Deloitte Consumer Insights Capturing Indonesia's Latent Markets

Deloitte Consumer Insights Capturing Indonesia’s latent markets

Consumer Business May 2015 Contents

Foreword 3

The driving forces in Indonesia’s retail landscape 4

Deloitte Consumer Insights: Indonesia 7

1. Spending patterns 11

2. Buying behaviour 13

3. Brand preferences 14

4. Communication channels 15

5. Buying channels 17

6. Geographical differences 19

Deloitte Retail Insights: Indonesia 21

1. Stocking behavior 25

2. e-Commerce 27

Looking ahead 29

Capturing Indonesia’s latent markets 31

Appendix 32

2 Foreword

With its sheer size as the largest consumer market in Southeast Asia, Indonesia is undoubtedly one of the key markets for consumer business companies in the region. In particular, its main metropolitan areas of Jakarta and Surabaya have emerged as hotbeds for companies seeking to dominate the playing field, with higher levels of urbanisation and income per capita. Additionally, a number of other cities have been exhibiting strong economic growth in recent years and present latent markets ripe for capture.

In this publication, we examine some of the key driving forces in Indonesia’s consumer business landscape. Then, we present the results from the second edition of the Deloitte Consumer Insights survey conducted in the first quarter of 2015 across 2,000 households in five major Indonesian cities: Jakarta, Bandung, Makassar, Medan and Surabaya. Following the inaugural survey conducted in Indonesia in the fourth quarter of 2013, this edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences, as well as reveal some of the new shifts and opportunities that have arisen since the previous survey.

This year, we also introduced a new section to highlight findings from our first Deloitte Retail Insights screening exercise conducted in 200 modern and traditional trade retail outlets in Indonesia across seven different product sub-categories. This was introduced with the objective of augmenting the consumer survey insights to provide a more holistic understanding of Indonesia’s retail landscape.

We then share our point of view on the key considerations for consumer business companies in this diverse and dynamic marketplace. These include the need for a segmented channel and product strategy to capitalise on the changing spending patterns of consumers as they transition into higher income segments; the necessity for a tailored approach for Indonesia’s major geographic regions; as well as the imperative to leverage new media and technology for innovative consumer and business solutions.

With increasing heterogeneity in its consumer demographics and market conditions, the current modus operandi will need to be reviewed and revised if companies wish to capture Indonesia’s next waves of opportunities. We hope that this publication will provide them with a glimpse into the insights for success.

Eugene Ho Southeast Asia Leader Consumer Business

3 The driving forces in Indonesia’s retail landscape

Indonesia’s retail market is characterised by its immense size. While it brings countless opportunities to consumer business companies in the form of a massive – and still growing – middle class, digital consumers, as well as rapidly urbanising cities outside of Jakarta, a multitude of challenges such as the high cost to serve across the expansive archipelago exist. In this section, we explore four key driving forces in Indonesia’s retail landscape that also later manifest themselves in the results of the Deloitte Consumer Insights survey and Deloitte Retail Insights screening exercise.

A burgeoning middle class As many of Indonesia’s low income consumers continue to transition to the middle income segment – defined broadly as those with annual household incomes of between IDR 36 million to IDR 120 million – they are becoming increasingly sophisticated in their spending habits and product choices (see Figures and 1 and 2). While this means an expected increase in expenditures in many consumer business categories such as beverages and packaged food, companies will also require more differentiated and segmented product offerings to capture the consumer’s share of wallet as considerations such as price becomes less salient when compared to factors like the overall product quality and trustworthiness of brands.

Figure 1: Education and urbanisation rates in Indonesia (2004-2014)

100%

90% 83% 80% 77% 70% 63% 60% 53% 49% 50% 45% Urbanisation rate 40% Proportion with secondary 30% school education 20% 10% 0% 2004 2009 2014

Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit

4 Figure 2: Population demographics in Indonesia (2004-2014)

Million 300

250 250 221 237 3% 12% 25% 200 10% Higher Income 31% 24% (More than IDR 120 million per annum) 150 Upper Middle Income 42% (IDR 60-120 million per annum) Lower Middle Income 100 32% (IDR 36-60 million per annum) 63% Lower Income (Less than IDR 36 million per annum) 50 26% 25% 7% 0 2004 2009 2014

Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit

High cost to serve Indonesia’s fragmented retail market is characterised by underdeveloped infrastructure: in the 2014 World Bank Logistics Performance Index, Indonesia ranked the lowest amongst other key Southeast Asian markets (see Figures 3 and 4). Traditional trade outlets such as Warungs and Minimarkets continue to be preferred by the majority of consumers and still account for the majority of the retail presence in Indonesia. Consumer business companies will require extensive distribution networks to tap into the market, resulting in one of the highest costs to serve in Southeast Asia with numerous route-to-market challenges. For many companies, there is a need for innovations (e.g. packaging) and segmented market approaches to overcome the restrictions of limited, and hence competitive, shelf space in these traditional trade outlets.

Figure 3: Ranking of key Southeast Asian markets in the 2014 World Bank Logistics Performance Index

Singapore Rank #5 Malaysia Rank #25 Thailand Rank #35 Vietnam Rank #48 Indonesia Rank #53

Source: 2014 World Bank Logistics Performance Index

5 Figure 4: Logistics costs (as a percentage of GDP) in key Southeast Asian markets

30% 27% 25% 25%

20% 20%

15% 13%

10% 8%

0% Indonesia Vietnam Thailand Malaysia Singapore

Source: 2014 World Bank Logistics Performance Index

Nascent digital media platform takes off Indonesia’s Internet usage has risen sharply over the last few years and consumers – especially the middle income segment – are more connected than ever, with easy access to information. Social networking is by far the most popular activity in Indonesia, with 72 million active users1. Although this is the highest number amongst Southeast Asian markets, it represents only 28% of Indonesia’s total population, in contrast to Malaysia and Singapore with a representation of 55% and 66% of their populations respectively. This implies a huge, untapped potential for consumer business companies to engage their consumers through digital platforms as Internet penetration takes off.

Figure 5: Number of active social media accounts in key Southeast Asian markets

Percentage of total population 28% 40% 49% 31% 55% 66%

80 72 70

50 40 40

Million 32 30 28

20 17

10 4 0 Indonesia Philippines Thailand Vietnam Malaysia Singapore

Source: World Bank, Wearesocial

Cities outside Jakarta as growth drivers Traditionally, Jakarta, accounting for approximately 17% of Indonesia’s economy, has been the focus of retail attention2. In recent years, however, other smaller cities outside Jakarta – typically with populations of less than 10 million – have emerged as attractive, alternative targets due to the strong competition within Jakarta as well as the promising and accelerating growth and urbanisation rates of these cities.

