A Digital Outlook: How Will Indonesia’s Consumer Goods Market Fair?

As the fourth most populous country and fifteenth largest in land area on the planet, Indonesia’s economy and its hunger for consumer goods was poised to rapidly expand, especially digitally. In fact, the future of its online economy looked increasingly bright and primed for growth, ready to follow China and others into the Internet’s consumer age. 

Indonesia’s retailers manage over four million stores that sell consumer products. Like many developing countries, it’s mainly small independent shop owners who dominate the retail sector, though modern retail chains – supermarkets, hypermarkets, and convenience stores – were growing twice as fast as these smaller retailers. 

An Optimistic History 

With its thousands of populated islands, people have long predicted that Indonesia’s nascent digital economy would take off and that consumer goods would be a prime driver of this growth. It was just a matter of time. 

2020 was the year, many digital marketers were saying. 

According to McKinsey & Company in 2015, the increasing penetration of high-speed Internet connections would cause this breakthrough. Infrastructure development would be the boom in e-commerce businesses selling consumer goods online that would catapult the country solidly into the digital consumer age. That upward trend five years ago was real, and Indonesia looked poised to shadow China in its consumer goods market growth. 

2015 was a good time for companies that sold consumer goods to start investing in digital marketing, especially those geared to mobile devices. Elements within the country clamored for increased investment in managing digital trade throughout the archipelago. Most of those who did were larger retailers with money to invest.

Everything looked good for Indonesia’s digital economy, and then the coronavirus appeared…

The Bad News

COVID-19 affected businesses globally. Even for regions hit less hard by the illness, like Indonesia, the economy’s experiencing an incredible strain, with government growth projections at an anemic 2.3%

These figures might even be overly optimistic. Senior economist Faisal Basri of the University of Indonesia surmised that a .5% growth rate would be the most positive outcome, warning that a 2.5% contraction of the economy was more likely. 

Like many countries early on, Indonesia was seen as doing too little, too late. Its response has been admittedly slow, with serious lockdowns and quarantines of areas only coming into effect in late April.

Like in other countries, this led to panic-buying. Basic consumer goods like rice, sugar, vegetable oil, and instant noodles got snatched up rapidly, and limits had to be quickly put in place to prevent shortages. 

In fact, consumer spending took a dive in anticipated areas, according to an April 2020 study by market research firm Kantar Indonesia, such as entertainment venues like movie theaters or events at sporting stadia, restaurant dining, travel, fitness groups, hairdressing, and any luxury items. The sale of clothing, beauty products, and appliances – both small and large – also dropped off. Home fitness equipment sales suffered too, though perhaps this was due more to logistics and people concentrating on more basic needs.

On a broader level, Standard & Poor sees both corporate entities and state-owned enterprises undergoing credit pressure into the future, with debt restructuring almost certainly to occur over the next two years. And Indonesia’s banking industry – along with China’s and India’s – is set to get hit hardest, which will affect consumer credit and spending. 

Not All Bad News

Yet Indonesia’s unique geography also may have cushioned it against the worst of the pandemic, and its vibrant economy, though momentarily slowed, may actually make it less vulnerable to the disease than continental countries like the United States, China, or even the European Union. A few island nations across the Pacific have remained remarkably coronavirus-free, and if Indonesia can learn from these countries, its recovery may be quicker and more robust than those of more developed economies.

Southeast Asia’s largest economy did not experience the worst-case scenario of over 90,000 infections by the end of May 2020 that sober government predictions made. Rather, infections were kept at under 30 percent of that number. Deaths too from the pandemic were about a third of China’s, and less than 2 percent of what the comparable population of the United States experienced over the same period, though admittedly Indonesia’s leadership is less fractured.

Consumer spending – both online and off – actually increased for certain items. Kantar found that spending on items such as household cleaning products, medicine and other health products, and nutritional supplements. Spending on online entertainment, including streaming videos and music, also increased, as did food and drink for home consumption, which includes delivered food. Unsurprisingly too, spending on health and life insurance – important products for Indonesia’s astute middle class – also increased.

The Good News

While hypermarkets and big supermarkets saw sales decline by 15 percent and 12 percent respectively, smaller supermarkets sales were up 12 percent and e-commerce sites saw business increase a whopping 35 percent, according to Kantar’s April study. Though it’s probable these trends won’t continue unchecked, it does show a silver lining for digital entrepreneurs and businesses as Indonesians embraced shopping online. It’s also a warning to big retailers, that Indonesians may put more trust into smaller retail outlets closer to home. 

Consumer businesses that aren’t online will want to focus on recovering revenues, and marketing will be an essential part of any businesses’ strategy. Looking at the statistics for buying through e-commerce businesses, it makes sense that more brick and mortar stores embrace this business method. Also, once the worst is over, consumers expect to increase spending on all those areas that have seen decreases, including restaurant dining and travel. 

In fact, a June 2020 webinar by Gurnoor Singh Dhillon – Head of Brand Partnerships & Retail Innovation GOJEK – and Mardi Wu – CEO of Nutrifood Indonesia – is set to focus on the below issues: 

  • After the crisis, what businesses will do to recover and bring consumers back.
  • A look at whether and how consumer goods will be impacted. 
  • How off-brands can maintain their market. 
  • How consumer brands can thrive once the crisis has passed. 
  • What their companies – GOJEK and Nutrifood – will do to make their brands stand out. 

Proposals include dedicating more resources to e-commerce, including managing accounts, customer and trade marketing, and sales planning. The shock of COVID-19 has sent economies spiraling downwards, and the effect on consumer goods sales will no doubt be profound and long-lasting. 

There won’t be a quick return to business as usual, and the future of Indonesia’s consumer goods markets that aren’t seen as essential is far from certain. Yet Indonesians are looking forward thoughtfully. And the right decisions now will keep businesses successfully functioning in this new future. 

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