Highlights and Future Opportunities
Indonesia is one of the largest economies in Asia. One of the attractive industries for investors in Indonesia is food and beverage, as the investment realization in the industry is higher than in other sectors (Deloitte, 2020). The food and beverage industry is also the highest contributor to export in the manufacturing sector. According to the Ministry of Trade, the value of food export was USD 13.73 billion and beverage export was USD 10.87 billion in the first semester of 2020. It was recorded in 2019 that the industry contributed about IDR 341 trillion or 11% to the nation’s GDP. The contribution increases each year from 7.9% in 2018.
In this article, we will talk specifically about the beverages industry in Indonesia and how the coronavirus pandemic affected the industry. But, we also discussed the bottled water industry that you can read here.
Wine and Alcoholic Beverages
The overall alcoholic drinks market is projected to reach USD 12,696 million in 2020 (Statista, 2020). The demand for alcoholic drinks shows an increasing trend in both off-trade and on-trade channels (Euromonitor, 2020). This is mainly driven by the increasing consumer awareness and lifestyle trend of socializing over drinks in several big cities such as Jakarta, Bali, and Surabaya. Although there are many new industry players in the market, Multi Bintang Indonesia remains the dominant player due to its wide distribution and its largest category of beer. In 2012, the company held over 61% of market volume.
Meanwhile, the wine segment is projected to reach USD 11,792 million in 2020. The market itself is expected to grow annually by 6.6% from 2020 to 2025 (Statista, 2020). A still light grape remains to be the most popular wine among Indonesians, while other sparkling wine was recorded to have a strong growth in 2019 (Euromonitor, 2020). The Indonesian local player that dominates the market is PT. Perindustrian Bapak Djenggot. With its brand ‘OrangTua’, the company dominates the largest volume category of fruit and herbal wine in Indonesia.
Indonesia has the largest Muslim population in the world. 87.2% of the population are Muslims, and in Islamic law, alcoholic drinks like wine are prohibited to be consumed and considered haram. However, Indonesia is not a Muslim country and drinking alcohol is not illegal. Although, Indonesian regulation stated that only places like three-star or above hotels, bars, and restaurants meet the applicable requirements. Also, alcoholic beverages are only allowed to be sold to consumers older than 21 years old.
Flavored Drinks or Soft Drinks
In the soft drinks market, the revenue is projected to reach USD 12,104 million in 2020. The market is expected to see an annual growth of 8.8% in the period of 2020-2025. The coronavirus pandemic has affected the soft drinks market in Indonesia. In 2020, both the volume and value of the market experienced a sharp decrease. It is mainly due to the social restriction and social distancing measures that limit operating hours of restaurants, grocery retailers, and other food and beverages services places.
The industry is expected to improve over 2021-2022. This is mainly due to the restart of customer activities. Many of the flavored drinks products are sold in convenience stores and restaurants, and therefore when the places reopen, the industry performance is projected to increase.
Ready-to-Drink Tea and Coffee
Ready-to-Drink (RTD) tea is the second most popular choice of drinks in Indonesia, after bottled water. Amid the coronavirus pandemic, the segment is experiencing challenges on both the on-trade and off-trade side. Mainly due to social restrictions. RTD coffee is the best-performing flavored drinks category in Indonesia this year (Euromonitor, 2020).
The sector’s performance continues to grow, driven by the increasing number of coffee shops in big cities this past five years. Due to customers’ preferences and lifestyle, it was recorded that there are 3.000 new coffee shops across Indonesia, as of August 2019. The number increased three times since 2016 when there were only around 1.000 coffee shops (Toffin, 2019).
The revenue of juice in Indonesia is projected to reach USD 654 million in 2020, with an expected growth of 8.3% annually in the period of 2020-2025. With the average per capita consumption of 1.3L, the sector’s largest revenue will be generated by the juice mixtures, other juices, and smoothies with a market volume of USD 506 million.
For some Indonesian, juice is considered to be non-essential, and therefore, the segment is slightly affected by the pandemic.
The Industry During the Pandemic
Due to the social restriction and social distancing (PSBB) that is being implemented in all areas in Indonesia, the industry performance declines during the early months of the pandemic. The closure of restaurants, cafes, and convenience stores are the main cause of the declining performance of the industry. Although the performance of several beverage segments like juice and other soft drinks increase due to a higher buying power post-pandemic, it is affected by the pandemic as many people are limiting their spending to essentials goods only. The alcoholic beverages segment will also be experiencing decline, because customers will still be cautious returning to crowded places such as bars.
The industry, however, managed to bounce back quickly during the ease of PSBB in the middle of the year. The opportunity of offering delivery services for the ready-to-drink tea and coffee also accelerate the improvement. The industry is expected to rise even more, once the nation’s economic activity gets better. With the increasing concern for health among Indonesian, the juice segment’s performance is expected to increase.
The beverages industry in Indonesia will continue to be one of the highest contributors to the nation’s economy as it is one of the basic necessities. Although the industry’s performance is shaken up by the pandemic, it is expected to bounce back once the economic activities are back on track.
Apart from bottled-water, ready-to-drink tea and coffee is the most popular choice of drinks among Indonesian. With the optimism and projected improvement of Indonesian economic activities post-covid, ready-to-drink tea and coffee hold great potential in the Indonesian market.