1 Wearesocial: Digital, Social & Mobile 2015 2 Indonesia Central Bureau of Statistics

6 Deloitte Consumer Insights: Indonesia

7 Deloitte Consumer Insights: Indonesia

Following the inaugural Deloitte Consumer Insights survey conducted in Indonesia in the fourth quarter of 2013, this second edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences as well as reveal some of the new shifts that have arisen since the previous survey. While some of the findings uncovered in this edition remain consistent with that of the previous survey, a few trends appear to have magnified. Their trajectories have been highlighted in the “Spot the difference” sections of the respective pages.

Methodology The survey was conducted in the first quarter of 2015 across 2,000 households via face-to-face interviews in five major cities: Jakarta, Bandung, Makassar, Medan and Surabaya.

Consumers were surveyed on their spending pattern, buying behaviours, brand preferences, communication channels, buying channels and geographic preferences across seven consumer product categories: • Beverages • Clothing and Footwear • Confectionery • Household Cleaning Products • Packaged Food • Personal Hygiene Products • Tobacco

8 Demographics of survey respondents

Figure 6: Geographical distribution of consumer Figure 7: Gender distribution of survey respondents consumer survey respondents

10.0% Jakarta Bandung 10.1% Makassar Medan 10.0% Surabaya

59.8% 10.1%

50.1% 49.9%

Figure 8: Age distribution of survey respondents

Age group, years

15-24 29% 25-34 32% 29% 35-49 11% 50-64 Percentage of survey respondents

Figure 9: Monthly household income distribution by city Monthly household income, IDR million Income distribution Less than 1 Jakarta 2% 14% 22% 18% 43% 1-2 Bandung 2% 13% 16% 22% 22% 16% 8% 2-3 Makassar 11% 19% 23% 22% 15% 8% 3-5 5-7.5 Medan 12% 16% 21% 24% 15% 9% 2% 7.5-10 Surabaya 15% 14% 23% 25% 16% 8% More than 10 Percentage of survey respondents

Figure 10: Monthly household income distribution of survey respondents vs. actual household income distribution Monthly household income, IDR million Actual 7% 26% 42% 14% 11% Less than 3 3-5 Survey 5-10 14% 18% 40% 16% 13% 10-15 More than 15 0% 20% 40% 60% 80% 100%

From the monthly income distribution of survey respondents by city, it appears that Jakarta has a greater proportion of middle and higher income households as compared to other cities. This finding is consistent with Jakarta’s Gross Regional Domestic Production (GRDP) per capita, which is about four times higher than the other cities3. Overall, the income distribution of the survey respondents is fairly representative of the actual income distribution within Indonesia.

3 Statistic Indonesia 2012

9 Key consumer insights

The insights revealed by the first edition of the Deloitte Consumer Insights survey remain largely consistent in this second edition: the burgeoning middle class is moving away from spending merely on necessities to other discretionary expenditures; price sensitivity has decreased as household income levels increase; Local brands are still performing strongly over Foreign ones; TV remains the dominant communication channel; and Warungs retain their crown as the most frequented retail outlets.

But a few shifts uncovered by this survey are worthy of attention. Consumers, for instance, are beginning to exhibit greater levels of sophistication, prioritising attributes such as Trust and Overall Quality over Price in their purchase decisions, even in the lowest income segment. For the first time, this edition also features an entire section focused on the geographical differences between Indonesia’s key cities, with a particular emphasis on those outside the main metropolitan area of Jakarta.

10 1. Spending patterns

Clear inflection point at monthly household income level of IDR 5 million As was found in the previous survey, a clear inflection point in spending patterns exists at a monthly household income level of IDR 5 million. Households with incomes below that threshold tend to spend almost 100% of their household incomes every month, leading a hand-to-mouth lifestyle and focusing mainly on basic necessities.

Figure 11: Average monthly household expenditure

Monthly household income, IDR million Less than 1 1,075,000 1-2 1,653,000 2-3 3,160,000 3-5 3,613,000 5-7.5 4,296,000 7.5-10 4,818,000 More than 10 5,853,000

On the other hand, the spending patterns of consumers with monthly household incomes of above IDR 5 million revealed a shift from basic necessities, such as Beverages, Clothing and Footwear, Packaged Food, Household Cleaning products, and Personal Hygiene products, towards supplementary products such as Credit Card Instalments, Leisure and Holiday, as well as Welfare and Savings as more disposable income becomes available at this income level.

Households with monthly incomes above IDR 5 million also have a greater propensity to allocate funds for financial services, including Credit Card Instalments and Welfare and Savings, setting aside about 24% of their total monthly expenditures for these purposes, in comparison to the Households with monthly income of IDR 3-5 million which allocate only 10% of their total monthly expenditures. Thus, the IDR 5 million income level mark is also the inflection point at which consumers have access to, and appear to be leveraging, debt to finance their lifestyles (see Figures 12 and 13).

With overall consumer sentiment on the rise, 80% of respondents have indicated optimism that the economy would improve within the next five years. The lower income segments, for instance, have shown a clear indication of a planned increase in spending in the categories of Confectionery, Household Cleaning, Packaged Food and Tobacco, except for the lowest monthly income consumer group of less than IDR 1 million. These categories are most likely to increase their spending with economic growth and increased income levels (see Figure 14).

Spot the difference As compared to the previous survey, there have been increases in spending on the Beverages and Packaged Food categories. This pattern was consistent across almost all income levels, although differing in magnitude depending on income levels. For Beverages, expenditures increased from 4%-8% of total spending in the previous survey to 5%-11% in this survey, while for Packaged Food, the figure showed significant increment from 12%-27% to 18%-32%.

In contrast, spending on Leisure and Holidays decreased from the previous survey from 6%-13% to 3%-8%. This could have been a result of the overall increase in product or service prices, positive economic outlook and the increasing adoption of modern consumption patterns. Spending on Leisure and Holidays as well as Welfare and Savings categories remains skewed towards the higher income segments and continue to be of lower priority for the middle and lower income segments which are primarily focused on basic necessities.

