News / Asia

Consumer Confidence in Indonesia Growing

Employees prepare their clothes stall as they wait for customers at a shopping centre in Jakarta, August 6, 2012.
Employees prepare their clothes stall as they wait for customers at a shopping centre in Jakarta, August 6, 2012.
Sara Schonhardt
JAKARTA — Indonesia's economy has surprised many experts this year by growing at one of the fastest rates among the world’s top economies. Despite a slump in exports due to lower demand from Europe and China, Indonesians are propping up the economy through massive spending on cars, cosmetics and instant noodles.
 
Rows of saccharine syrup sit beneath flags advertising promotions at Lotte Mart, one of several hypermarkets in Indonesia, selling everything from toys to clothing to groceries.
 
The promotions coincide with Eid al-Fitr, the end of the Islamic fasting month of Ramadan. For one month Muslims here abstain from food and drink from dawn to dusk, marking the fast breaking with elaborate, food-filled parties. They also buy new clothes, and increasingly, new cars and electronics.
 
The shopping frenzy marking this year’s festivities highlights how quickly Indonesia’s economy is growing. A rapidly rising middle class is spending more on gadgets and personal care products and shopping more at department stores and hypermarts.
 
Farrah Aldino, a 26-year-old mother of two children, has filled her cart at Lotte Mart with packets of cookies and chocolate snacks. She says her family’s personal finances still fluctuate, but her husband’s monthly salary is enough to meet their needs.
 
She says she often shops at hypermarts because the price is lower and there are many goods in one place.
 
The World Bank says more than 50 million people entered Indonesia’s middle class between 2003 and 2010. While the majority still spends between $2 and $4 a day, wealth is rising rapidly.
 
Xavier Jean, a corporate ratings analyst at Standard & Poor’s in Singapore, says food products and cosmetics are being targeted toward the middle class that can afford to spend more. But companies are also making an effort to reach low-income households.
 
“You see a lot more effort on the company’s side to make their products more widely available, more affordable and calibrate to these different incomes levels,” says Jean.
 
Some analysts predict that Indonesia’s middle class will grow to 150 million people in the next two years. Major foreign brands have taken note, and they are betting on that growth to support sales of diapers, toothpaste and instant noodles.
 
Unilever, Nestle and Danone have all seen their profits rise in recent years, while success at local department store chain Matahari has attracted investors from Thailand and Malaysia. Jean says established food retailers such as McDonald's and Dunkin Donuts have also seen strong growth.
 
“On the retail side, modern retailing formats, such as supermarkets, convenience stores, chains like Starbucks, department stores and so on are also growing in importance in Indonesia and high-profile brands such as IKEA have expressed willingness to enter the market in the next couple of years," added Jean.
 
Strong domestic consumption and rising investments are the main factors supporting Indonesia’s economy. Consumer spending accounts for around two-thirds of the economy, while investment makes up much of the rest.
 
Despite a drop in exports and rising inflation, second quarter GDP beat expectations, growing by 6.4 percent above the same period last year.
 
Industries seeing the most benefit are consumer goods companies, convenience stores and the automotive industry. Car sales have posted consistent growth throughout the year, with more than 102,000 cars sold in July, according to the Indonesian Automotive Industry Association.
 
Outside Indonesia’s major cities and among the sizeable low end of the middle-income segment, purchasing decisions focus more on daily needs. These buyers are the ones most likely to get hit by rising inflation. In recent months prices for corn, wheat and soybeans have spiked, thanks in part to persistent drought in the United States.
 
But analysts at the market research firm Roy Morgan say so far the price hikes seem to have had little impact on consumer confidence, which is at an all-time high.
 
The reason, they say, is a strong economy, rising wages and more widely available credit. A shift away from jobs in lower-paid sectors, such as agriculture, also increases disposable incomes.
 
Newfound purchasing power is changing spending habits among the world’s fourth-largest consumer market. Consumer analysts say Indonesians are moving away from unbranded goods to higher quality, recognizable brands. 
 
The huge number of  young buyers, below the age of 30, is also having an impact on marketing. Astri Permatasuri, the head of marketing and communications at Plaza Indonesia Mall in Jakarta, says the firm is hoping to appeal to shoppers with the finances to buy on a whim.
 
"The economic growth in Indonesia is very good, so as you can see it also affects the consumer behavior toward shopping. Indonesians are very known as impulsive buyers … like, ‘what’s the trend, we have to get it’,” says Permatasuri.
 
Plaza Indonesia is Jakarta’s first high-end shopping mall, with brands like Louis Vuitton and Balencia. It is also expanding its target market to the under 35 age group, with fashion labels such as Zara and Mango.
 
Permatasuri says she expects that demographic to have higher buying power in the future, and the idea is to target them early.
 
Despite such confidence about strong domestic spending, some analysts worry that Indonesia’s fiscal foundations remain shaky.
 
A recent report by Standard & Poor’s said infrastructure constraints and efforts to tame credit will keep Indonesia’s consumer goods sector from growing at a more rapid pace in the coming years. Meanwhile, increasing competition could limit revenue growth among companies.
 
“The growth potential of Indonesia has attracted a lot of investment in the consumer sector, both domestic and from abroad," says Jean. "So as more entrants in the market are coming the market is getting more and more crowded progressively.”
 
