deloitte consumer insights capturing indonesia's latent markets

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Deloitte Consumer Insights Capturing Indonesia’s latent markets Consumer Business May 2015

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Page 1: Deloitte Consumer Insights Capturing Indonesia's latent markets

Deloitte Consumer Insights Capturing Indonesia’s latent markets

Consumer BusinessMay 2015

Page 2: Deloitte Consumer Insights Capturing Indonesia's latent markets

2

Contents

Foreword 3

The driving forces in Indonesia’s retail landscape 4

Deloitte Consumer Insights: Indonesia 7

1. Spending patterns 11

2. Buying behaviour 13

3. Brand preferences 14

4. Communication channels 15

5. Buying channels 17

6. Geographical differences 19

Deloitte Retail Insights: Indonesia 21

1. Stocking behavior 25

2. e-Commerce 27

Looking ahead 29

Capturing Indonesia’s latent markets 31

Appendix 32

Contact us 34

Page 3: Deloitte Consumer Insights Capturing Indonesia's latent markets

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Foreword

With its sheer size as the largest consumer market in Southeast Asia, Indonesia is undoubtedly one of the key markets for consumer business companies in the region. In particular, its main metropolitan areas of Jakarta and Surabaya have emerged as hotbeds for companies seeking to dominate the playing field, with higher levels of urbanisation and income per capita. Additionally, a number of other cities have been exhibiting strong economic growth in recent years and present latent markets ripe for capture.

In this publication, we examine some of the key driving forces in Indonesia’s consumer business landscape. Then, we present the results from the second edition of the Deloitte Consumer Insights survey conducted in the first quarter of 2015 across 2,000 households in five major Indonesian cities: Jakarta, Bandung, Makassar, Medan and Surabaya. Following the inaugural survey conducted in Indonesia in the fourth quarter of 2013, this edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences, as well as reveal some of the new shifts and opportunities that have arisen since the previous survey.

This year, we also introduced a new section to highlight findings from our first Deloitte Retail Insights screening exercise conducted in 200 modern and traditional trade retail outlets in Indonesia across seven different product sub-categories. This was introduced with the objective of augmenting the consumer survey insights to provide a more holistic understanding of Indonesia’s retail landscape.

We then share our point of view on the key considerations for consumer business companies in this diverse and dynamic marketplace. These include the need for a segmented channel and product strategy to capitalise on the changing spending patterns of consumers as they transition into higher income segments; the necessity for a tailored approach for Indonesia’s major geographic regions; as well as the imperative to leverage new media and technology for innovative consumer and business solutions.

With increasing heterogeneity in its consumer demographics and market conditions, the current modus operandi will need to be reviewed and revised if companies wish to capture Indonesia’s next waves of opportunities. We hope that this publication will provide them with a glimpse into the insights for success.

Eugene HoSoutheast Asia LeaderConsumer Business

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Indonesia’s retail market is characterised by its immense size. While it brings countless opportunities to consumer business companies in the form of a massive – and still growing – middle class, digital consumers, as well as rapidly urbanising cities outside of Jakarta, a multitude of challenges such as the high cost to serve across the expansive archipelago exist. In this section, we explore four key driving forces in Indonesia’s retail landscape that also later manifest themselves in the results of the Deloitte Consumer Insights survey and Deloitte Retail Insights screening exercise.

A burgeoning middle classAs many of Indonesia’s low income consumers continue to transition to the middle income segment – defined broadly as those with annual household incomes of between IDR 36 million to IDR 120 million – they are becoming increasingly sophisticated in their spending habits and product choices (see Figures and 1 and 2). While this means an expected increase in expenditures in many consumer business categories such as beverages and packaged food, companies will also require more differentiated and segmented product offerings to capture the consumer’s share of wallet as considerations such as price becomes less salient when compared to factors like the overall product quality and trustworthiness of brands.

Figure 1: Education and urbanisation rates in Indonesia (2004-2014)

The driving forces in Indonesia’s retail landscape

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Proportion with secondary school education

Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit

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Figure 2: Population demographics in Indonesia (2004-2014)

High cost to serveIndonesia’s fragmented retail market is characterised by underdeveloped infrastructure: in the 2014 World Bank Logistics Performance Index, Indonesia ranked the lowest amongst other key Southeast Asian markets (see Figures 3 and 4). Traditional trade outlets such as Warungs and Minimarkets continue to be preferred by the majority of consumers and still account for the majority of the retail presence in Indonesia. Consumer business companies will require extensive distribution networks to tap into the market, resulting in one of the highest costs to serve in Southeast Asia with numerous route-to-market challenges. For many companies, there is a need for innovations (e.g. packaging) and segmented market approaches to overcome the restrictions of limited, and hence competitive, shelf space in these traditional trade outlets.