11 Figure 12: Breakdown of monthly household expenditure (2015)

Monthly household income, IDR million Less than 1 31% 11% 5% 13% 11% 7% 7% 9% 3% 3% Food* 1-2 32% 6% 5% 12% 6% 6% 6% 11% 11% 3% 2% Beverages 2-3 27% 6% 5% 11% 6% 5% 7% 11% 15% 4% 4% Tobacco 3-5 28% 6% 4% 9% 6% 5% 7% 9% 12% 5% 8% Clothing and Footwear Personal Hygiene 5-7.5 29% 6% 3% 8% 5% 4% 6% 9% 11% 7% 2% 12% Household Cleaning 7.5-10 23% 6% 3% 8% 4% 4% 6% 9% 11% 8% 4% 14% Communication and Media More than 10 18% 5% 8% 5% 3% 5% 10% 12% 8% 8% 16% Transportation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Housing and Utility Leisure and Holiday Weightage Credit Card Instalment *Includes Confectionery and Packaged Food Welfare and Savings

Figure 13: Breakdown of monthly household expenditure (2013)

Monthly household income, IDR million Less than 1 23% 8% 4% 11% 8% 7% 6% 13% 13% 6% 2% Food* 1-2 27% 7% 5% 10% 6% 6% 6% 10% 13% 6% 5% Beverages Tobacco 2-3 22% 5% 4% 10% 5% 5% 6% 9% 13% 9% 11% Clothing and Footwear 3-5 20% 6% 5% 9% 5% 4% 6% 8% 10% 10% 5% 12% Personal Hygiene 5-7.5 13% 5% 10% 5% 4% 4% 8% 11% 14% 7% 17% Household Cleaning 5% 7.5-10 11% 2% 10% 5% 4% 5% 9% 10% 12% 8% 20% Communication and Media More than 10 12% 4% 9% 5% 3% 5% 10% 10% 13% 11% 17% Transportation 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Housing and Utility Leisure and Holiday Weightage Credit Card Instalment *Includes Confectionery and Packaged Food Welfare and Savings

Figure 14: Correlation between monthly household income level and percentage of consumers with plans to increase spending

Packaged Food Confectionery Household Cleaning Tobacco 80 80 80 80

60 60 60 60

40 Trend Line 40 40 40 Trend Line Trend Line 20 20 20 20 Trend Line Percentage of respondents with plans to increase spending 0 0 0 0 Less 2-3 5-7.5 More Less 2-3 5-7.5 More Less 2-3 5-7.5 More Less 2-3 5-7.5 More than than than than than than than than 1 10 1 10 1 10 1 10 1-2 3-5 7.5-10 1-2 3-5 7.5-10 1-2 3-5 7.5-10 1-2 3-5 7.5-10

Monthly household income (IDR Million)

12 2. Buying behaviour

More affluence, less price sensitivity In the previous survey, it was observed that as Indonesians gain affluence, price and basic functionalities are no longer the only key drivers for purchase choice. Consumers become more sophisticated in their buying behaviour and in assessing and communicating what they like. This trend continues to be apparent in this year’s survey.

For Beverages and Packaged Food, this year’s survey indicated that these are the two categories where consumers across almost all income levels have increased their share of expenditure over last year (see Figures 15 and 16). A clear inflection point can be seen at a monthly household income level of IDR 3 million and above, where price becomes a less important consideration and consumers begin to place greater emphasis on the product’s characteristics and its brand image. Although Taste attributes remain the biggest driver in the purchase of Packaged Food, for instance, the importance of Smell attributes has also increased. Similarly, in the Beverages category, while Taste and Price attributes remain the key drivers, Safety, Health and Trust attributes are gaining importance. This could be a result of the increasing awareness of drinking water safety and a move towards greater health-consciousness. For both categories, the trustworthiness of the brand is also increasing in importance.

Figure 15: Drivers of Packaged Food purchases by monthly household income level

Monthly household Availability income, IDR million Health Less than 1 3% 5% 2% 11% 5% 17% 10% 32% 11% Innovation 1-2 4% 8% 2% 7% 22% 4% 13% 30% 8% Overall quality 2-3 2% 9% 9% 2% 17% 7% 13% 29% 8% Packaging 3-5 4% 9% 2% 9% 16% 3% 6% 11% 29% 10% Price 5-7.5 5% 12% 11% 2% 15% 7% 7% 28% 10% Promo Safety 7.5-10 4% 10% 10% 15% 6% 8% 29% 12% Smell More than 10 6% 10% 14% 14% 2% 5% 5% 27% 13% Taste 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Trust Weightage Others

Figure 16: Drivers of Beverage purchases by monthly household income level

Monthly household Availability income, IDR million Health Less than 1 10% 10% 4% 15% 28% 5% 2% 16% 9% Innovation 1-2 3% 15% 11% 2% 23% 4% 7% 5% 18% 9% Overall quality 2-3 5% 15% 11% 3% 16% 3% 9% 5% 20% 10% Packaging 3-5 6% 17% 2% 10% 3% 15% 3% 10% 4% 18% 11% Price 5-7.5 5% 19% 11% 4% 13% 2% 10% 4% 17% 12% Promo 7.5-10 7% 17% 2% 12% 3% 13% 10% 3% 20% 11% Safety More than 10 5% 19% 13% 2% 9% 2% 10% 3% 18% 15% Smell Taste 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Trust Weightage Others

Spot the difference While Taste and Price attributes remain the top criteria in deciding brand choices for the Packaged Food category, three brand drivers have increased in importance across all income levels: Trust, Overall Quality, and Smell. This change represents the increasing sophistication of Indonesian consumers, as even consumers within the lowest income segment are starting to prioritise Trust and Overall Quality attributes. In line with this, the percentage of respondents in this income segment who considered Price attributes to be the top driver has decreased from 26% in the previous survey to 17%, while the percentage of respondents who prioritised Overall Quality increased from 5% to 11%. While there appears to be a decrease in the percentage of respondents who opted for Safety attributes, this does not imply that it has decreased in importance. Rather, this indicates that consumers are starting to have more holistic perceptions of brands and place greater emphasis on Trust, with Safety as an implicit expectation.

13 3. Brand preferences

Local is still in favour Generally, the majority of Indonesians continue to show preference for brands that they perceive to be Local, over those that they think are Foreign. However, in reality, they often mistakenly perceive some Foreign brands to be Local.

As income levels increase, the propensity to purchase Foreign brands increases too – most notably in the Clothing and Footwear and Personal Hygiene categories – with more than 50% of the higher income households preferring Foreign brands. For Packaged Food, the ability to cater local tastes drives consumers’ purchase and preference for Local brands.

