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

Video Afghan Refugees Complain of Harassment in Pakistan

Afghan officials and human rights organizations assert that Pakistani authorities are using deadly attack at school in Peshawar as pretext to push out Afghan refugees More

At Boston Bombing Hearing, Sides Spar Over Boat

At final pre-trial hearing, lawyers for suspect Dzhokhar Tsarnaev, prosecutors disagree on whether vessel where he hid from police can be shown to jurors More

Iran Judiciary 'Picks' Lawyer for Detained WP Reporter

Masoud Shafii has been attempting to secure official recognition as Rezaian’s attorney, but is not allowed to see his client in prison More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US Supreme Court Hears Hijab Discrimination Casei
X
Katherine Gypson
February 25, 2015 11:30 PM
The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video US Supreme Court Hears Hijab Discrimination Case

The U.S. Supreme Court has heard opening arguments in a workplace religious discrimination case that examines whether a clothing store can refuse to hire a young woman for wearing the headscarf she says is a symbol of her Muslim faith. Katherine Gypson reports from the Supreme Court.
Video

Video Falling Gas Prices Hurt Nascent Illinois Hydraulic Fracturing Industry

Falling oil prices are helping consumers purchase cheaper petroleum at the pump. But that’s made hydraulic fracturing or “fracking” less economically viable for the companies in the United States invested in the process. VOA’s Kane Farabaugh reports on one Midwestern town that was hoping to change its fortunes by cashing in on the next big U.S. oil boom.
Video

Video Fighting in Sudan's South Kordofan Fuels Mass Displacement

Heavy fighting in Sudan's South Kordofan state is causing hundreds of thousands to flee into uncertain conditions. Local aid organizations estimate as many as 400,000 civilians have been internally displaced since the conflict began more than three years ago, while another 250,000 have fled across the border to refugee camps in South Sudan. VOA's Adam Bailes reports.
Video

Video Lao Dam Project Runs Into Opposition

A Lao dam project on a section of the Mekong River is drawing opposition from local fishermen, international environmental groups and neighboring countries. VOA's Say Mony visited the region to investigate the concerns. Colin Lovett narrates.
Video

Video A Filmmaker Discovers Her Biracial Identity in "Little White Lie

Lacey Schwartz grew up in an upper middle-class Jewish family, in a town in upstate New York where almost everyone she knew was white. She assumed that she was, as well. Her recent documentary, Little White Lie, tells the story of how she uncovered the secret of her true racial background. VOA’s Carolyn Weaver has more on the film.
Video

Video Deep Under Antarctic Ice Sheet, Life!

With the end of summer in the Southern hemisphere, the Antarctic research season is over. Scientists from Northern Illinois University are back in their laboratory after a 3-month expedition on the Ross Ice Shelf, the world’s largest floating ice sheet. As VOA’s Rosanne Skirble reports, they hope to find clues to explain the dynamics of the rapidly melting ice and its impact on sea level rise.
Video

Video US-Cuba Normalization Talks Resume Friday

Negotiations aimed at normalizing diplomatic relations between the U.S. and Cuba resume Friday. On the table: lifting a half-century trade embargo and easing banking and travel restrictions. There's opposition in Congress, but some analysts say there may be sufficient political and economic incentives in both nations for a potential breakthrough this year. VOA's Mil Arcega reports.
Video

Video Pakistan's Deadline For SIM Registration Has Cellphone Users Scrambling

Pakistani cell phone users have until midnight Thursday to register their SIM cards, or their service will be cut off. While some privacy experts worry about government intrusion, many Pakistanis are just worried about keeping their phone lines open. VOA Deewa reporter Arshad Muhmand has more from Peshawar.
Video

Video Myanmar Warns Factory Workers to End Strikes

Outside Myanmar's main city Yangon, thousands of workers walked off their jobs earlier this month demanding a doubling of their wages, pay raises after a year and input from labor unions on industrial regulations. Since Friday, the standoff has grown more tense as police moved in to disrupt the sit-ins, resulting in clashes that injured people from both sides. VOA correspondent Steve Herman visited industrial zones which have become a focus of Myanmar's fledgling workers rights movement.
Video

Video Oscar Winners Do More Than Thank the Academy

The Academy Awards presentation is Hollywood’s night to reward the best movies from the previous year. It’s typically a lot of glitter, a lot of thank you’s, a lot of speeches. But many of this year’s speeches carried messages beyond the thank you's. VOA’s Carolyn Presutti takes a look.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More