Figure 3: Ranking of key Southeast Asian markets in the 2014 World Bank Logistics Performance Index

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Higher Income (More than IDR 120 million per annum)

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Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit

Source: 2014 World Bank Logistics Performance Index

SingaporeRank #5

MalaysiaRank #25

ThailandRank #35 Vietnam

Rank #48 IndonesiaRank #53

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Figure 4: Logistics costs (as a percentage of GDP) in key Southeast Asian markets

Nascent digital media platform takes offIndonesia’s Internet usage has risen sharply over the last few years and consumers – especially the middle income segment – are more connected than ever, with easy access to information. Social networking is by far the most popular activity in Indonesia, with 72 million active users1. Although this is the highest number amongst Southeast Asian markets, it represents only 28% of Indonesia’s total population, in contrast to Malaysia and Singapore with a representation of 55% and 66% of their populations respectively. This implies a huge, untapped potential for consumer business companies to engage their consumers through digital platforms as Internet penetration takes off.

Figure 5: Number of active social media accounts in key Southeast Asian markets

Cities outside Jakarta as growth driversTraditionally, Jakarta, accounting for approximately 17% of Indonesia’s economy, has been the focus of retail attention2. In recent years, however, other smaller cities outside Jakarta – typically with populations of less than 10 million – have emerged as attractive, alternative targets due to the strong competition within Jakarta as well as the promising and accelerating growth and urbanisation rates of these cities.

Source: 2014 World Bank Logistics Performance Index

Source: World Bank, Wearesocial

1 Wearesocial: Digital, Social & Mobile 20152 Indonesia Central Bureau of Statistics

27%25%

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Indonesia Vietnam Thailand Malaysia Singapore

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Deloitte Consumer Insights: Indonesia

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Following the inaugural Deloitte Consumer Insights survey conducted in Indonesia in the fourth quarter of 2013, this second edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences as well as reveal some of the new shifts that have arisen since the previous survey. While some of the findings uncovered in this edition remain consistent with that of the previous survey, a few trends appear to have magnified. Their trajectories have been highlighted in the “Spot the difference” sections of the respective pages.

MethodologyThe survey was conducted in the first quarter of 2015 across 2,000 households via face-to-face interviews in five major cities: Jakarta, Bandung, Makassar, Medan and Surabaya.

Consumers were surveyed on their spending pattern, buying behaviours, brand preferences, communication channels, buying channels and geographic preferences across seven consumer product categories:• Beverages • Clothing and Footwear• Confectionery • Household Cleaning Products • Packaged Food• Personal Hygiene Products • Tobacco

Deloitte Consumer Insights: Indonesia

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JakartaBandungMakassarMedanSurabaya

59.8%10.1%

10.1%

10.0%

10.0%

49.9%50.1%

Demographics of survey respondents

Figure 6: Geographical distribution of consumer survey respondents

Figure 7: Gender distribution of consumer survey respondents

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Survey 14%

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Less than 33-55-1010-15More than 15

Monthly householdincome, IDR million

Figure 8: Age distribution of survey respondents

Figure 9: Monthly household income distribution by city

Figure 10: Monthly household income distribution of survey respondents vs. actual household income distribution

From the monthly income distribution of survey respondents by city, it appears that Jakarta has a greater proportion of middle and higher income households as compared to other cities. This finding is consistent with Jakarta’s Gross Regional Domestic Production (GRDP) per capita, which is about four times higher than the other cities3. Overall, the income distribution of the survey respondents is fairly representative of the actual income distribution within Indonesia.

3 Statistic Indonesia 2012

JakartaBandungMakassar

MedanSurabaya

Percentage of survey respondents

Less than 11-22-33-55-7.57.5-10More than 10

Monthly householdincome, IDR million

Income distribution

18%

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The insights revealed by the first edition of the Deloitte Consumer Insights survey remain largely consistent in this second edition: the burgeoning middle class is moving away from spending merely on necessities to other discretionary expenditures; price sensitivity has decreased as household income levels increase; Local brands are still performing strongly over Foreign ones; TV remains the dominant communication channel; and Warungs retain their crown as the most frequented retail outlets.

But a few shifts uncovered by this survey are worthy of attention. Consumers, for instance, are beginning to exhibit greater levels of sophistication, prioritising attributes such as Trust and Overall Quality over Price in their purchase decisions, even in the lowest income segment. For the first time, this edition also features an entire section focused on the geographical differences between Indonesia’s key cities, with a particular emphasis on those outside the main metropolitan area of Jakarta.

Key consumer insights

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Clear inflection point at monthly household income level of IDR 5 million As was found in the previous survey, a clear inflection point in spending patterns exists at a monthly household income level of IDR 5 million. Households with incomes below that threshold tend to spend almost 100% of their household incomes every month, leading a hand-to-mouth lifestyle and focusing mainly on basic necessities.

Figure 11: Average monthly household expenditure

On the other hand, the spending patterns of consumers with monthly household incomes of above IDR 5 million revealed a shift from basic necessities, such as Beverages, Clothing and Footwear, Packaged Food, Household Cleaning products, and Personal Hygiene products, towards supplementary products such as Credit Card Instalments, Leisure and Holiday, as well as Welfare and Savings as more disposable income becomes available at this income level.

Households with monthly incomes above IDR 5 million also have a greater propensity to allocate funds for financial services, including Credit Card Instalments and Welfare and Savings, setting aside about 24% of their total monthly expenditures for these purposes, in comparison to the Households with monthly income of IDR 3-5 million which allocate only 10% of their total monthly expenditures. Thus, the IDR 5 million income level mark is also the inflection point at which consumers have access to, and appear to be leveraging, debt to finance their lifestyles (see Figures 12 and 13).