Figure 17: Preference for Foreign brands by monthly household income level

Monthly household income, IDR million Less than 1 29% 56% 15% Strongly Do 1-2 42% 57% 2% Not Prefer 2-3 33% 63% 4% Do Not 3-5 26% 63% 11% Prefer 5-7.5 25% 65% 8% Prefer 7.5-10 20% 67% 13% Strongly More than 10 11% 63% 23% 2% Prefer 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage

Figure 18: First brand of choice by monthly household income level

Monthly household Clothing and Household Packaged Personal income, IDR million Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco Foreign Less than 1 97% 86% 100% 89% 100% 28% 72% 100% Local 1-2 82% 92% 92% 93% 100% 86% 92% Private Label 2-3 20% 80% 20% 78% 86% 92% 99% 26% 74% 90%

3-5 18% 82% 24% 76% 89% 87% 98% 33% 67% 90%

5-7.5 20% 80% 23% 76% 17% 82% 86% 98% 32% 67% 89%

7.5-10 23% 76% 37% 61% 17% 82% 84% 99% 43% 56% 84%

More than 10 29% 70% 68% 31% 34% 66% 24% 75% 95% 56% 43% 38% 62%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

14 4. Communication channels

TV dominates, but Word of Mouth matters too The survey revealed that traditional media continued to dominate, with TV as the primary channel through which Indonesian consumers obtain information about products and brands across most income levels. Nevertheless, Word of Mouth via relatives, friends and colleagues, as well as In Store Promotion, also plays important roles in influencing purchase decisions.

Figure 19: First source of information by monthly household income level

Monthly household income, IDR million Less than 1 39% 25% 20% 14% Relative 1-2 18% 22% 41% 16% Friends and Colleagues 2-3 20% 20% 40% 17% Expert 3-5 19% 16% 43% 16% TV Radio 5-7.5 19% 18% 43% 17% Print Ads 7.5-10 19% 18% 41% 2% 2% 16% Digital Media More than 10 25% 17% 32% 2% 19% Outdoor Ads 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% In Store Promotion Weightage

Social media is only social… for now While the Internet and Social Media are widely and actively used in Jakarta - which has been dubbed the social media capital of the world – consumers tend not to use this channel for commercial purposes at this point in time. For Private Labels and Foreign brands in Clothing and Footwear, Confectionery and Packaged Food categories, however, Social Media is gaining traction and is more frequently used to influence the purchase decision.

Figure 20: Preferred sources of information by product category and brand type

Product category Brand type Beverages Local 21% 21% 27% 3% 2% 5% 18% Relative Private Label 14% 27% 23% 13% 21% Friends and Colleagues Foreign 20% 20% 27% 5% 3% 6% 16% Expert Clothing and Local 23% 24% 13% 8% 5% 4% 22% TV Footwear Private Label 11% 15% 11% 24% 6% 4% 27% Radio Foreign 19% 22% 8% 12% 12% 4% 23% Print Ads Confectionery Local 20% 22% 27% 3% 2% 4% 18% Digital Media Private Label 19% 14% 27% 2% 4% 13% 21% Outdoor Ads Foreign 20% 20% 28% 2% 5% 4% 4% 17% In Store Promotion Household Local 22% 18% 28% 5% 5% 19% Cleaning Private Label 20% 25% 20% 3% 5% 27% Foreign 23% 13% 27% 5% 6% 22% Packaged Local 22% 20% 28% 3% 2% 5% 17% Food Private Label 24% 24% 33% 9% 9% Foreign 23% 14% 2% 21% 3% 6% 4% 6% 19% Personal Local 21% 20% 27% 5% 4% 18% Hygiene Private Label 16% 13% 2% 21% 3% 15% 2% 2% 25% Foreign 20% 17% 2% 26% 8% 3% 4% 19% Tobacco Local 23% 26% 25% 2% 6% 15% Private Label 33% 33% 33% Foreign 21% 25% 23% 2% 11% 14%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Weightage

15 Indeed, Social Media is likely to gain greater importance going forward. As a TV-centric market with only about 30% of its population connected online (main concentration in Jakarta and key cities)4, competition for the limited TV advertisement slots in Indonesia’s ten national TV stations has become intense among mass marketing companies. Coupled with the typically lower returns on investment (ROIs) from traditional media – ROIs from TV advertisements are estimated to be only about half that of Social Media advertisements – companies have increasingly begun to turn to the digital space to strengthen their marketing strategies. Despite Indonesia’s nascent digital market, a number of global companies have managed to successfully deploy Social Media to achieve their marketing objectives. Such efforts will certainly continue and help to expand the role of Social Media in influencing consumer decisions as Internet penetration rates continue to increase.

Mini Oreo… not-so-mini impact In order to raise awareness amongst young adults for its new product, the Mini Oreo, and to encourage them to purchase it as a snack, Mondelēz International launched a series of advertisements on Facebook5. Partnering with Facebook’s Creative Shop, and working with its agencies, it created a suite of engaging and creative photo advertisements depicting how the Mini Oreo can be consumed in a range of different occasions, such as during a meeting, bike ride or shopping trip.

The campaign was a resounding success: within six weeks, the campaign reached 18.6 million target consumers, exceeding the campaign’s target by 35%. In addition, the campaign also delivered a six-point lift in advertisement recall for the Mini Oreo, five-point increase in purchase intent for the Oreo brand, 8.4% engagement rate with the advertisements, as well as 146,794,864 impressions.

4 Economist Intelligence Unit 5 Facebook for Business

16 5. Buying channels

Modern trade takes off, but Warungs still win As with the previous survey, this year's survey uncovered a correlation between income levels and preference for modern trade outlets. The middle and higher income consumers are more likely to purchase from Minimarkets and Supermarkets due to their better product assortment and availability, while the lower income groups are more likely to purchase from Warungs for the convenience and affordable prices (see Figures 21 and 22).

Figure 21: Channel preferences by monthly household income level and product category (2015)

Monthly household Clothing and Household Packaged Personal income, IDR million Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco Traditional Less than 1 75% 25% 57% 43% 58% 42% 63% 37% 72% 28% 58% 42% 77% 23% trade 1-2 81% 19% 64% 36% 74% 26% 61% 39% 73% 27% 61% 39% 94% Modern trade 2-3 60% 40% 42% 58% 56% 44% 41% 59% 57% 43% 45% 55% 86%

3-5 50% 50% 31% 69% 44% 56% 27% 73% 49% 51% 29% 71% 74% 26%

5-7.5 45% 55% 17% 83% 37% 63% 22% 78% 40% 60% 27% 73% 78% 22%

7.5-10 36% 64% 87% 32% 68% 86% 31% 69% 84% 73% 27%

More than 10 20% 80% 97% 86% 93% 86% 94% 54% 46%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Figure 22: Channel preferences by monthly household income level and product category (2013)

