The mighty Indonesian consumer

  • Indinesia - southeast asia's economic locomotive
  • The mighty indonesian consumer
  • The allure of indonesia for foreign investment

There is no stopping the Indonesian consumer. While most of the world’s consumers are slowing down, Indonesia’s consumers are carrying on pushing household spending up 5% year on year. According to the research company Capital Economics, the main factor driving growth was domestic demand which is supported by strong wage growth, rising employment and high consumer confidence.

Undeniably, Indonesia, like many Asian counterparts, has experienced an explosion of its middle class. Indonesian per-capita income is about US$3.000 per year. It has been observed that a middle class household is characterised by annual income exceeding US$10,000. The proportion of Indonesian households enjoying such incomes rose from 2.9% in 2004 to 8.7% in 2009. That represents a potential market of 23 million consumers coming from the middle class. Moreover the projection indicates that this population segment should double in the next five years, making Indonesia a very attractive market for consumer goods.

One of the contributing factors to the force of the Indonesian consumer is rapid urbanisation, a trend that is set to continue on the upturn. The emerging middle class lives and works in urban surroundings, particularly in such major cities as Jakarta and Surabaya. The proportion of Indonesians living in urban areas could reach 71% in 2030, up from 53% today, as an estimated 32 million people move from rural to urban areas.1

These developments give rise to new forms of demand. Indonesians are beginning to spend more on products and services going beyond basic needs. The proportion of spending on food and beverages declined by about 20% in the last 10 years, whereas expenditures on housing, services, communications and entertainment are rising rapidly.

The fact that the population is youthful – around 30% of people are aged under 15 while only around 6% are over 65 2 – also offers the economy a potential demographic dividend. The young and expanding population could total 280 million by 2030, up from 240 million today. This group of spending consumers is characterised by unmarried young professionals or students coming from the middle class. Being sensitive to the latest tendencies and eager for new products, they spend on entertainment, going out, fashion and more broadly on “lifestyle” consumption. They do not hesitate to share their experiences and opinions concerning brand names, and the grapevine is becoming ever more effective thanks to the rapid democratisation of the Internet and of social media.

1 Source: The archipelago economy: Unleashing Indonesia’s potential, McKinsey Global Institute, September 2012
2 Source: “Industry Report, Consumer Goods and Retail: Indonesia”, Economist Intelligence Unit, May 2011
Overall source: Hong Kong Trade Development Council (February 2011)