With overall consumer sentiment on the rise, 80% of respondents have indicated optimism that the economy would improve within the next five years. The lower income segments, for instance, have shown a clear indication of a planned increase in spending in the categories of Confectionery, Household Cleaning, Packaged Food and Tobacco, except for the lowest monthly income consumer group of less than IDR 1 million. These categories are most likely to increase their spending with economic growth and increased income levels (see Figure 14).

1. Spending patterns

Less than 1

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7.5-10

More than 10

Monthly householdincome, IDR million

5,853,000

4,818,000

4,296,000

3,613,000

3,160,000

1,653,000

1,075,000

Spot the differenceAs compared to the previous survey, there have been increases in spending on the Beverages and Packaged Food categories. This pattern was consistent across almost all income levels, although differing in magnitude depending on income levels. For Beverages, expenditures increased from 4%-8% of total spending in the previous survey to 5%-11% in this survey, while for Packaged Food, the figure showed significant increment from 12%-27% to 18%-32%.

In contrast, spending on Leisure and Holidays decreased from the previous survey from 6%-13% to 3%-8%. This could have been a result of the overall increase in product or service prices, positive economic outlook and the increasing adoption of modern consumption patterns. Spending on Leisure and Holidays as well as Welfare and Savings categories remains skewed towards the higher income segments and continue to be of lower priority for the middle and lower income segments which are primarily focused on basic necessities.

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Figure 14: Correlation between monthly household income level and percentage of consumers with plans to increase spending

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Weightage

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Food*BeveragesTobaccoClothing and FootwearPersonal HygieneHousehold CleaningCommunication and MediaTransportationHousing and UtilityLeisure and HolidayCredit Card InstalmentWelfare and Savings

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*Includes Confectionery and Packaged Food

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Food*BeveragesTobaccoClothing and FootwearPersonal HygieneHousehold CleaningCommunication and MediaTransportationHousing and UtilityLeisure and HolidayCredit Card InstalmentWelfare and Savings

Monthly household income, IDR million

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*Includes Confectionery and Packaged Food

Figure 12: Breakdown of monthly household expenditure (2015)

Figure 13: Breakdown of monthly household expenditure (2013)

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Spot the differenceWhile Taste and Price attributes remain the top criteria in deciding brand choices for the Packaged Food category, three brand drivers have increased in importance across all income levels: Trust, Overall Quality, and Smell. This change represents the increasing sophistication of Indonesian consumers, as even consumers within the lowest income segment are starting to prioritise Trust and Overall Quality attributes. In line with this, the percentage of respondents in this income segment who considered Price attributes to be the top driver has decreased from 26% in the previous survey to 17%, while the percentage of respondents who prioritised Overall Quality increased from 5% to 11%. While there appears to be a decrease in the percentage of respondents who opted for Safety attributes, this does not imply that it has decreased in importance. Rather, this indicates that consumers are starting to have more holistic perceptions of brands and place greater emphasis on Trust, with Safety as an implicit expectation.

More affluence, less price sensitivity In the previous survey, it was observed that as Indonesians gain affluence, price and basic functionalities are no longer the only key drivers for purchase choice. Consumers become more sophisticated in their buying behaviour and in assessing and communicating what they like. This trend continues to be apparent in this year’s survey.

For Beverages and Packaged Food, this year’s survey indicated that these are the two categories where consumers across almost all income levels have increased their share of expenditure over last year (see Figures 15 and 16). A clear inflection point can be seen at a monthly household income level of IDR 3 million and above, where price becomes a less important consideration and consumers begin to place greater emphasis on the product’s characteristics and its brand image. Although Taste attributes remain the biggest driver in the purchase of Packaged Food, for instance, the importance of Smell attributes has also increased. Similarly, in the Beverages category, while Taste and Price attributes remain the key drivers, Safety, Health and Trust attributes are gaining importance. This could be a result of the increasing awareness of drinking water safety and a move towards greater health-consciousness. For both categories, the trustworthiness of the brand is also increasing in importance.

Figure 15: Drivers of Packaged Food purchases by monthly household income level

Figure 16: Drivers of Beverage purchases by monthly household income level

2. Buying behaviour

Weightage

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AvailabilityHealthInnovationOverall qualityPackagingPricePromoSafetySmellTasteTrustOthers

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AvailabilityHealthInnovationOverall qualityPackagingPricePromoSafetySmellTasteTrustOthers

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Local is still in favourGenerally, the majority of Indonesians continue to show preference for brands that they perceive to be Local, over those that they think are Foreign. However, in reality, they often mistakenly perceive some Foreign brands to be Local.

As income levels increase, the propensity to purchase Foreign brands increases too – most notably in the Clothing and Footwear and Personal Hygiene categories – with more than 50% of the higher income households preferring Foreign brands. For Packaged Food, the ability to cater local tastes drives consumers’ purchase and preference for Local brands.

