Analysis of the different types of Consumers

Indonesia has been experiencing a steady growth rate for the past few years,
which has translated into rising incomes (including disposable income), which
has increased overall household spending. As many low-income Indonesian
consumers continue to move into the middle-income segment, their
consumption habits and product choices are becoming increasingly
sophisticated. While this means an expected increase in spending across many
industries, companies also need more differentiated and segmented product
offerings to attract these new consumers. Although traditional retail channels
still dominate the market, modern retail continues to gain momentum, fueled by
the growth of neighborhood businesses. The Indonesian retail market is
characterized by its immense size. While this provides myriad opportunities for
consumer businesses in the form of a huge and ever-expanding middle class,
digital consumers, as well as rapidly urbanizing cities outside of Jakarta, a
number of challenges, such as the high cost of service across the vast
archipelago - still exists.
Therefore, the population in Indonesia can be divided into two groups based on
their income level: those with low-middle and low incomes, and those with
medium and high incomes. The first group is the largest and, although they like
to consume, their purchasing power limits and conditions their spending
decisions. On the other hand, the middle- and upper-income group tends to
depend on factors such as the political situation, changes in regulations or the
fluctuation of the exchange rate.
Also, in recent years, there has been a significant increase in purchasing power
and household spending, for which the middle class has expanded significantly.
When referring to the middle class, the World Bank includes 130 million
Indonesians spending more than US$2 a day. Meanwhile, the working class
can total between 50 and 70 million people; while the segment with high
purchasing power – with a purchasing power of more than US$750/month –
accounts for 2.5 million consumers.
Due to the minority with high purchasing power, there is a market for high-end
or luxury products, but in general terms, the greatest growth potential stands out
in the medium and medium-high quality segments, due to their greater potential
size and habits. of consumption. Although imported goods normally have higher
prices, the consumer is sensitive and seeks to have an optimal quality / price
ratio. The seasons of greatest demand coincide with the last weeks of
Ramadan, with a notable drop in sales after the end of this celebration (Idul –
Fitri Festivals), followed by the last weeks of the year. In addition, commercial
campaigns may take place on other holidays such as the Chinese New Year.
The development of new distribution channels has been related in recent years
to the center of Jakarta, constituency of Greater Jakarta, where there are the
greatest opportunities for imported products. However, in economic centers,
where the presence of large shopping centers is even less, such as Surabaya,
Bandung, Semarang, Medan, Balikpapan or Makassar, there are opportunities
for products of a lower range.
Consumer behavior:
Proximity retailing is one of the top consumer trends. In the first place,
consumers began to frequent the establishments closest to their home, such as
convenience stores, but currently the one leading this trend of greater
accessibility is electronic commerce, with mobile commerce as the main
reference. Contrary to what one might think, this trend is not related to
purchasing power, but to the advancement of technology. In fact, it could be
said that the Indonesian consumer becomes more economical as he becomes
more knowledgeable. Higher-income consumers are holding back on their
purchases of goods to spend more on leisure and lifestyle.
There is also a growing consumer understanding of the importance of saving
and investing. Restaurants are knowing how to take advantage of these new
trends. According to Euromonitor, the annual growth rate between 2014 and
2019 stands at 6.5%, reaching 575 billion Indonesian rupiah (€35 billion) in
2019. Franchises, especially fast-food franchises, are leading this growth. The
popularity of international brands such as KFC, Pizza Hut or McDonald's see
their position reinforced among the young population of Indonesia. Some of
these companies are approaching annual growth rates close to 20%. It is also
necessary to highlight the importance of the digital transformation of the sector.
This phenomenon has further diversified the food industry. Indonesian
consumers are more active on social media than the global average, with
restaurants benefiting from digital word of mouth through social networks like
Instagram, as well as review sites like Trip Advisor, Zomato and Google
Reviews.
In general, there is a big difference between the first-tier cities and the smaller
cities in the country. As urban centers are generally much more and faster
developing than other areas of the country, many people from rural areas or
small towns only travel to larger ones to shop. It is common to see how low-
income consumers visit Jakarta to go to ITC Mangga Dua and Tanah Abang, for
their variety of products at low prices.
As consumers belong to different social classes, there are significant disparities
across the country in the burden of food purchases. In poor and isolated
communities, poor infrastructure and the inability of Indonesians to increase
their incomes mean that around 60% of household spending goes on food
alone. In regions with higher incomes or those close to agricultural areas, the
proportion of household spending devoted to food is much lower (see box).
Buying local products is of great importance to most Indonesian consumers, as
it is everywhere in Asia Pacific. In fact, 56% of Indonesian consumers prefer a
local product to a foreign product, considering that the two products have the
same quality and price. In response to this trend, today's retailers, both foreign
and domestic, offer largely local products. French retailer Carrefour, for
example, has 98% local products on the shelves of its Indonesian
hypermarkets.
The Indonesian retail market is highly fragmented. The perceptible shift from
traditional fresh produce markets to the establishment of supermarkets,
hypermarkets and small food retailers is increasing opportunities for food and
beverage imports from countries such as Canada, the United States or the
United Kingdom.
In Indonesia, retailers are mainly located in regions with high economic
development and high population density. Therefore, the vast majority of
modern outlets are located on the island of Java, where companies often
choose to start investing. Despite its small size, the island of Bali is also home
to a large proportion of modern retailers, primarily catering to large tourist and
expatriate populations, as well as the burgeoning restaurant and hospitality
industry. The main places of potential growth, in addition to Java and Bali,
include the cities of Medan and Palembang in Sumatra and Makassar in
Sulawesi, among others.
On the other hand, high-income consumers also visit Jakarta frequently, but
they do so to go to premium shopping malls where they can find brand-name
products, such as Plaza Indonesia, Grand Indonesia, or Senayan City, among
many others. These malls are not just for shopping, but have also become
places to hang out, as they are usually indoors, well acclimatized, and have a
variety of leisure activities.

From these factors it can be deduced that the Indonesian population is very
sensitive to price, which is why promotion and discount strategies usually work
very well in this market. However, recent studies indicate a trend towards
healthier products in the food and beverage sector, even though these have a
higher price. In particular, the population of large cities such as Jakarta or
Surabaya are the most predisposed to this type of product. Also, the trend tends
to be greater as families' incomes rise. Other important factors are the ease of
purchase or convenience and technology, which are closely related since in
many cases today advances in technology are favoring the ease of purchase.
Conclusion:
As the largest economy in South Asia, Indonesia has great potential for
Canadian investment in the food and beverage industry. Its demographic
weight, which includes a middle class of 30 million people, and the changing
tastes and preferences of consumers are creating new possibilities for Western
foods and beverages. Processed foods, in particular, are gaining in popularity
and are now showing the highest growth among agri-food imports. Dairy and
meat products are also increasingly being incorporated into the Indonesian diet.
Although affordability remains the main purchase motivator in the short term,
Indonesian consumers also have new priorities. Increasingly urbanized, they
are busier than ever and increasingly concerned about their health and the
safety of their food. Consumer preferences are shifting in this direction,
increasing demand for fortified and functional foods as consumers move from
traditional markets to modern retailers. Convenience foods are on the rise as
disposable income rises and more Indonesians move to cities. Environmental
issues are not yet a huge concern when buying consumer goods, but growing
international attention to these issues, including the expansion of palm oil
cultivation and rapid deforestation, may help raise consumer awareness
domestically. The evolution of consumption in Indonesia, a country that has
emerged in the global market thanks to political stability and economic
resilience, will continue to present new opportunities for companies.