That is good news for consumers, who get more choices and better prices. And it is likely to keep the wheels of Southeast Asia’s largest economy spinning as growth engines elsewhere start to stall.

You May Like

China May Be Biggest Winner From Ukraine Crisis

Missile sales, oil and gas shipments are among many areas that may drive Beijing and Moscow closer together in coming years More

Obama Faces Chaotic World, Limits of Power

Current foreign policy issues bring into focus challenges for US policymakers who are mindful of Americans' waning appetite for overseas military engagements More

SADC Meeting Lesotho Officials to Resolve Stalemate

Official says regional bloc has been engaged with leaders in Lesotho to resolve political disagreement that led to coup attempt More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
West Africa Ebola Vaccine Trials Possible by Early 2015i
X
Carol Pearson
August 30, 2014 7:14 PM
A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video West Africa Ebola Vaccine Trials Possible by Early 2015

A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video Survivors Commemorate 70th Anniversary of Nazi Liquidation of Jewish Ghetto

When the German Nazi army occupied the Polish city of Lodz in 1939, it marked the beginning of a long nightmare for the Jewish community that once made up one third of the population. Roughly 200,000 people were forced into the Lodz Ghetto. Less than 7,000 survived. As VOA’s Kane Farabaugh reports, some survivors gathered at the Union League Club in Chicago on the 70th anniversary of the liquidation of the Lodz Ghetto to remember those who suffered at the hands of the Nazi regime.
Video

Video Cost to Raise Child in US Continues to Rise

The cost of raising a child in the United States continues to rise. In its latest annual report, the U.S. Department of Agriculture says middle income families with a child born in 2013 can expect to spend more than $240,000 before that child turns 18. And sending that child to college more than doubles that amount. VOA’s Deborah Block visited with a couple with one child in Alexandria, Virginia, to learn if the report reflects their lifestyle.
Video

Video Chaotic Afghan Vote Recount Threatens Nation’s Future

Afghanistan’s troubled presidential election continues to be rocked by turmoil as an audit of the ballots drags on. The U.N. says the recount will not be completed before September 10. Observers say repeated disputes and delays are threatening the orderly transfer of power and could have dangerous consequences. VOA correspondent Meredith Buel reports.
Video

Video Ukraine Battles Pro-Russia Rebel Assault

After NATO concluded an emergency meeting to discuss the crisis in eastern Ukraine, the country is struggling to contain heavy fighting near the strategic port of Mariupol, on the Azov Sea. Separatist rebels are trying to capture the city, allegedly with Russian military help, and Ukraine's defense forces are digging in. VOA's Daniel Schearf spoke with analysts about what lies ahead for Ukraine.
Video

Video Growing Business Offers Paint with a Twist of Wine

Two New Orleans area women started a small business seven years ago with one thing in mind: to help their neighbors relieve the stress of coping with a hurricane's aftermath. Today their business, which pairs painting and a little bit of wine, has become one of the fastest growing franchises across the U.S. VOA’s June Soh met the entrepreneurs at their newest franchise location in the Washington suburbs.
Video

Video Ebola Vaccine Trials To Begin Next Week

The National Institutes of Health says it is launching early stage trials of a vaccine to prevent the Ebola virus, which has infected or killed thousands of people across West Africa. The World Health Organization says Ebola could infect more than 20,000 people across the region by the time the outbreak is over. The epidemic has health experts and governments scrambling to prevent more people from becoming infected. Zlatica Hoke has more.
Video

Video Asian Bacteria Threatens Florida Orange Trees

Florida's citrus fruit industry is facing a serious threat from a bacteria carried by the Asian insect called psyllid. The widespread infestation again highlights the danger of transferring non-native species to American soil. VOA’s George Putic reports.
Video

Video Aging Will Reduce Economic Growth Worldwide in Coming Decades

The world is getting older, fast. And as more people retire each year, fewer working-age people will be there to replace them. Bond rating agency Moody’s says that will lead to a decline in household savings; reducing global investments - which in turn, will lead to slower economic growth around the world. But experts say it’s not too late to mitigate the economic impact of the world’s aging populations. Mil Arcega has more.
Video

Video Is West Doing Enough to Tackle Islamic State?

U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Coalition to Fight Islamic State Could Reward Assad

The United States along with European and Mideast allies are considering a broader assault against Islamic State fighters who have spread from Syria into Iraq and risk further destabilizing an already troubled region. But as VOA State Department Correspondent Scott Stearns reports, confronting those militants could end up helping the embattled Syrian President Bashar al-Assad.
Video

Video Made in America Socks Get Toehold in Online Fashion Market

Three young entrepreneurs are hoping to revolutionize the high-end sock industry by introducing all-American creations of their own. And they’re doing most of it the old-fashioned way. VOA’s Julie Taboh recently caught up with them to learn what goes into making their one-of-a-kind socks.
Video

Video Americans, Ex-Pats Send Relief Supplies to West Africa

Health organizations from around the world are sending supplies and specialists to the West African countries that are dealing with the worst Ebola outbreak in history. On a smaller scale, ordinary Americans and African expatriates living in the United States are doing the same. VOA's Carol Pearson reports.

AppleAndroid