3. Brand preferences

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Monthly household income, IDR million

Weightage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Strongly Do Not PreferDo Not PreferPreferStrongly Prefer

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Monthly household income, IDR million

Foreign LocalPrivate Label

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Figure 17: Preference for Foreign brands by monthly household income level

Figure 18: First brand of choice by monthly household income level

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TV dominates, but Word of Mouth matters tooThe survey revealed that traditional media continued to dominate, with TV as the primary channel through which Indonesian consumers obtain information about products and brands across most income levels. Nevertheless, Word of Mouth via relatives, friends and colleagues, as well as In Store Promotion, also plays important roles in influencing purchase decisions.

Figure 19: First source of information by monthly household income level

Social media is only social… for nowWhile the Internet and Social Media are widely and actively used in Jakarta - which has been dubbed the social media capital of the world – consumers tend not to use this channel for commercial purposes at this point in time. For Private Labels and Foreign brands in Clothing and Footwear, Confectionery and Packaged Food categories, however, Social Media is gaining traction and is more frequently used to influence the purchase decision.

Figure 20: Preferred sources of information by product category and brand type

4. Communication channels

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RelativeFriends and ColleaguesExpertTVRadioPrint AdsDigital MediaOutdoor AdsIn Store Promotion

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Monthly household income, IDR million

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RelativeFriends and ColleaguesExpertTVRadioPrint AdsDigital MediaOutdoor AdsIn Store Promotion

Weightage

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Productcategory Brand typeBeverages Local Private Label ForeignClothing and Local Footwear Private Label ForeignConfectionery Local Private Label ForeignHousehold Local Cleaning Private Label ForeignPackaged Local Food Private Label ForeignPersonal Local Hygiene Private Label ForeignTobacco Local Private Label Foreign

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Indeed, Social Media is likely to gain greater importance going forward. As a TV-centric market with only about 30% of its population connected online (main concentration in Jakarta and key cities)4, competition for the limited TV advertisement slots in Indonesia’s ten national TV stations has become intense among mass marketing companies. Coupled with the typically lower returns on investment (ROIs) from traditional media – ROIs from TV advertisements are estimated to be only about half that of Social Media advertisements – companies have increasingly begun to turn to the digital space to strengthen their marketing strategies. Despite Indonesia’s nascent digital market, a number of global companies have managed to successfully deploy Social Media to achieve their marketing objectives. Such efforts will certainly continue and help to expand the role of Social Media in influencing consumer decisions as Internet penetration rates continue to increase.

4 Economist Intelligence Unit5 Facebook for Business

Mini Oreo… not-so-mini impactIn order to raise awareness amongst young adults for its new product, the Mini Oreo, and to encourage them to purchase it as a snack, Mondelēz International launched a series of advertisements on Facebook5. Partnering with Facebook’s Creative Shop, and working with its agencies, it created a suite of engaging and creative photo advertisements depicting how the Mini Oreo can be consumed in a range of different occasions, such as during a meeting, bike ride or shopping trip.

The campaign was a resounding success: within six weeks, the campaign reached 18.6 million target consumers, exceeding the campaign’s target by 35%. In addition, the campaign also delivered a six-point lift in advertisement recall for the Mini Oreo, five-point increase in purchase intent for the Oreo brand, 8.4% engagement rate with the advertisements, as well as 146,794,864 impressions.

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Modern trade takes off, but Warungs still winAs with the previous survey, this year's survey uncovered a correlation between income levels and preference for modern trade outlets. The middle and higher income consumers are more likely to purchase from Minimarkets and Supermarkets due to their better product assortment and availability, while the lower income groups are more likely to purchase from Warungs for the convenience and affordable prices (see Figures 21 and 22).

Figure 21: Channel preferences by monthly household income level and product category (2015)

Figure 22: Channel preferences by monthly household income level and product category (2013)

Due to a combination of factors such as close proximities to consumers’ homes, convenience and opening hours, the two most frequented retail outlets across all product categories are (see Figures 23-25):

• Warungs (Traditional trade): Small, independent, kiosks (4-15 square metres) that are usually within walking distance or located close to residential areas, and sell Beverages, Household Cleaning products, Packaged Food, Personal Hygiene products, and Tobacco.

• Minimarkets (Modern trade): Expanded versions of Convenience Stores (100-1,000 square metres) which sell a wider range of products, and compete partially with Supermarkets but with fewer product varieties due to smaller floor spaces.

