The Role of the Retail Industry on Economic Growth in Indonesia

by | Jun 9, 2022 | Market Research | 0 comments

The Opportunities of Fast Moving Consumer Goods (FMCG) and Food and beverage (F&B) Industry during the Covid-19 pandemic

Retail Industry Market in Indonesia
Source: Forbes

According to data from Statista, more than 4.5 billion grocery retail outlets were in Indonesia in 2019. With the policy of the Indonesian government to implement Large-Scale Social Restrictions (PSBB), some people do panic buying. This led to a significant increase in sales at the start of the pandemic, according to data from most grocery retailers in Indonesia who have reported sales.

The retail industry includes food products sold at modern and traditional wholesale retailers. During the pandemic, Indonesian people who bought goods in large quantities mostly made purchases through supermarkets and hypermarket channels.

Which opportunity from the retail industry has successfully expanded its market in Indonesia? What is the impact of the retail industry on the FMCG and F&B in Indonesia? Read this article to know more!

Covid-19 Pandemic Gives Impact on F&B Retail Industry in Indonesia

The food retail industry has been positively impacted by the COVID-19 pandemic and more and more consumers are turning to online retailers for their groceries. According to data from Deloitte, amid the COVID-19 pandemic, the food and beverage sector emerged as one of the more resilient pockets of Indonesia’s economic growth.

Despite the decline in demand during the annual Ramadan period from the effects of the pandemic, the sector was able to record positive year-on-year growth rates of 3.94% and 0.22% for the first and second quarters of 2020. Overall, food revenue  domestic demand is expected to increase over the next few years.

Food products sold at traditional to modern wholesale retailers also cover this industry. The factor of increasing urbanization in this country has also contributed to a significant change in the distribution channel structure of the food retail industry.

The Overview of F&B Retail Industry Development in Indonesia

According to data from Statista, the large number of retail sales that have continued to rise in recent years is contributed by the food retail industry in Indonesia. So that this industry is one of the largest, especially in the Asia Pacific region.

By 2021, the food market in Indonesia will generate more than USD 306 billion in revenue. The bread and cereal market segment generated the highest revenue per type with approximately USD 62.4 billion. The second rank was food & snacks, which experienced a significant increase to around USD 40.56 billion in the same year.

By 2026, meat market revenues are expected to increase to approximately USD 42.5 billion, according to the Consumer Market Outlook. There are three famous retail industry brands in Indonesia. There are three famous brands FMCG retail industry brands in Indonesia are FrieslandCampina, The Coca-Cola Company, and Nestle which will be discussed further below:

FrieslandCampina

Despite the impact of the corona pandemic, in 2021 FrieslandCampina’s revenue increased by 4.3% before currency translation, which was mainly driven by the increase of commodities dairy prices, and a cautious recovery outside Europe. So then, revenue is reported to have increased by 3.2% to USD 12.34 billion in 2021.

Throughout 2021, the Food & Beverage product category went well. Revenue in the Food & Beverage category rose by 4.3% to USD 8,467.83 million from USD 8,118 million in 2020, due to rising prices and growth of out-of-home activity, particularly in Europe.

The Coca-Cola Company

The company’s flagship product, Coca-Cola, was invented by John Stith Pemberton in Georgia in 1885 who later in In 1889, Coca-Cola was founded. The following data illustrates Coca-Cola’s worldwide net operating income from 2007 to 2021. The Coca-Cola brand is one of the most valuable globally and most recognized brands in the world, with the value of the Coca-Cola brand reaching USD 81.56 billion in 2014. In 2021, Coca-Cola’s worldwide net operating income is USD 38.66 billion.

In 2012, Coca-Cola’s net operating income increased to 48.02 billion US dollars from 28.86 billion US dollars in 2007. Today the company has more than 500 brands for a wide variety of products, including Sprite to Columbia Pictures.

Nestlé

Based on data from Food Engineering Mag, Nestlé made several moves in its food divisions in 2020, including completing its divestment of the United States. Ice cream business to Froneri, selling its 60% stake in Herta to create a joint venture with Casa Tarradellas, selling its Yinlu peanut milk, and canned rice porridge business.

According to data from Nestle Company, The Philippines and Indonesia saw negative growth, turning positive in the fourth quarter led by Nescafé and Bear Brand. Nestlé Indonesia’s president director Dharnesh Gordhon said currently, the Indonesian market forms 1% of Nestlé’s overall business globally, due to the mergers and acquisitions it has carried out, he said.

