Analysis of the market trends, opportunities, and challenges of Indonesia’s coffee industry.
The Indonesian coffee industry shows high progress proved by culinary startup Kopi Kenangan, one of the biggest coffee shops in Indonesia that received funding of US$ 20 million or equivalent to Rp280 billion. The funding was led by Sequoia India, with several other investors participating, including rapper Jay-Z and tennis player Serena Williams.
There has been an increase in domestic demand for coffee in Indonesia. A study done by TOFFIN shows that the number of coffee shops in the country increased significantly from 1,000 outlets in 2016 to 2,950 outlets in 2019. Thus, it is important to discuss the overview of Indonesia’s coffee industry to learn the market trends, opportunities, challenges, and prospects.
Jay-Z and Serena Investment
In 2019 the famous rapper Jay-Z and tennis star Serena Williams have invested their funds in one of Indonesia’s local coffee chains, Kopi Kenangan. Both of the figures invested their money through their venture companies called Arrive and Serena Ventures. The interest comes from the rapid expansion of the coffee chain that has 200 outlets in 18 cities for only three years since its establishment (The Jakarta Post, 2020).
Kopi Kenangan is Indonesia’s biggest coffee shop chain that managed to become the number one kopi susu (milk coffee) and the second after Starbucks for the common coffee category. The private-owned coffee brand that was established in 2017 has 260 outlets spread across 20 cities in early 2020 and they aim to increase to 1.500 outlets in 2021. In 2020 alone, the brand can sell more than 2 million cups per month (Passion, 2020).
What makes Kopi Kenangan appeal to the domestic market is that the brand offers Indonesian specialty coffee milk that is different from the commonly known coffee latte. They are especially famous for having menus inspired by heartbreak and failed romance like Kopi Kenangan Mantan (Memories of My Ex Coffee) and Kopi Mantan Menikah (My Ex’s Wedding Coffee).
Indonesia’s Coffee Shops
The coffee shop business in Indonesia continues to grow parallel to the increase in domestic coffee consumption. Ready-to-drink (RTD) coffee that is sold in coffee shops continues to increase in 2018 at 120 million liters compared to 50 million liters in 2013 (Euromonitior, 2018).
The same study by TOFFIN indicates that the driver of coffee shops growth in Indonesia are:
- New habit
There is a new habit of hanging out in modern coffee shops while drinking coffee is one of the new habits that the Indonesian youth population has grown a liking to.
- Increase consumer purchasing power
Indonesia now has at least 52 million people with a middle-class income, the price of ready to drink coffee is more affordable with an average price of IDR 22,500 per cup (Now Jakarta, 2020).
- The presence of technology
Social media makes coffee shops businesses easily carry out their promotional activities and marketing strategies. Moreover, the presence of food delivery services such as Gofood has simplified the sales process.
- Low entries barriers
Resources to build coffee shop businesses have a low number of entry barriers in which raw materials and equipment (coffee machines) are widely available.
Competing with international coffee brand chains like Starbucks and Indonesian corporate giants like J.Co, local brands now find themselves accepted among a crowd of authentic Indonesia coffee lovers and casual coffee drinkers.
Other than the well-known and fastest-growing coffee shop chain Kopi Kenangan. There are also popular coffee shops that serve local coffee like Janji Jiwa, Kopi Tuku, Tanamera, and Kopi Kulo. They offer the original taste of local coffee variants such as Mandailing, Gayo, Kintamani, Wamena, and all those purely Indonesian coffee varieties.
From international brands, JCO is the highest rank in Indonesia’s most famous coffee brand, with a total score of 17.5 in 2019. The most significant improvement is Cha Time, with a score of in 2018 7.8 and has changed from 0.5 to 8.3. The Index Rankings chart shows the brands with the very best average of the highest increase. It ranked based on the Index score, which is a measure of overall brand health calculated by taking the average of Impression, Quality, Value, Satisfaction, Recommend, and Reputation (You Gov, 2019).