5. Buying channels

BeveragesClothing and

Footwear Confectionery TobaccoHouseholdCleaning

PackagedFood

PersonalHygiene

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Less than 1

1-2

2-3

3-5

5-7.5

7.5-10

More than 10

Monthly household income, IDR million

TraditionaltradeModerntrade

75% 57% 43% 58% 42%

56%

56%

63%

63% 72% 28% 58% 42% 77% 23%

27%

43%

51%

60%

69%

86%

73%

57%

49%

40%

31%

61%

41%

27%

22% 22%78% 78%

73%

27%

27%

73%

73%

54% 46%

59%

39% 61% 39% 94%

68%

86%

86%

86%

93%

84%

94%

44%

44%

37%

37%

32%

74% 26%

74% 26%

36%

58%

69%

83%

87%

97%

64%

42%

31%

17%

25%

19%

40%

81%

60%

50% 50%

45% 55%

45% 55%

29% 71%

36% 64%

80%20%

BeveragesClothing and

Footwear Confectionery TobaccoHouseholdCleaning

PackagedFood

PersonalHygiene

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Less than 1

1-2

2-3

3-5

5-7.5

7.5-10

More than 10

Monthly household income, IDR million

TraditionaltradeModerntrade

90% 92% 93%68% 32%

64% 36%

58% 42% 40% 60% 40% 60%

32% 68%

91%

97% 92%

95%100%

59% 41%

41% 59%

46% 46%54%

46% 54% 44%

26% 74%

22% 78%

89%

92%

96%

96%

94%

93%

55%

55%

45%

45%

88%

98%

56%

54%

46%54%

69% 31%

68% 32%42% 58%

42% 58%

42% 58%

38% 62%

65% 35%

65% 35%

28%

19%

72%

81% 19% 81% 19% 81%

83%

83%

86%

23% 77%

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18

Figure 23: Channel preferences by monthly household income level and product category

Figure 24: Reasons for channel preferences by channel type

Figure 25: Reasons for channel preferences by monthly household income level

BeveragesClothing and

Footwear Confectionery TobaccoHouseholdCleaning

PackagedFood

PersonalHygiene

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Less than 1

1-2

2-3

3-5

5-7.5

7.5-10

More than 10

Monthly household income, IDR million

Street HawkersWet MarketsWarungsMinimarketsSupermarketsHypermarketsBrand Stores

71% 18%

76%

57%

56%

35% 27%

43%

52%

58%

82%

24%

31%

44% 37%

43% 43%

49%

35%

21% 37% 25%

34% 18%

22%

24% 50%

64%

52%

38% 40%

32%

26% 38% 18%

26%22%37%

39%

29%

17%

23%

40% 34%

31% 38%

38% 19%19%

19% 66% 77%

70%

63%

47% 34%

25%

21%

76%

68%

85%

38%

38%

24% 24%37%

23%

48% 22%

22% 28% 35%

53%

46%

40% 31%

33%

25% 33%

33%

21%

21% 26%31%

34% 27% 20%

27% 27% 31%

30% 20%

26%

17%

19% 35%

35%

23% 30% 40%

29% 22%

28%

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Less than 1

1-2

2-3

3-5

5-7.5

7.5-10

More than 10

Monthly household income, IDR million

Assortment Availability ConvenienceLocationOpening Hours Price PromotionService

Street Hawkers Wet Markets Warungs Minimarkets Supermarkets Hypermarkets* Brand Stores*

21% 18% 23% 30% 33%

25% 27% 22% 23%

22%

23%

17%

18%

25%

21%

21%

23%

20% 19%

23% 18%

21%

17%

33%

18%

18%18%

18%

30%

20%

20%

20%

26%

24%

17%

34%

20%

21%

23%

26%

27%

29%

31%

26% 20%

27% 18%

20% 30% 33%

32% 18% 42%

17% 21%

19%

19%

19%

18%

33%

21% 25%

25%19%

20%

20%

23%

24%

25%20%20%

24% 18%21%19%

19%

18%

4%20%

24%22%

17%

19% 24% 17%17%

18%

18%

19%

17%27%

23%

23%

22%

29% 25%

* Low income families (monthly household income less than IDR 1 million) typically do not shop in Hypermarkets and Brand Stores

Channel type

Street HawkersWet Markets

WarungsMinimarkets

SupermarketsHypermarketsBrand Stores

Weightage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

AssortmentAvailabilityConvenienceLocationOpening HoursPricePromotionService

9% 10% 5% 26% 14% 25% 4% 7%

12% 12% 12% 16% 10% 10%18% 11%

10% 12% 14% 18% 10% 12% 12% 11%

10% 15% 16% 20% 12% 6% 11% 8%

18% 22% 18% 8% 5% 7% 13% 10%

21% 23% 16% 6% 3% 8% 12% 9%

19% 24% 20% 2% 2% 14% 17%

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6. Geographical differences

Indonesia is not just Jakarta To date, the majority of investments have been focused in larger cities such as Jakarta and Surabaya. However, with greater urbanisation across the country, cities outside these main metropolitan areas are becoming increasingly attractive with their high growth potentials and opportunities for consumer business companies. Due to Indonesia’s diversity across its huge expanse of islands, targeting these cities will first require a review of their potential differences.

As a case in point, Makassar – the provincial capital of South Sulawesi and the eleventh most populous city in Indonesia that is well-known for its shipping and port industry – has shown an attractive economic growth potential, with an annual GDRP growth of 17.1% since 2009, higher than the growth of 12.6% in the nation’s annual Gross Domestic Product (GDP).

Figure 26: Makassar’s GRDP growth (2009-2013)

Source: Badan Pusat Statistik Indonesia

Consumer optimism in these cities beyond Jakarta is palpable. For example, buoyed by the positive economic outlook, over 40% and 25% of consumers in Bandung and Makassar, respectively, have expressed plans to increase their expenditures on the Beverage category by more than 10% (see Figure 27).