Monthly household Clothing and Household Packaged Personal income, IDR million Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco Traditional Less than 1 90% 59% 41% 92% 68% 32% 93% 54% 46% 96% trade 1-2 65% 35% 46% 54% 64% 36% 54% 46% 69% 31% 42% 58% 94% Modern trade 2-3 65% 35% 42% 58% 58% 42% 40% 60% 68% 32% 40% 60% 93%

3-5 28% 72% 38% 62% 32% 68% 46% 54% 44% 56% 41% 59% 88%

5-7.5 19% 81% 91% 19% 81% 19% 81% 26% 74% 92% 55% 45%

7.5-10 23% 77% 97% 83% 92% 22% 78% 96% 45% 55%

More than 10 83% 100% 86% 95% 89% 98% 42% 58%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Due to a combination of factors such as close proximities to consumers’ homes, convenience and opening hours, the two most frequented retail outlets across all product categories are (see Figures 23-25):

• Warungs (Traditional trade): Small, independent, kiosks (4-15 square metres) that are usually within walking distance or located close to residential areas, and sell Beverages, Household Cleaning products, Packaged Food, Personal Hygiene products, and Tobacco. • Minimarkets (Modern trade): Expanded versions of Convenience Stores (100-1,000 square metres) which sell a wider range of products, and compete partially with Supermarkets but with fewer product varieties due to smaller floor spaces.

17 Figure 23: Channel preferences by monthly household income level and product category

Monthly household Clothing and Household Packaged Personal income, IDR million Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco Street Hawkers Less than 1 71% 18% 43% 24% 50% 23% 43% 19% 66% 38% 23% 77% Wet Markets 1-2 76% 56% 64% 17% 49% 22% 17% 53% 48% 22% 85% Warungs Minimarkets 2-3 57% 31% 35% 27% 52% 29% 35% 34% 18% 46% 26% 38% 33% 76% Supermarkets Hypermarkets 3-5 44% 37% 24% 43% 38% 40% 21% 37% 25% 40% 31% 24% 37% 24% 68% 21% Brand Stores 5-7.5 40% 34% 52% 32% 39% 19% 35% 28% 33% 30% 20% 21% 31% 26% 70%

7.5-10 31% 38% 58% 26% 38% 18% 35% 29% 22% 25% 33% 21% 34% 27% 20% 63% 25%

More than 10 38% 19%19% 82% 37% 22%26% 23% 30% 40% 27% 27% 31% 22% 28% 35% 47% 34%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Figure 24: Reasons for channel preferences by channel type

Channel type

Street Hawkers 9% 10% 5% 26% 14% 25% 4% 7% Assortment Wet Markets 12% 12% 12% 16% 10% 18% 11% 10% Availability Warungs 10% 12% 14% 18% 10% 12% 12% 11% Convenience Minimarkets 10% 15% 16% 20% 12% 6% 11% 8% Location Supermarkets 18% 22% 18% 8% 5% 7% 13% 10% Opening Hours Hypermarkets 21% 23% 16% 6% 3% 8% 12% 9% Price Brand Stores 19% 24% 20% 2% 2% 14% 17% Promotion Service 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Weightage

Figure 25: Reasons for channel preferences by monthly household income level

Monthly household income, IDR million Street Hawkers Wet Markets Warungs Minimarkets Supermarkets Hypermarkets* Brand Stores* Assortment Less than 1 21% 26% 20% 18% 23% 17%20% 30% 30% 30% 33% 33% 33% Availability 1-2 21% 27% 24% 18% 19%17% 20% 24% 17% 25% 32% 18% 27% 42% 22% 23% 23% Convenience Location 2-3 23% 23% 21% 19% 22% 18% 20% 25% 21% 17% 21% 33% Opening Hours 3-5 26% 27% 17% 17% 18%18% 21%17% 20%21%20% 19% 25% 25% Price Promotion 5-7.5 27% 22% 18% 20% 18% 19%23% 21%24% 18% 19% 25%19% Service 7.5-10 29% 23% 18% 20% 19%20% 19% 20%4% 19% 23%20% 17%

More than 10 31% 29% 25% 34% 26% 18%23% 18% 22%24% 18% 24%20% 18%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

* Low income families (monthly household income less than IDR 1 million) typically do not shop in Hypermarkets and Brand Stores

18 6. Geographical differences

Indonesia is not just Jakarta To date, the majority of investments have been focused in larger cities such as Jakarta and Surabaya. However, with greater urbanisation across the country, cities outside these main metropolitan areas are becoming increasingly attractive with their high growth potentials and opportunities for consumer business companies. Due to Indonesia’s diversity across its huge expanse of islands, targeting these cities will first require a review of their potential differences.

As a case in point, Makassar – the provincial capital of South Sulawesi and the eleventh most populous city in Indonesia that is well-known for its shipping and port industry – has shown an attractive economic growth potential, with an annual GDRP growth of 17.1% since 2009, higher than the growth of 12.6% in the nation’s annual Gross Domestic Product (GDP).

Figure 26: Makassar’s GRDP growth (2009-2013)

IDR billion 60 58.8 50 +17.1% 50.7

40 43.4 37.0 30 31.3

0 2009 2010 2011 2012 2013

Source: Badan Pusat Statistik Indonesia

Consumer optimism in these cities beyond Jakarta is palpable. For example, buoyed by the positive economic outlook, over 40% and 25% of consumers in Bandung and Makassar, respectively, have expressed plans to increase their expenditures on the Beverage category by more than 10% (see Figure 27).

Given the varying degrees of urbanisation across Indonesia, consumer behaviours also differ by cities. Consumers in Makassar, for example, are more receptive to Foreign brands as compared to the other three cities outside Jakarta (see Figure 28).

In addition, consumers in Makassar are more experienced with e-commerce. Second only to Jakarta, 20% of its consumers have made online purchases at least once. Amongst those who have not made online purchases, their main concern was payment security. This sentiment is common across all the cities in the survey, implying a need to tackle the issue with the technology, operations and communications that have been deployed in more developed markets (see Figure 30).