Top Index Rankings
Top Index Improvers
|Rank||Brand||2019||2018||Change in Score|
Indonesia’s Consumer Landscape
Many Indonesian people prefer packaged coffee products over fresh coffee. It is very common to encounter instant coffee sold per cup at thousands of low-end cafes and corner shops and consumed by local people. Between 2011 and 2016, Indonesia was ranked the world’s fastest-growing consumer of packaged coffee, including RTD coffee, instant coffee, and coffee in capsules or pods. It is expected in 2021, that the revenues of instant coffee per person related to the total population will generate USD 9.6, and the average per capita consumption of instant coffee will stand at 0.2 kg in the same year (Statista, 2020).
On the other hand, Indonesians with higher incomes enjoy going to the coffee shops to get RTD coffee. A study done by TOFFIN estimated that the average sales of coffee shops in Indonesia is 200 cups per day. This is mainly due to Indonesia’s youth population’s domination that creates a new habit of hanging out while drinking coffee. It is estimated that the average per capita consumption of roast coffee is 0.4 kg, and per person revenues to total population figures will generate USD 26.94 in 2021 (Statista, 2020).
The Coffee Industry in Indonesia
Indonesia is one of the world’s biggest coffee-producing and exporting countries as it ranked fourth after Brazil, Vietnam, and Colombia. Coffee is the country’s fourth-largest foreign exchange earner after rubber, palm oil, and cocoa regarding agricultural commodities.
Most of Indonesia’s coffee production consists of lower quality robusta types and is legendary for having several specialty coffees like kopi luwak (known as the world’s costliest coffee) and kopi Mandailing.
Indonesia’s coffee plantations cover a total area of approximately 1.24 million hectares in 2017, 933 hectares of robusta plantations, and 307 hectares of arabica plantations. More than 90% of total plantations are cultivated by small-scale growers who own relatively small plantations of about 1-2 hectares, each. Contrary to competitors such as Vietnam, Indonesia does not have big coffee plantations and therefore encounters more difficulties to safeguard stable production volumes and quality, hence its output loses some competitiveness on the international market (Indonesia Investments, 2017).
COVID-19 Impact on The Coffee Industry in Indonesia
The impact of COVID-19 on Indonesia’s coffee industry mainly resulted from the negative impact of large-scale social restrictions and social distancing measures on foodservice coffee sales. In response to this, more coffee players are selling bottled RTD format products through e-commerce platforms (Euromonitor, 2020).
As more people stay at home there is an increase of instant coffee brands to use local artists to promote their products in social media, TV adverts, and YouTube videos (Euromonitor, 2020). As a result, instant coffee experienced high growth as revenue is projected to reach USD 2,625 million in 2021 (Statista, 2020).
Indonesia is one of the largest coffee retail markets globally by volume, driven by rising domestic demand. This fact also estimates that the compound annual rate of growth within the retail coffee market in Indonesia expected to grow 11.4% between 2017 and 2021, making it the world’s fastest-growing coffee retail market among a list of countries that includes Vietnam that ranked second at 9.2%, followed by Turkey (6.8%), Philippines (6.7%) and Mexico (6.1%) (Jakarta Globe, 2018).
Apart from regular coffee production, Indonesia also produces several specialty coffees. The most famous coffee specialties are Luwak coffee, Aceh coffee, Toraja Coffee, and Mandailing Coffee. The most famous coffee type is Luwak Coffee as it is known to be the most expensive coffee in the world. It is brewed from nuts that have passed through the Asian palm civet (cat-like animal). Due to the animal’s unique fermentation process (and because civets can pick the juiciest coffee cherries), this coffee is believed to have a richer taste. Its intensive production process causes high prices in the international market.
Indonesia’s per capita consumption of around 1.2 kg in 2012 implies that compared to more than 4 kg within the US, around 7 kg within the world’s number one coffee producer Brazil and more than 10 kg in different European nations. In any case, with Indonesian per-capita consumption having already doubled in just a few years, domestic demand looks to be on a fast-growing trend. This puts the world’s fourth-most populous country on course to become a leading coffee market(GBG Indonesia, 2014).
