JAKARTA: Soft drink brands in Indonesia are facing increased competition in a slowing economy but are continuing to invest because of the country's long-term potential.

The market is currently dominated by Coca-Cola and Danone but the speed at which this can change is evident in the meteoric rise of Peruvian business AJE, whose Big Cola brand has gained one third of the market in just four years, helped by the fact that it sells for around 25% less than Coke.

"There's an increasing level of competitive intensity and with the soft drink production capacity doubling in the next five to eight years, this will be a tough place to be," Nader Elkhweet, a partner at management consultancy Bain & Company in Jakarta, told the Financial Times.

But the attraction of an expanding middle class and a predominantly young demographic – half of the country's 250m population is under 30 years old – means that Indonesia is seen as a significant market with growth potential.

According to Alison Watkins, managing director of Coca-Cola Amatil, which bottles Coke in the country, "Indonesia is a tremendously important market for The Coca-Cola Company and they regularly refer to it in same breath as China and India".

Danone, meanwhile, is building new plants as it seeks to maintain its market-leading position in bottled water: its Aqua brand generates more sales for the company in Indonesia alone than its Evian brand does globally.

In addition to the threat from rivals, both face the challenge of an economy growing more slowly than at any time in the past five years, while consumers are also being hit with the removal of fuel subsidies which adversely affects their purchasing power.

According to Elvira Tjandrawinata, head of research for Nomura in Indonesia, "There is a lot more competition but people are maybe only buying snacks and drinks once a day instead of twice a day now".

She predicted that revenue growth for consumer goods companies would halve to around 10% over the next three years.

Data sourced from Financial Times; additional content by Warc staff