19 Figure 27: Planned increase in monthly household expenditure by city

Clothing and Household Packaged Personal Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco Less than 10% Jakarta 39% 37% 25% 26% 42% 32% 43% 37% 19% 44% 33% 23% 37% 44% 19% 33% 41% 26% 43% 32% 25% 10-25% Bandung 56% 43% 47% 43% 54% 43% 69% 29% 50% 44% 67% 31% 66% 34% More than 25%

Makassar 67% 27% 47% 47% 75% 67% 29% 61% 31% 66% 29% 48% 52%

Medan 53% 37% 47% 43% 60% 34% 59% 35% 51% 40% 61% 34% 38% 35% 27%

Surabaya 41% 53% 22% 70% 31% 66% 30% 66% 20% 59% 21% 28% 66% 45% 55%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Figure 28: Preference for Foreign brands by city

Jakarta 12% 66% 19% 2% Strongly Do Bandung 39% 57% 3% Not Prefer Makassar 10% 77% 13% Do Not Prefer Medan 60% 38% 2% Prefer Surabaya 31% 64% 4% Strongly Prefer 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Weightage

Figure 29: Prior experience with online purchasing by age

Age group, years 15-24 46% 54% Yes 25-34 41% 59% No 35-49 25% 75% 50-64 17% 83% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage

Figure 30: Top 3 reasons cited for not making online purchases by city

70% 61% 60%

50% 40% 40% 35% 33% 33% 30% 29% 27% 28% 24% 24% 20% 16% 13% 14% 10% 4% 5% 0% Jakarta Bandung Makassar Medan Surabaya

No credit card Don’t know how Not secure More expensive

20 Deloitte Retail Insights: Indonesia

21 Deloitte Retail Insights: Indonesia

For this edition of the report, the Deloitte Retail Insights screening exercise was conducted to shed light into some of the key aspects of Indonesia’s retail outlets.

Methodology 200 retail outlets across different categories – including Supermarkets/Hypermarkets, Minimarkets, Warungs and Wet Markets – were screened on product availability, shelf visibility and promotion types carried across nine product sub-categories:

Product category Sub-category Beverages • Beverages Confectionery • Chocolates Household Cleaning • Dish Washing • Laundry Care Packaged Food • Breakfast Cereal • Instant Noodle Personal Hygiene • Bath and Shower • Hair Care • Woman Sanitary Tobacco • Tobacco

22 Overview of retail screening

Figure 31: Geographical distribution of retail outlets

21.0% 20.0% Jakarta Bandung Makassar Medan 17.5% 20.5% Surabaya

21%

Figure 32: Types of retail outlets screened

25% Traditional Pasar*

38% Warungs

13% Minimarkets

Hypermarkets / Supermarkets 13%

13% Others**

* Includes Wet Markets and Street Hawkers ** Includes Convenience Store, which is a relatively minor retail outlet in Indonesia and does not exist in all cities. Minimarket is a localised/enlarged variation of Convenience Store.

Figure 33: Type of retail outlets screened by city

Jarkata 29% 43% 14% 14% 14% 40 Traditional Pasar* Warungs Surabaya 29% 43% 14% 14% 20% 42 Minimarkets Hypermarkets / Supermarkets Bandung 29% 43% 14% 14% 17% 41 Others** Medan 29% 43% 14% 14% 35

Makassar 29% 43% 14% 14% 20% 42

23 Key retail insights

A number of significant insights have been uncovered by the Deloitte Retail Insights screening exercise. Although Warungs have most widespread coverage across Indonesia, for example, the difficulty in obtaining a spot on an outlet’s limited shelf space may differ depending on the product in question.

But retail is not all just about brick and mortar stores anymore: the e-commerce channel, although still nascent in Indonesia, is increasingly becoming a channel to watch. As this screening exercise highlights, the role of the digital space may differ by location. While it could be a solution for traffic congestion in the metropolitan area of Jakarta, it can also solve the issues of access in other outlying cities.

24 1. Stocking behaviour

Size matters While the Warung has the most extensive area penetration and coverage in Indonesia, it is usually an independent, individual outlet that requires individually targeted order-taking and delivery of goods. These outlets are often located within the rural residential areas, making efficient distribution an issue. In addition, given its small store size and space, a Warung is unable to carry a large variety of products or brands and the limited shelf space available is already dominated by leading brands. In order to accommodate the limitations in space, Warung operators prefer to restrict the number of brands within categories that provide low margins, such as certain products in Beverages and Packaged Food, either because of their low absolute prices or because such products tend to require refrigeration.

Figure 34: Average number of brands on shelf for selected products by product category

Product category Wet Market Warung Minimarket Supermarket / Hypermarket Beverage  Fruit or Vegetable Juice 8 5 12 18 Confectionery  Chocolate 7 6 13 19 Household Cleaning  Dishwashing 2 2 3 6  Laundry Care 10 7 9 14 Package Food  Breakfast Cereal 4 3 6 9  Instant Noodle 7 5 10 15 Personal Hygiene  Baby Diaper 3 3 4 9  Bath and Shower 16 11 23 33  Hair Care 9 8 14 25  Woman Sanitary 3 3 4 6 Tobacco  Cigarette 12 12 13 17

25 Figure 35: Availability of different brands of beverages (Fruit or Vegetable Juice) by channel type

Fruit or Vegetable Juice brand Warungs Minimarkets Hypermarkets YOU C1000 56% 92% 88% Ale Ale 72% 60% 84% NutriSari 59% 72% 92% Frutang 64% 68% 68% Minute Maid 55% 80% 92% Buavita 45% 96% 52% ABC 21% 84% 96% Floridina 25% 60% 88% Vita Zone 21% 48% 80% Fruitamin 23% 44% 80%

The difference in stocking behaviour exhibited by Warung, Minimarket and Supermarket/Hypermarket operators can be illustrated by comparing the average number of brands on their respective shelves for Fruit or Vegetable Juice (Beverage), Woman Sanitary (Personal Care) and Cigarette (Tobacco). For example, an average of only five major Fruit or Vegetable Juice (Beverage) brands are available at Warungs, in contrast to the 12 brands at Minimarkets and 18 brands at Supermarkets/Hypermarkets. In the case of Woman Sanitary (Personal Care) and Cigarette (Tobacco), however, the gap between the different channels is closer. This is because these items tend to have higher prices and/ or smaller packages – that is, a higher price per volume – and hence are more attractive to stock from the perspective of a Warung operator.

Given their popularity amongst low and middle income consumers, Warungs and Minimarkets are key channels that companies should consider leveraging in their distribution structures to tap into the mass market. Each of these channels offers its own set of advantages, but these are often accompanied by unique challenges too. For instance, new entrants may find Minimarkets difficult to penetrate as it requires significant investments to not only ensure that a product is able to secure a spot amongst the limited shelf space, but also to garner visibility from that display position.

26 2. e-Commerce

More than just retail’s new storefront In addition to brick and mortar channels, e-commerce has also emerged as an alternative buying channel. According to the survey, about 35% of respondents have made an online purchase at least once, with consumers from the middle and higher income segments having higher likelihoods of making online purchases due to better Internet access and greater demands for convenience (see Figures 36 and 37). The younger demographic, consisting of 15-34 year-olds, are also more likely to make online purchases (see Figure 29).