Given the varying degrees of urbanisation across Indonesia, consumer behaviours also differ by cities. Consumers in Makassar, for example, are more receptive to Foreign brands as compared to the other three cities outside Jakarta (see Figure 28).

In addition, consumers in Makassar are more experienced with e-commerce. Second only to Jakarta, 20% of its consumers have made online purchases at least once. Amongst those who have not made online purchases, their main concern was payment security. This sentiment is common across all the cities in the survey, implying a need to tackle the issue with the technology, operations and communications that have been deployed in more developed markets (see Figure 30).

2009 2010 2011 2012 2013

60

50

40

30

20

10

0

IDR billion

31.3

37.0

43.4

50.7

58.8

+17.1%

Page 20: Deloitte Consumer Insights Capturing Indonesia's latent markets

20

Weightage

Strongly Do Not PreferDo Not PreferPreferStrongly Prefer

JakartaBandungMakassar

MedanSurabaya

12%

39%

31% 64% 4%

10%

60% 38% 2%

77% 13%

57% 3%

66% 19% 2%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

Weightage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

YesNo

15-2425-3435-4950-64

Age group, years

46% 54%

59%

75%

83%

41%

25%

17%

70%

60%

50%

40%

30%

20%

10%

0%Jakarta SurabayaMedanBandung Makassar

No credit card Don’t know how Not secure More expensive

24%

4%

40%

61%

28%

35%

13%

33%33%27%29%

14%

5%

24%

16%

Figure 28: Preference for Foreign brands by city

Figure 29: Prior experience with online purchasing by age

Figure 30: Top 3 reasons cited for not making online purchases by city

0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100%

Weightage

Less than 10%10-25%More than 25%

Jakarta

Bandung

Makassar

Medan

Surabaya

BeveragesClothing and

Footwear Confectionery TobaccoHouseholdCleaning

PackagedFood

PersonalHygiene

39%

56%

67%

53%

41%

26%

47%

47%

47%

22%

33%

67%

66%

61%

28%

43%

66%

48%

38%

45%

32% 25%

34%

52%

35% 27%

55%

37%

50%

61%

51%

20%

44% 19%

44%

40%

59% 21%

31%

41%

31%

34%

66%

29%

44%

69%

67%

59%

30%

33% 23% 26%

29%

35%

66%

29%

43%

54%

75%

60%

31%

37% 19%

43%

34%

66%

42%

43%

43%

47%

70%

37% 32%25%

43%

27%

37%

53%

Figure 27: Planned increase in monthly household expenditure by city

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Deloitte Retail Insights: Indonesia

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22

For this edition of the report, the Deloitte Retail Insights screening exercise was conducted to shed light into some of the key aspects of Indonesia’s retail outlets.

Methodology200 retail outlets across different categories – including Supermarkets/Hypermarkets, Minimarkets, Warungs and Wet Markets – were screened on product availability, shelf visibility and promotion types carried across nine product sub-categories:

Deloitte Retail Insights: Indonesia

Product category Sub-category

Beverages • Beverages

Confectionery • Chocolates

Household Cleaning • Dish Washing• Laundry Care

Packaged Food • Breakfast Cereal• Instant Noodle

Personal Hygiene • Bath and Shower• Hair Care• Woman Sanitary

Tobacco • Tobacco

Page 23: Deloitte Consumer Insights Capturing Indonesia's latent markets

23

17.5%

21%

20.5%

20.0%21.0%JakartaBandungMakassarMedanSurabaya

Overview of retail screening

Figure 31: Geographical distribution of retail outlets

Figure 32: Types of retail outlets screened

* Includes Wet Markets and Street Hawkers** Includes Convenience Store, which is a relatively minor retail outlet in Indonesia and does not exist in all cities. Minimarket is a localised/enlarged variation of Convenience Store.

Figure 33: Type of retail outlets screened by city

* Includes Wet Markets and Street Hawkers

** Includes Convenience Store, which is a relatively minor retail outlet in Indonesia and does not exist in all cities.

Minimarket is a localised/enlarged variation of Convenience Store.

Hypermarkets / Supermarkets

Minimarkets

Warungs

Traditional Pasar*

Others**

13%

13%

13%

38%

25%

Jarkata

Surabaya

Bandung

Medan

Makassar

40

42

42

35

41

29% 43% 14%

14%

14%

14%

14%

14%

14%

14%

14%

14%

14%

20%

17%

20%

43%

43%

43%

43%

29%

29%

29%

29%

Traditional Pasar*WarungsMinimarketsHypermarkets / SupermarketsOthers**

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24

A number of significant insights have been uncovered by the Deloitte Retail Insights screening exercise. Although Warungs have most widespread coverage across Indonesia, for example, the difficulty in obtaining a spot on an outlet’s limited shelf space may differ depending on the product in question.

But retail is not all just about brick and mortar stores anymore: the e-commerce channel, although still nascent in Indonesia, is increasingly becoming a channel to watch. As this screening exercise highlights, the role of the digital space may differ by location. While it could be a solution for traffic congestion in the metropolitan area of Jakarta, it can also solve the issues of access in other outlying cities.

