Consumer goods to Indonesia

Trends and opportunities

The market

Indonesia is currently the world’s fourth most populous country. With a population exceeding 250 million, it is estimated that Indonesia has 90 million people that will be rated as ‘consumer class’ by 2030 with an annual net income of more than US$3,600 (Source: McKinsey & Company, 2014). This consumer class, more commonly known as the middle-income group, is creating a consumer boom in Indonesia that will only grow over the next two decades.

Domestic consumption makes up a high proportion of the gross domestic product (GDP) on a comparative basis with other emerging economies, meaning that increased GDP growth will see an accelerated growth in consumption compared to regional neighbours. In 2015, BMI estimated the spending on clothing and footwear accounted to 2.5 per cent of Indonesia’s GDP.

With approximately a quarter of Indonesian households currently earning above US$10,000 a year, BMI predicts this number to nearly double by 2020. The improved earnings will lead to more disposable income to spend, which will substantially increase the demand for discretionary items like fashion and luxury goods, especially international brands.

Increasing access to credit among domestic consumers also plays a crucial part in the increased spending on discretionary goods and other non-essentials. BMI (2016) reports that in 2015 there are approximately 15 million credit cards in circulation in Indonesia. The ease of obtaining a credit card with reasonable limit and the attractive zero per cent instalments offer from most banks certainly contribute to the growing consumerism in the country. Aligned to this, a number of banks are facilitating ease of access to debit cards to ensure more Indonesians than ever have access to growing retail opportunities.

Similar to many other emerging economies, e-commerce is growing rapidly, posing a threat to conventional brick-and-mortar stores. The improvements in connectivity and infrastructure contribute greatly to the growth. BMI (2016) reports that there are approximately 90 million internet users in the country and total e-commerce sales in 2016 reached US$7 billion and is forecast to triple by 2020.

Opportunities

Indonesia's changing consumption patterns and unique position as a developing country with a sizeable youth population and growing middle class in Jakarta and other second tier cities presents numerous opportunities for Australian exporters.

The beauty industry is one of the top 10 priorities of the Indonesian government’s masterplan for economic growth and development. Cosmetics play a strategic role in Indonesia given the reality and potential of the market and the approximately 800 companies directly employing 75,000 people and creating an additional 600,000 jobs in related industries.

Indonesia’s emerging middle class with rising disposable incomes and a desire for imported, high-quality products, sees a beauty and wellness sector expected to grow. Euromonitor suggests that year on year growth to 2018 will be more than 9 per-cent, making Indonesia the fastest growing beauty and wellness market in Asia. The demand is largely driven by middle class consumers, especially females. In addition, there is an increasing trend of men in urban areas spending more on cosmetics and skin care products. Imported cosmetic sales in 2015 reached US$441 million (Source: Ministry of Trade, 2016) and accounted for more than 60 per cent of the cosmetics market share in Indonesia.

An opportunity also exists in the fashion industry. The growing youth population and the increasing purchasing power resulted in higher spending on fashion items in terms of value, quantity, and frequency. Improved internet connection has allowed local consumers to access what’s trending in the fashion capitals around the world, creating a stronger appetite for foreign brands, holding the perception that fashion trends are set in the international markets.

The shift of behaviour towards new and fashionable trends is supporting fast growth in international fashion brands in Indonesia, particularly in 'fast-fashion', where chained stores will turn over stock regularly to create emerging trend opportunities for consumers.

Indonesian consumer behaviour in adopting the latest trends in global fashion has been the key contributor in the growth of foreign fashion brands, particularly fast fashion. The quick turnover style, where retailers refresh stock and product displays regularly on short-term basis to create emerging trends, and the affordable price-range influence consumers to make regular purchases to keep up with the trends.

Competitive environment

Competition in the Indonesian retail sector is intense due to the large number of existing and new players, both local and foreign brands. Some larger players continue to expand their distribution channels to enlarge their customer base.

For cosmetics and skin care products, international brands still dominate the market. Renowned players such as Unilever, P&G, and L’Oreal lead the market, offering a wide range of products to meet consumer’s needs. However, smaller foreign brands with an established presence in international markets are also attracting the interest of new consumers who prefer high quality brands and are looking to distinguish themselves from the mass goods market. Indonesia is also looking to strengthen their own domestic production and this will only increase competition in the Indonesian market.

Distribution channels

The distribution channels for consumer products rely heavily on the modern retail channels – department stores, and specialty stores located in shopping malls. These retailers either source the products from importers and distributors, or import directly from manufacturers.

Regardless of global e-commerce growth, E-commerce in Indonesia is still less than one per cent of total retail sales and the regulatory environment means that Australian companies must still have a local partner to import and product in market in order to compete.

There are quite a number of importers in Indonesia specialising in different types of consumer products. Austrade is able to assist Australian exporters in identifying a suitable partner based on your product and business expectations. For companies looking to manufacture their products in Indonesia, Austrade is also able to assist in assessing the most suitable manufacturing partners for your business.

Tariffs

To find out the specific tariffs pertaining to the export of your product to Indonesia, enter the unique HS product code at Association of Southeast Asian Nations (ASEAN) Tariff Finder.

Marketing your products and services

Market Entry

To successfully market to Indonesia consider:

  • participating in major local trade shows
  • highlighting your international track record to customers, especially in the ASEAN region
  • engaging a local distributor (crucial to effective business penetration in Indonesia)
  • visiting the market on a regular basis and investing time (relationship based market)
  • opening a representative office or presence in Indonesia / engaging a local partner
  • engaging Austrade in tailored services to help you identify opportunities or connect you with key distributors and buyers.

Distribution Channels

  • department stores
  • specialty stores
  • modern retail stores
  • e-commerce (but only if you already have a presence in market)

Contact details

The Australian Trade and Investment Commission – Austrade – contributes to Australia's economic prosperity by helping Australian businesses, education institutions, tourism operators, governments and citizens as they:

  • develop international markets
  • win productive foreign direct investment
  • promote international education
  • strengthen Australia's tourism industry
  • seek consular and passport services.

Working in partnership with Australian state and territory governments, Austrade provides information and advice that can help Australian companies reduce the time, cost and risk of exporting. We also administer the Export Market Development Grant Scheme and offer a range of services to Australian exporters in growth and emerging markets.