Brand owners adapt in Indonesia

25 July 2012

JAKARTA: Companies like Unilever, Nestlé and Heinz are aiming to serve poorer consumers in Indonesia, an audience seen as offering major future growth opportunities.

Nestlé, the food group, is launching Crunch wafers, a line developed for these shoppers, and costing ¢10 per pack. This seeks to build on the success of its Milo chocolate sports drink mix, available for the same amount.

To keep costs down, Nestlé has utilised similar manufacturing techniques for Crunch as for its cereals. As the wafers do not melt or crumble, they are also easy to store and transport.

Arshad Chaudhry, president director of Nestlé Indonesia, which generates over $1bn in revenues, told the Wall Street Journal: "It's a very important product for the bottom of the pyramid."

Individuals with an income of less than $4 per day make up 80% of Indonesia's 248m residents, and deliver 60% of household spending, or roughly $230bn.

Even if the economy expands at over 7% per year, lower-tier shoppers will still comprise 73% of the populace by 2020, and log an expenditure of $400bn per year, according to figures from Standard Chartered.

"The poor are a more reliable consumer group than the middle class," Nirgunan Tiruchelvam, an analyst at the company, said.

Unilever, the FMCG manufacturer, has enjoyed an average growth rate of some 22% in the last five years, a figure standing at 17% in 2009, when the financial crisis reached a peak.

The firm is expected by analysts to invest more than $100m in the coming two years in developing more goods for buyers with limited discretionary spending power.

"At the times when consumers' confidence was low and buying power was decreasing, we continued coming up with innovations that increase relevance, made our products more affordable and even money-saving," said Sancoyo Antarikso, corporate secretary of PT Unilever Indonesia.

Heinz, the US food group, has enjoyed 22% growth in Indonesia over the last two years, and sells sachets of shrimp paste, as well as tomato, oyster, soy and chilli sauces, for less than ¢3. Larger packs are available for ¢22.

Christopher Warmoth, its executive vice president for Asia, suggested this type of price "tiering" allows the organisation to "address affordability ... within a brand".

"This sort of skewed proliferation might not be possible in developed markets, but it is critical in a population as economically diverse as Indonesia and where the trade is very fragmented, too," he added.

Data sourced from Wall Street Journal; additional content by Warc staff