Key retail insights

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25

Size mattersWhile the Warung has the most extensive area penetration and coverage in Indonesia, it is usually an independent, individual outlet that requires individually targeted order-taking and delivery of goods. These outlets are often located within the rural residential areas, making efficient distribution an issue. In addition, given its small store size and space, a Warung is unable to carry a large variety of products or brands and the limited shelf space available is already dominated by leading brands. In order to accommodate the limitations in space, Warung operators prefer to restrict the number of brands within categories that provide low margins, such as certain products in Beverages and Packaged Food, either because of their low absolute prices or because such products tend to require refrigeration.

Figure 34: Average number of brands on shelf for selected products by product category

Product category Wet Market Warung Minimarket Supermarket / Hypermarket

Beverage Fruit or Vegetable Juice 8 5 12 18

Confectionery Chocolate 7 6 13 19

Household Cleaning Dishwashing Laundry Care

210

27

39

614

Package Food Breakfast Cereal Instant Noodle

47

35

610

915

Personal Hygiene Baby Diaper Bath and Shower Hair Care Woman Sanitary

31693

31183

423144

933256

Tobacco Cigarette 12 12 13 17

1. Stocking behaviour

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26

The difference in stocking behaviour exhibited by Warung, Minimarket and Supermarket/Hypermarket operators can be illustrated by comparing the average number of brands on their respective shelves for Fruit or Vegetable Juice (Beverage), Woman Sanitary (Personal Care) and Cigarette (Tobacco). For example, an average of only five major Fruit or Vegetable Juice (Beverage) brands are available at Warungs, in contrast to the 12 brands at Minimarkets and 18 brands at Supermarkets/Hypermarkets. In the case of Woman Sanitary (Personal Care) and Cigarette (Tobacco), however, the gap between the different channels is closer. This is because these items tend to have higher prices and/or smaller packages – that is, a higher price per volume – and hence are more attractive to stock from the perspective of a Warung operator.

Given their popularity amongst low and middle income consumers, Warungs and Minimarkets are key channels that companies should consider leveraging in their distribution structures to tap into the mass market. Each of these channels offers its own set of advantages, but these are often accompanied by unique challenges too. For instance, new entrants may find Minimarkets difficult to penetrate as it requires significant investments to not only ensure that a product is able to secure a spot amongst the limited shelf space, but also to garner visibility from that display position.

YOU C1000

Ale Ale

NutriSari

Frutang

Minute Maid

Buavita

ABC

Floridina

Vita Zone

Fruitamin

Fruit or VegetableJuice brand

56% 92%

92%

88%

84%60%72%

72%

68% 68%

92%

52%

96%

88%

80%

80%

60%

48%

44%

80%

84%

96%

59%

64%

55%

45%

21%

21%

23%

25%

HypermarketsMinimarketsWarungs

Figure 35: Availability of different brands of beverages (Fruit or Vegetable Juice) by channel type

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27

More than just retail’s new storefrontIn addition to brick and mortar channels, e-commerce has also emerged as an alternative buying channel. According to the survey, about 35% of respondents have made an online purchase at least once, with consumers from the middle and higher income segments having higher likelihoods of making online purchases due to better Internet access and greater demands for convenience (see Figures 36 and 37). The younger demographic, consisting of 15-34 year-olds, are also more likely to make online purchases (see Figure 29).

Price remains as a significant consideration for online shopping, but it is not the top reason. Instead, the Practical attributes of e-commerce has been cited by respondents as its key driver. This could be attributed to traffic congestion issues in major metropolitan areas, especially in Jakarta, which makes moving between different shopping locations time-consuming and inconvenient. In contrast, online shopping enables easy comparisons between different merchant offers from the comfort of consumers’ own homes.

But interestingly, it is the cities outside Jakarta which have seen stronger e-commerce growth as online retail allows consumers in these areas to purchase products from their favourite brands, usually in the Clothing and Footwear category, without having to wait for the brands to be available in their neighbourhood stores, and at more competitive prices.

Figure 36: Prior experience with online purchases by monthly household income level

Figure 37: Reasons for online purchases by monthly household income level

Weightage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

YesNo

1-22-33-5

5-7.57.5-10

More than 10

Monthly householdincome, IDR million

98%2%

7%

17%

29%

43%61%

93%

83%

71%

57%

39%

Weightage

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%

PracticalPriceProduct RangePromotionReliable ReviewOthers

1-22-33-5

5-7.57.5-10

More than 10

Monthly householdincome, IDR million

5%16%16%15%

9%

21%

21%

23%

20%15%

47%14%39%

49%

44%

44%

42%

40%

16%

9%

18%

12%19%18%

5%

4%7%

7%

2%

3%

2. e-Commerce

Page 28: Deloitte Consumer Insights Capturing Indonesia's latent markets

28

Figure 38: Growth of online transactions in Indonesia (2013)

Source: Sales Data of Top Online Retailer Fashion Category in Indonesia 2013

This trend has prompted many well-established companies and start-ups, including Lazada Indonesia and Lippo Group, to launch online platforms for their e-commerce operations. Other innovative applications are also being introduced to leverage technology to serve the needs of local consumers. For example, Go-Jek utilises a mobile application platform, Global Positioning Systems, and motorcycle taxis to provide quick delivery services to consumers who purchase items from e-commerce sites as well as transportation services for commuters trying to circumvent Jakarta’s heavy traffic congestion.

