catur Sentosa Adiprana |
Specialty Store |
Domestic |
229.5 |
| 7 |
Fast Food Indonesia |
Restaurant |
Domestic |
120.2 |
| 8 |
Gunung Agung |
Book Store |
Domestic |
119 |
| |
Consumer
company** |
Category |
Multinational / Domestic |
Sales revenue 2007 (US$m) |
| 1 |
Sampoerna |
Tobacco Manufacturer |
Domestic |
3,202.8 |
| 2 |
Gudang Garam |
Tobacco Manufacturer |
Domestic |
3,027.7 |
| 3 |
Indofood |
Food |
Domestic |
2,995.5 |
| 4 |
Unilever Indonesia |
Cosmetics, Household, Food |
MNC |
1,348.9 |
| 5 |
Kalbe Farma |
Pharmaceuticals |
Domestic |
554.1 |
| 6 |
Tempo Scan Pacific |
Pharmaceuticals |
Domestic |
335.9 |
| 7 |
Mayora Indah Tbk |
Food & Beverages |
Domestic |
304.1 |
| 8 |
Kimia Farma (Persero) Tbk |
Pharmaceuticals |
Domestic |
254.4 |
** Indonesia Stock ExchangeSource: Indonesia Stock Exchange, December 2007 
Key trends and issues
Retail
Exclusive stores: Since early 2000 there has been a trend to shop in exclusive stores. Shops like Giordano, Levi’s, G2000, and many other sporting goods brands such as Adidas, Nike and Reebok are aggressively opening up outlets in major cities in Indonesia. In addition, top designer stores such as Prada and Louis Vuitton have opened outlets in premium shopping malls.
Increasing numbers of hypermarkets: In the last five years, hypermarkets are becoming more important players. Carrefour, Hypermart and Giant lead the industry. In the past the market has been dominated by locally-owned department stores and supermarkets such as Matahari, Rimo, Hero Supermarket, Indomart, Gelael and Golden Truly. Over time these players are being taken over by hypermarkets. Matahari has become a hypermart, while Hero has been taken over by Giant.
Private label by hypermarkets: Hypermarkets have begun selling their own labels, especially for products that are low risk, easy to produce, have low customer loyalty and satisfy basic needs. With its own label the hypermarket can offer lower prices. Private labels are most common for tissue paper, cotton, thread, cleaner, wrap plastic, rice, cooking oil and frozen foods. Some hypermarkets even have their own label electronic appliances and fashion apparel.
Growing trend to franchise: This trend began in mid 1990 and was introduced by Indomart, then later adopted by other retailers. Mitra Adi Perkasa (MAP) is one of the active franchisees, which has licenses for Sogo, Debenhams, Top Shop (Dept Store), Kinokuniya (book store), Starbucks, Krispy Kreme and major branded fashion apparel such as Zara, Next and Massimo Dutti. MAP occupies large retail space and has become the anchor tenant of several luxury malls in Jakarta and Surabaya.
Consumer products
Acquisition of local brand/company by multinationals: In the last few years since the financial crisis in 1998, there has been a growing trend of business and brand acquisitions in Indonesia. Examples include acquisition of top selling bottled water, Aqua by DANONE; the acquisition of majority stake in soy-sauce maker ABC company by HJ Heinz; acquisition of Ades bottled water company by Coca-Cola Co; acquisition of the third largest cigarette company HM Sampoerna by Philip Morris; and acquisition of several local leading brands such as Bango, Sariwangi, Taro, Buavita & Gogo fruit juice company by Unilever Indonesia. With the acquisitions the multinational gains access to the local market and distribution, as well as a pool of talented people.
Indonesia, with a population of 220 million, is the largest potential market in Southeast Asia. With the Asean Free Trade Area, Indonesia will become one of the export bases to other ASEAN countries.
Increasing production cost and ability to pass on to customers: Costs are increasing in almost all sectors, including the retail and consumer sector. This is especially true with the recent government decision to increase fuel prices and electricity rates. The impact is an increase in transportation costs, salaries and other costs. The issue faced by manufacturers is how much can be passed along to customers without significantly damaging the demand.
New key players: Following the financial crisis in 1998 new key players have emerged in the consumer products arena, including Garuda Food Group, Wings Group and Orang Tua Group. These players are owned by local businesses and are successful in challenging the existing key players such as Indofood and Unilever.
Challenges faced by companies entering the market
In the 2007 Ease of Doing Business survey, Indonesia ranked 123rd out of 178, scoring particularly low in starting a business (168 of 178) and contract enforcement (141 of 178). Traders and businesses continue to face high costs due to corruption, a weak legal system, deteriorating infrastructure, poor tax and customs administration, rigid labor regulations, complex licensing and approval procedures, skills inadequacies and a mushrooming of local “nuisance” taxes.
Indonesia has recently been working on several fronts to address corruption concerns. Another area of weakness is the low level of reliance on information and communications technology, although Indonesia recently implemented electronic documentation to ease legal transactions.
The prevalence of foreign acquisition in Indonesia does not mean that Indonesian firms cannot compete in high-growth local consumer goods industries. One good example is Wings Corporation, a privately held manufacturer and distributor of consumer goods in Indonesia. Over the last fifty years this company has grown from a small home industry into a market leader with 70 subsidiaries, exports in 60 countries and more than 12,000 employees. In the toiletries industry, Wings successfully competes with giant multinational companies operating in Indonesia, such as Unilever and Procter & Gamble.
Wings is diversified, with its main activities in soap and detergents, printing, plastic packaging, building material manufacturing, industrial chemical processing, palm oil plantations, real estate and financial services.
According to Wings’ CEO, Eddy William Katuari, there are three key factors that contribute to its success: an understanding of consumer needs, the capability to fulfill those needs through rigorous product development and innovation, and technology awareness. There are others that believe that Wings’ competitive advantage lies in its ability to control upstream and downstream sectors. Wings is one of the owners of Ecogreen Oleochemical, the biggest oleochemical producer in the world. Oleochemicals are used as base material for soap, detergent, personal care products and food. A large and successful distribution network is also one of WINGS competitive advantages, owing to its longstanding experience in Indonesia.
(Source: datamonitor.com, 27 Feb 08, SWA 07/XX/1 - 14 APRIL 2004)
Case Studies
Milk industry and trading company
Our client is one of the largest manufacturing companies in the food and beverage industry in Indonesia. It is the market leader for ultra high temperature beverages, such as liquid milk, fruit juice and tea. The client felt it had taken the juice business as far as it could from a market perspective, and it wanted to focus on its dairy and tea businesses. The client decided to divest the juice brands and approached PwC to assist them.
We evaluated the options and persuaded the client to retain its juice manufacturing to maximise production utilisation and reduce average cost. The transaction was therefore to sell the juice brands and enter into a long term raw materials supply and toll manufacturing contract. This helped our client drive down its cost structure for the future, keep production levels at a maximum, and focus its market efforts on building the dairy and tea businesses. The transaction capitalises on the growing demand for quality health and well-being products, while maintaining the client’s manufacturing capability. It also allows the purchaser to focus on the building its brands, a win-win for both companies.
The deal was successfully completed with the brand being sold for USD 43 million in January 2008.
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