Figure 36: Prior experience with online purchases by monthly household income level

Monthly household income, IDR million 1-2 2% 98% Yes 2-3 7% 93% No 3-5 17% 83% 5-7.5 29% 71% 7.5-10 43% 57% More than 10 61% 39% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage

Figure 37: Reasons for online purchases by monthly household income level

Monthly household income, IDR million 1-2 39% 14% 47% Practical 2-3 49% 15% 16% 16% 5% Price 3-5 44% 21% 9% 16% 7% 4% Product Range 5-7.5 40% 23% 21% 9% 5% 2% Promotion 7.5-10 44% 15% 20% 18% 3% Reliable Review More than 10 42% 18% 19% 12% 7% Others 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage

Price remains as a significant consideration for online shopping, but it is not the top reason. Instead, the Practical attributes of e-commerce has been cited by respondents as its key driver. This could be attributed to traffic congestion issues in major metropolitan areas, especially in Jakarta, which makes moving between different shopping locations time-consuming and inconvenient. In contrast, online shopping enables easy comparisons between different merchant offers from the comfort of consumers’ own homes.

But interestingly, it is the cities outside Jakarta which have seen stronger e-commerce growth as online retail allows consumers in these areas to purchase products from their favourite brands, usually in the Clothing and Footwear category, without having to wait for the brands to be available in their neighbourhood stores, and at more competitive prices.

27 Figure 38: Growth of online transactions in Indonesia (2013)

Kalimantan Others and Sumatera

370% 300%

Jan Jul Jan Jul

Kalimantan Sumatera

Java excluding Jakarta Jakarta Jakarta Java 370% 70%

Jan Jul Jan Jul

Source: Sales Data of Top Online Retailer Fashion Category in Indonesia 2013

This trend has prompted many well-established companies and start-ups, including Lazada Indonesia and Lippo Group, to launch online platforms for their e-commerce operations. Other innovative applications are also being introduced to leverage technology to serve the needs of local consumers. For example, Go-Jek utilises a mobile application platform, Global Positioning Systems, and motorcycle taxis to provide quick delivery services to consumers who purchase items from e-commerce sites as well as transportation services for commuters trying to circumvent Jakarta’s heavy traffic congestion.

Going places with Go-Jek Go-Jek is a start-up based in Jakarta that utilises ojek, or motorcycle taxis, to transport people and goods. Ojek is a unique method of transportation often seen in Indonesia as a solution to traffic congestion and as a means to access areas which are inaccessible on four-wheeled vehicles. Go-Jek differentiates itself with its transparent pricing and driver tracking systems, which assure customers of its security and reliability.

Go-Jek offers the following services through its mobile app: • Instant courier: Delivery of goods within 90 minutes to anywhere in the city • Transport: Move customers from one place to another on a motorcycle taxi • Shopping: Shop for and deliver food, tickets, medicines or anything under IDR 1 million and consumers pay with cash on delivery

Over 50 companies in Jakarta currently use Go-Jek’s services to deliver their products, documents and even their employees. For consumer business companies, this service can help bypass indirect distributors and reach customers in remote areas, including Warungs, as well as better understand customer buying patterns, exercise better control on the delivery cycle and cut costs.

28 Looking ahead

Many of the key trends revealed in the previous edition of the report remain valid – if not magnified – in this edition. The middle income consumer segment continues to grow in sophistication as their purchase considerations increasingly extend beyond merely price and basic functionality, and consumer business companies will need to find ways to provide segmented offerings and a variety of value propositions to cater to these needs. At the same time, they will need to develop a balanced channel and distribution strategy that effectively utilises both modern and traditional trade outlets, especially Minimarkets and Warungs, which remain key inroads to the masses. Engaging different consumer segments will also require different sets of tactics; for example, targeting the low income segments via traditional trade channels will require small packaging formats to ensure affordability and to accommodate the limited shelf space.

This edition of the report reveals three key insights. Firstly, there is a strong potential for growth in the four product categories of Confectionery, Household Cleaning, Packaged Food, and Tobacco. As their income levels increase and they gradually move into the middle income segment, many of the low income consumers have expressed their intention to increase spending in these product categories. Investments in building trust and the overall quality of the products will become critical to securing these consumers’ confidence as they become more affluent and price decreases in importance as a consideration when making the purchase decision.

Secondly, consumer business companies should capitalise on digital media and e-commerce to build balanced consumer engagement portfolios and to tap into a market that is ripe for expansion. Indonesia has some of the world’s most frequent and committed users of social media: it is the fourth largest market for Facebook with its 65 million registered users6 and the fifth most active market for Twitter. While TV and Word of Mouth remain the key channels for consumers seeking information on products, the real potential of digital media lies in the use of the platform for consumers to share their reviews and experiences with products or brands with one another. With the increasing Internet penetration rates, alternative means of consumer engagement and route-to-market channels have already been introduced and embraced in the major cities.

6 Jakarta Post: Facebook opens office in Jakarta

29 Figure 39: Number of broadband, Internet and mobile phone users in Indonesia (2013-2018f)

Million 440 434 416 420 397 Internet users 400 Mobile phone 378 380 subscription 357 Broadband 360 subscription 324 340 81 80 73 66 60 60 53 46 40

20 9 4 4 5 6 8 0 2013 2014 2015f 2016f 2017f 2018f

Source: Economist Intelligence Unit

Finally, consumer business companies need to look beyond the major metropolitan area of Jakarta and towards other fast-growing cities with higher historical growth rates, such as Pekanbaru, Samarinda and Makassar. Optimistic about the future economic outlook, consumers in cities like Bandung and Makassar have also expressed high interest in increasing their expenditures. Nevertheless, given the differing levels of urbanisation across Indonesia, the propensity to spend will vary between consumers from the different regions. Companies looking at extending their presences into these areas must first understand the geographical nuances and tailor their strategies accordingly, at least in a tactical sense, in order to reap the rewards.

Figure 40: Top 10 fastest-growing cities in Indonesia

21.8% 18.5%

GRDP 14.3% 14.2% GRDP CAGR CAGR (2009-2013) (2009-2013) 17.1% Samarinda Pekanbaru Bandar Palembang Lampung Percentage of GRDP 0.5% CAGR Percentage of Indonesia’s GDP 0.9% 0.4% 1.0% (2009-2013) Indonesia’s GDP Sulawesi Makassar Percentage of (5%) 0.8% Indonesia’s GDP Kalimantan Sumatra (9%) (24%)

Other island (4%) Java (58%) 16.7% 16.4% 13.8% 13.4% 13.3% GRDP CAGR (2009-2013) Bandung Surabaya South Depok Jakarta Tanggerang Percentage of 1.7% 4.0% 0.2% 0.3% 16.5% Indonesia’s GDP

Source: Indonesia Bureau of Statistics

30 Capturing Indonesia’s latent markets

Indonesia remains one of the most attractive emerging markets for consumer business companies in the region with its large population, rapidly growing middle class, and increasing urbanisation. But winning in this market will be not be easy, mainly because of the vast diversity of the markets, heterogeneous mix of modern and traditional trade outlets and challenging distribution channels.

