Indonesian shoppers offer growth

17 May 2012

JAKARTA: Brand owners in the FMCG sector could gain meaningful benefits by serving "bottom of the pyramid" buyers in Indonesia, new research has suggested.

Standard Chartered, the financial services provider, reported that over half of all spending on consumer goods in the country is delivered by individuals earning less than $4 a day.

Nirgunan Tiruchelvam, an analyst at Standard Chartered, thus argued that the considerable attention which has been paid to the middle classes may result in a major opportunity being missed.

"The rise of the middle class has been touted as the driver of consumer growth in Asia," he said, reported in the Financial Times. "The poor are a more reliable consumer group than the middle class."

"The companies targeting [the poorest shoppers] do not suffer due to fickle changes in consumer behaviour, as do companies targeting middle and upper class consumers."

Utilising a categorisation of "poor" individuals as those with earnings of under $4 a day in 2005 purchasing power terms, Standard Chartered stated this audience yielded 58% of household spending in 2010, and made up 82% of the population, which stands at 240m.

By 2020, the same demographic should have shrunk slightly to make up 75% of the country's citizenry and 51% of value sales, as rising affluence starts to reshape the potential customer base.

Moreover, Standard Chartered revealed that many of Indonesia's middle class shoppers earn between $4 and $5 per day, so that they only just meet this definition.

As a consequence, demand for goods appealing to this cohort, such as motorcycles, has seen a faster improvement than, say, passenger cars, which are more expensive.

Given these trends, Tiruchelvam asserted that products like instant noodles, bread, soap, inexpensive apparel and other offerings for entry-level buyers are still likely to generate significant volume sales.

A previous study published by McKinsey, the consultancy, found that 35% of Indonesian residences had an income of $6.75 per day in 2020. It also predicted the middle class would see growth of up to 20% by 2015.

Data from Bloomberg, the information provider, showed 30 of Indonesia's most valuable firms saw their combined net income rise by 1.4% to $3.5bn in the first quarter of 2012, led by consumer goods manufacturers.

Data sourced from Financial Times; additional content by Warc staff