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Indonesia Food & Drink Report Q1 2008
Business Monitor International, Feb 2008, Pages: 73
The Indonesia Food Drink Report provides independent forecasts and competitive intelligence on Indonesias food and drink industry.
As Indonesia’s vast population continues to feel the trickle down effects of the country’s steady and sustained economic development, a very real opportunity has emerged for consumer goods manufacturers in the country to start, not only boosting their sales, but building up a portfolio of added-value, more premium products. Of course annual per capita food consumption of just US$330.50 in 2007 and an unemployment rate still stubbornly hovering at around 10% ably demonstrate that the benefits of economic growth are not being felt by all and the sheer size of Indonesia’s poorer rural population continues to drag down average spending levels, as well as restricting potential audience size. Nonetheless, sectors of Indonesia’s food and drinks industry are highly appealing, particularly for those with the financial might to offset the need for immediate gratification.
In late 2007, the local subsidiary of Dutch consumer goods giant Unilever acquired the Buavita-branded enhanced fruit juice range from local aseptic and long-life beverage manufacturer Ultrajaya Milk Industry Tbk. The acquisition really underlined the trend noted above in addition to some other major Indonesian beverage industry trends; not least the emphasis consumers now place on the hygienic manufacturing and packaging of their products which has allowed a relatively small player like Ultrajaya to establish such a name for itself. It also highlighted the existing and growing popularity of healthy beverages within Indonesia’s soft drinks industry. For the first time this quarter the author has incorporated a breakdown of Indonesian soft drink sales by category and amazingly - particularly for a country in which global behemoth The Coca-Cola Company is present - carbonates account for just 17% of sales. Bottled water and ready-to-drink teas and coffees are the largest product categories, while juices lag way behind accounting for just 2% of soft drink sales.
Having acquired Buavita, Unilever will now look to improve the popularity of fruit juices in the country and the author believes that the company’s immense scale, coupled with local consumption trends, suggest it has every chance of success. The Dutch firm is looking to expand within a soft drinks market that the author predicts will grow by an enormous 108.6% to reach a value of US$7.4bn in 2012. Likewise, it is looking to further penetrate a country in which consumers have demonstrated a strong preference for healthier beverages, where alcohol consumption is fairly moderate and where fruit consumption is showing significant annual growth. Of course Ultrajaya was also operating within this environment, but with sales of just US$88mn annually, it lacked the distribution, marketing and expansion muscle of Unilever Indonesia, which generated annual sales of US$1,296mn in 2006.
The prevalence of this trend does not mean that Indonesian firms cannot compete in high-growth local consumer goods industries, but with price sensitivity still acute, those with the financial clout to offer low prices will always fare better regardless of how strong local consumer interest might be.
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