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

At Khmer Rouge Court, Long-Awaited Verdict Approaches

First phase of trial, which is coming to an end, has focused on forced exodus of Phnom Penh in 1975 - and now many are hopeful justice will be served More

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities More

Video Information War Rages Alongside Real One in Ukraine

Downing of Malaysian airliner, allegations of cross-border shelling move information war in war-torn country to a new level More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Information War Rages Alongside Real One in Ukrainei
X
Al Pessin
July 31, 2014 8:13 PM
The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video Information War Rages Alongside Real One in Ukraine

The downing of the Malaysian airliner two weeks ago, and allegations that Russians are shelling Ukrainian troops across the border, have moved the information war swirling around the Ukrainian conflict to a new level. VOA's Al Pessin reports from Kyiv.
Video

Video When Fighting Eases, Gazans Line Up at Bakeries

When there is a lull in the conflict in Gaza, residents who have been hunkered down in their apartments rush out to stock up on food and other necessities. Probably the most important destination is the local bakery. VOA’s Scott Bobb reports from Gaza City.
Video

Video US-Funded Program Offers Honduran Children Alternative to Illegal Immigration

President Obama and Central American leaders recently agreed to come up with a plan to address poverty and crime in the region that is fueling the surge of young migrants trying to illegally enter the United States. VOA’s Brian Padden looks at one such program in Honduras - funded in part by the United States - which gives street kids not only food and safety but a chance for a better life without, crossing the border.
Video

Video 'Fab Lab' Igniting Revolution in Kenya

The University of Nairobi’s Science and Technology Park is banking on 3-D prototyping to spark a manufacturing revolution in the country. Lenny Ruvaga has more for from Nairobi's so-called “FabLab” for VOA.
Video

Video Gazans in Shelled School Sought Shelter

Israel's air and ground assault against Hamas-led fighters in Gaza has forced many Palestinians to flee their homes, seeking safety. But safe places are hard to find, as VOA’s Scott Bobb reports from Jabaliya.
Video

Video Rapid Spread of Ebola in West Africa Prompts Global Alert

Across West Africa, health officials are struggling to keep up with what the World Health Organization describes as the worst ebola outbreak on record. The virus has killed hundreds of people this year. U.S. President Barack Obama and other world leaders are watching the developments closely as they weigh what actions, if any, are needed to help contain the disease.
Video

Video Michelle Obama: Young Africans Need to Embrace Women's Rights

U.S. first lady Michelle Obama urged some of Africa's best and brightest to advocate for women's rights in their home countries. As VOA's Pam Dockins explains, Obama spoke to some 500 participants of the Young African Leaders Initiative, a six-week U.S.-based training and development program.
Video

Video Immigrant Influx on Texas Border Heats Up Political Debate

Immigrants from Central America continue to cross the U.S.-Mexico border in south Texas, seeking asylum in the United States, as officials grapple with ways to deal with the problem and provide shelter for thousands of minors among the illegal border crossers. As VOA's Greg Flakus reports from Houston, the issue is complicated by internal U.S. politics and U.S. relations with the troubled nations that immigrants are fleeing.
Video

Video Study: Latino Students Most Segregated in California

Even though legal school segregation ended in the United States 60 years ago, one study finds segregation still occurs in the U.S. based on income and race. The University of California Los Angeles Civil Rights Project finds that students in California are more segregated by race than ever before, especially Latinos. Elizabeth Lee reports for VOA from Los Angeles.

AppleAndroid