The coffee shop and coffee drink industry in Indonesia has been booming for a long time. The consumption for 2018 is expanded to 4.3 million packs, based on reliable buyer requests for Ready to Drink (RTD) items. consumption for 2019 is the figure at 4.9 million packs based on proceeds of the customer requests (US Department of Agriculture, 2019).
Lack of Plantations
In contrast to competitors such as Vietnam, Indonesia does not have large coffee plantations and therefore faces more difficulties in maintaining stable production volume and quality, so that its output loses competitiveness in the international market. The range of coffee plantations in Indonesia is declining as agriculturists have moved their center to palm oil items (such as unrefined palm oil and palm bit) and cocoa that have higher yields in the market.
Most of Indonesia’s coffee berry production consists of a low-quality robusta variety. High-quality Arabica beans mostly come to Colombia from South American countries such as Brazil, Costa Rica, and El Salvador. Thus, Robusta Beans is most of Indonesia’s coffee exports (around 80%) (Indonesia Investment, 2017).
Uncertain Weather Conditions
Indonesian coffee plants believe a balanced amount of sun and rain after flowering can supply optimal results. Plants in highland areas are also relatively less affected by low humidity due to morning fog. Yields are often most affected by excessive amounts of rain and strong winds during the development season. Such conditions, which occurred in the highlands of Southern Sumatra that year often caused crops to fall before harvest (USDA Foreign Agricultural Service, 2018).
The Future of The Coffee Industry in Indonesia
Indonesia’s coffee industry is expected to reach USD 10,097 million in 2021 and is projected to grow annually by 10.7% from 2021 to 2025. The consumption of coffee will stand at 0.6 kg per capita in 2021 with Roast Coffee as its largest segment volume at USD 7,445 million in the same year. It is most likely that in 2021, most of the coffee industry’s revenue will be generated in the United States, amounting to USD 81,266 million. Moreover, per person revenues to total population figure will generate USD 36.54 in 2021 (Statista, 2020).
There is a potential that the growing coffee consumption among Indonesian’s millennials will tighten global supplies and is set to drive domestic coffee demand in the country. In 2019 demand for coffee surged to 36%, increasing5.3 million coffee bags sold compared to 2018. This amounted to about half the country’s estimated coffee output of 12 million bags (Bloomberg, 2020). It is likely that from 2020 onwards the growing domestic demand will continue to increase.
As many Indonesian people consume packaged coffee, there is a high opportunity in the market for instant coffee. It is estimated that instant coffee revenue will reach USD 2,652 million in 2021 and is projected to grow annually by 12.3% from 2021 to 2025 (Statista, 2020).
Finally, with the upsurge of coffee shops, it is more likely that there will be a huge investment prospect in the roast coffee segment. The roast coffee market is projected to grow annually by 9.8% from 2021 to 2025 and is expected to reach USD 7,443 million by 2021 (Statista, 2020).
Enter Indonesia’s Coffee Industry Through BRIGHT Indonesia
The high consumption of coffee and the need for global coffee production, especially for variants of coffee in Indonesia, is an opportunity as well as a challenge for Indonesia. Coffee as an important part of the life and lifestyle of many Indonesians certainly offers investment opportunities. However, to enter Indonesia’s coffee industry it is important to have a local partner for a smooth market entry.
BRIGHT Indonesia offers services such as Management and Strategy Consulting, Foreign Direct Investment (FDI) Promotion, Business Partnership Engagement that can help you to develop your business strategies in Indonesia’s coffee industry, connect your company from both the private sector and public sector in global FDI, and secure agreement with future Indonesian coffee business partners.
It is our focus to cater to your company’s needs through strategy consulting services with comprehensive and specialized development. For more information, email to email@example.com.
This article is Co-Written with Alifia Berizky