For consumer business companies, Indonesia possesses three promising, latent markets: the increasingly sophisticated middle class that is growing in size, digital consumers, as well as consumers in cities outside the metropolitan area of Jakarta. Capturing each of these different markets will require a unique set of tailored strategies.

It will be crucial for consumer business companies who wish to capitalise on the changing spending patterns to capture the burgeoning and newly minted middle income segment while, at the same time, maintaining a stronghold amongst the low income consumers who still account for the majority of Indonesia’s population. This will require a carefully calibrated set of modern and traditional trade channels, with the former targeted at the middle to high income consumers, and the latter at the mass market. Companies would also do well to focus on improving the overall quality of their products and other intangibles such as brand and trust, in order to capture the mindshare of consumers as they become less price-sensitive and more sophisticated in their purchasing decisions.

With the rise of the digital consumer, consumer business companies need to explore the possibilities that digital media and other new technologies offer. For some, this could mean setting up online storefronts to offer consumers a set of value propositions that were previously unavailable to them, such as early access to the latest season’s fashion in remote areas. Others may prefer to leverage technology in their operations as a solution to logistical challenges, such as congestion.

While Jakarta continues to be Indonesia’s largest metropolitan area, many of its other cities are now ripe for growth. Exhibiting higher growth rates and consumer optimism, these regions present consumer business companies with the opportunity for accelerated growth, and, perhaps more importantly, the potential to obtain a first- mover advantage – that is, if they act fast, and act now.

31 Appendix

Figure 1: GDP of Southeast Asia Countries Indonesia has the largest economy in SEA, contributing to 37% of SEA GDP.

USD billion 2,500 2,337 2,264 2,136

2,000 1,846 Indonesia 39% 37% 40% 1,489 1,500 1,395 38% 13% Malaysia 38% 13% 37% 14% 13% Singapore 1,000 13% 13% 14% 13% 17% 13% Thailand 13% 17% 14% 16% 500 17% 16% 18% Cambodia, Lao PDR, 20% 19% 20% Philippines and 18% 18% 14% 20% Vietnam 0 2008 2009 2010 2011 2012 2013

Source: The Economist, World Bank, Badan Pusat Statistik Indonesia

Figure 2: Forecasted GDP of Indonesia Indonesia is forecasted to experience significant growth with its GDP doubling to USD 1.7 trillion in 6 years’ time in 2020.

USD billion 1,800 1,700

1,600

1,400 +100.9% 1,172 1,200

1,000 846

800

600 +229.2% 539

400 257 200

0 2004 2009 2014 2017f 2020f

Source: The Economist, World Bank, Badan Pusat Statistik Indonesia

32 Figure 3: Percentage of Indonesian urban population by province Urbanisation is taking place across Indonesia. Percentage point Population change (2010-2015) (Million) DKI Jakarta 100% - 10.2 East Java 51% 49% +3.5 38.8

a West Java 73% 27% +7.2 46.7 v a J Central Java 48% 52% +2.7 33.8 Banten 68% 32% +0.7 12.0 DI Yogyakarta 71% 30% +4.1 3.7 Riau 40% 60% +0.4 6.3 North Sumatra 53% 47% +3.4 13.9 South Sumatra 37% 64% +0.7 8.1 Lampung 28% 72% +2.6 8.1 r a t West Sumatra 44% 56% +5.5 5.2 +2.4 5.0 u m a Aceh 31% 70% S

P +0.2 2.0

R Riau Islands 83% 17% D

G Jambi 32% 68% +1.3 3.4

n d Bangka Belitung Islands 53% 48% +3.3 1.4 a l s i Bengkulu 32% 68% +0.7 1.9

n g +2.8 4.1 n East Kalimantan 66% 34% a n d i e

n t +2.9 4.8

c West Kalimantan 33% 67% s

m a +3.0 i 4.0 l

D e South Kalimantan 45% 55% a

K Central Kalimantan 37% 63% +3.1 2.5 South Sulawesi 41% 59% +3.9 8.5 Central Sulawesi 27% 73% +2.9 2.9 i s e North Sulawesi 50% 50% +4.6 2.4 w a Southeast Sulawesi 31% 69% +3.8 2.5 u l S West Sulawesi 23% 77% - 1.3 Gorontalo 39% 61% +5.0 1.1 Bali 66% 35% +5.3 4.2 Papua 28% 72% +2.4 3.1 +3.7 4.8

r s West Nusa Tenggara 45% 55%

h e +2.4 0.9

t West Papua 32% 68% O East Nusa Tenggara 22% 78% +2.3 5.1 Maluku 38% 62% +0.9 1.7 North Maluku 28% 72% +0.7 1.2 Urban Rural Note: Provinces in bold have higher than average urbanisation growth

Source: Badan Pusat Statistik Indonesia

33 Contact us

For more information on these insights, please contact:

Eugene Ho Executive Director Consulting +65 9670 2040 [email protected]

Stanley Song Director Consulting +62 21 2992 3100 (ext 30307) [email protected]

Kavita Rekhraj Director Consulting +60 376 109 006 [email protected]

34 Southeast Asia Consumer Business Practice

Southeast Asia and Singapore Industry Leader Eugene Ho Executive Director +65 9670 2040 [email protected]

Guam Audit Mike Johnson Tenly Widjaja Partner Partner +1 671 646 3884 +62 21 2992 3100 ext.31893 [email protected] [email protected]

Indonesia Consulting Jose Sabater Eugene Ho Partner Executive Director +62 21 2992 3100 ext.33591 +65 9670 2040 [email protected] [email protected]

Malaysia Enterprise Risk Services Jeffrey Soo Jose Sabater Partner Partner +60 376 108 856 +62 21 2992 3100 ext.33591 [email protected] [email protected]

Philippines Financial Advisory Bonifacio Lumacang Ng Jiak See Partner Executive Director +63 2581 9067 +65 6531 5088 [email protected] [email protected]

Thailand Tax Manoon Manusook Robert Tsang Partner Partner +66 2 676 5700 ext. 5101 +65 6530 5523 [email protected] [email protected]

Vietnam Nguyen Vu Duc Partner +84 462 883 568 [email protected]

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