The Future Prospects of the FMCG Retail Industry in Indonesia

Based on data from Statista, in the third quarter of 2020, the food segment showed the most considerable change, with average consumer spending per trip increasing in all FMCG segments. In terms of distribution, traditional retail was the country’s most important sales channel for FMCG products until the third quarter of 2020. Traditional trade controlled the highest market share of 67% in the FMCG sector in Indonesia. Then followed by minimarket with a market share of 19% in the FMCG sector. These are the opportunities or room for improvement for the FMCG industry in Indonesia to strike in 2022 and ahead:

Migration to Digital Channels

When the Indonesian government announced the first suspected coronavirus (COVID-19) in Indonesia in March 2020, the economic map changed in terms of working style and also from the demand side. Of course, it affected the FMCG business trends and strategies.

People preferred to stay at home to avoid crowds to minimalize the spread of the virus. This condition drove new consumer behavior which started to shop at online stores for essential needs.

Local Brands of F&B Will Increase

As we all know that the Fast Moving Consumer Goods (FMCG) industry is affected by the COVID-19 pandemic, including the Food and Beverage (F&B) industry, there was a decline in consumption in the first quarter of 2020. Especially for household consumer products, which have decreased from 5.02% to 2.84% during the first quarter of 2020.

However, people were still dependent on FMCG products in the Food and Beverage (F&B) sector and the industry reached 7.97% at the end of 2020. It will become an advantage for economic growth in Indonesia which will drive the increase of labor needs so it will increase the income and purchasing power of the society.

FMCG Stocks Gain Popularity

2022 will lead to a trend of stock investment preferring the FMCG companies, especially for food and beverage products Signs of economic recovery from pandemics can be seen in the consumption ratio of all layers of consumers, which began to rise from last September 2020, when the average ratio of consumer income spent on consumption has increased from 67.4% to 68.8%.

The Overview of Fast Moving Consumer Goods (FMCG) Retail Industry Development in Indonesia

The FMCG retail industry in Indonesia is also one of the industries that have not been significantly affected by the COVID-19 pandemic. Indonesia recorded a positive year-over-year change in overall FMCG market value of 8.8% in the third quarter of 2020.

Until the third quarter of 2020, the average consumer purchase volume for FMCG in Indonesia showed positive growth among consumers of various socioeconomic statuses. The overall change in average consumer purchase volume per trip in the country was 2% in the quarter.

The FMCG industry is very competitive because FMCG companies always take pictures of their products to compete in the market. However, of all the FMCG companies, there are three famous FMCG retail industry brands in Indonesia. The three brands are Unilever, Danone, and  Mondelez International which will be discussed further below:

Unilever

Unilever Indonesia was founded in 1933 and has since grown to become one of the largest fast-moving consumer goods (FMCG) companies in Indonesia. Unilever Indonesia is the fourth largest business based on market capitalization on the Indonesia Stock Exchange at the end of 2015.

Multinational companies such as Unilever Indonesia have revived the industry by providing a wider selection of products, from personal care to food products, to Indonesian consumers. According to Statista data, in the 2020 financial year, PT Unilever Indonesia Tbk’s net sales were around IDR 43 trillion.

Danone

According to data from Danone Indonesia’s Company, Danone was a leader leaders in early life nutrition as well, with our SGM and Sari Husada brands holding 40% of the market. Sales for these two categories alone come to over USD 1.07 billion and Aqua’s total volume of bottled water is the largest distributed by Danone anywhere in the world.

Danone’s global sales in 2021 from the fresh dairy products division amounted to about USD 14.05 billion which contributed to it’s total annual sales of 26.06 billion in the 2021 year. It was an increase of 2.8% compared to 2020.

Mondelēz International

Mondelēz International’s global net revenue amounted to about USD 28,72 billion in 2021. Mondelez International is one of the largest global companies operating in the snack business and makes billion-dollar brands such as Cadbury, Toblerone, Oreo, and Milka Chocolate.

Enter The Indonesian Retail Market with BRIGHT Indonesia

Because of the huge impact of the retail industry on the FMCG and F&B sector in Indonesia, of course, it takes a lot of in-depth research about the retail market in Indonesia. So, to enter the Indonesian market, you need the right local partner to assist you. 

BRIGHT Indonesia is an ideal business partner for you. We will assist you on the ground, including virtual assistants during the mission, logistical planning, and detailed communication. It can cause your company to focus on developing partnership cooperation rather than the hassles of the business trip.

BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

  1. Provide assistance for you in expanding and developing your business by identification of potential partners.
  2. Secure the agreement between client companies and future Indonesian business partners by providing a list of potentially suitable partners, arrange business meetings, and act as a liaison.
  3. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
  4. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.

0 Comments

Submit a Comment

Your email address will not be published.