Going places with Go-JekGo-Jek is a start-up based in Jakarta that utilises ojek, or motorcycle taxis, to transport people and goods. Ojek is a unique method of transportation often seen in Indonesia as a solution to traffic congestion and as a means to access areas which are inaccessible on four-wheeled vehicles. Go-Jek differentiates itself with its transparent pricing and driver tracking systems, which assure customers of its security and reliability.

Go-Jek offers the following services through its mobile app:• Instant courier: Delivery of goods within 90 minutes to anywhere in the city• Transport: Move customers from one place to another on a motorcycle taxi• Shopping: Shop for and deliver food, tickets, medicines or anything under IDR 1 million and consumers pay

with cash on delivery

Over 50 companies in Jakarta currently use Go-Jek’s services to deliver their products, documents and even their employees. For consumer business companies, this service can help bypass indirect distributors and reach customers in remote areas, including Warungs, as well as better understand customer buying patterns, exercise better control on the delivery cycle and cut costs.

JakartaJava excludingJakarta

Java

KalimantanSumatera

Jan Jul

370%

370% 300%

Jakarta

Jan Jul

70%

Others

Jan Jul

Kalimantanand Sumatera

Jan Jul

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29

Looking ahead

Many of the key trends revealed in the previous edition of the report remain valid – if not magnified – in this edition. The middle income consumer segment continues to grow in sophistication as their purchase considerations increasingly extend beyond merely price and basic functionality, and consumer business companies will need to find ways to provide segmented offerings and a variety of value propositions to cater to these needs. At the same time, they will need to develop a balanced channel and distribution strategy that effectively utilises both modern and traditional trade outlets, especially Minimarkets and Warungs, which remain key inroads to the masses. Engaging different consumer segments will also require different sets of tactics; for example, targeting the low income segments via traditional trade channels will require small packaging formats to ensure affordability and to accommodate the limited shelf space.

This edition of the report reveals three key insights. Firstly, there is a strong potential for growth in the four product categories of Confectionery, Household Cleaning, Packaged Food, and Tobacco. As their income levels increase and they gradually move into the middle income segment, many of the low income consumers have expressed their intention to increase spending in these product categories. Investments in building trust and the overall quality of the products will become critical to securing these consumers’ confidence as they become more affluent and price decreases in importance as a consideration when making the purchase decision.

Secondly, consumer business companies should capitalise on digital media and e-commerce to build balanced consumer engagement portfolios and to tap into a market that is ripe for expansion. Indonesia has some of the world’s most frequent and committed users of social media: it is the fourth largest market for Facebook with its 65 million registered users6 and the fifth most active market for Twitter. While TV and Word of Mouth remain the key channels for consumers seeking information on products, the real potential of digital media lies in the use of the platform for consumers to share their reviews and experiences with products or brands with one another. With the increasing Internet penetration rates, alternative means of consumer engagement and route-to-market channels have already been introduced and embraced in the major cities.

6 Jakarta Post: Facebook opens office in Jakarta

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30

Figure 39: Number of broadband, Internet and mobile phone users in Indonesia (2013-2018f)

Source: Economist Intelligence Unit

Finally, consumer business companies need to look beyond the major metropolitan area of Jakarta and towards other fast-growing cities with higher historical growth rates, such as Pekanbaru, Samarinda and Makassar. Optimistic about the future economic outlook, consumers in cities like Bandung and Makassar have also expressed high interest in increasing their expenditures. Nevertheless, given the differing levels of urbanisation across Indonesia, the propensity to spend will vary between consumers from the different regions. Companies looking at extending their presences into these areas must first understand the geographical nuances and tailor their strategies accordingly, at least in a tactical sense, in order to reap the rewards.

Figure 40: Top 10 fastest-growing cities in Indonesia

2013 2014 2015f 2016f 2017f 2018f

440

420

400

380

360

340

80

60

40

20

0

Million

81

434

73

416

66

397

60

378

53

357

46

324

986544

Internet users

Mobile phone subscription 

Broadband subscription 

Kalimantan(9%)

Sulawesi(5%)

Sumatra(24%)

Java (58%)

Other island(4%)

GRDPCAGR

(2009-2013)

18.5%

Samarinda 

Percentage ofIndonesia’s GDP 0.5%

GRDPCAGR

(2009-2013)

17.1%

Makassar

Percentage ofIndonesia’s GDP 0.8%

GRDPCAGR

(2009-2013)

14.2%14.3%

21.8%

Pekanbaru PalembangBandarLampung

Percentage ofIndonesia’s GDP 0.9% 0.4% 1.0%

GRDPCAGR

(2009-2013)

16.7% 16.4% 13.8% 13.4% 13.3%

Bandung Surabaya Depok JakartaSouthTanggerang

Percentage ofIndonesia’s GDP 1.7% 4.0% 0.2% 0.3% 16.5%

Source: Indonesia Bureau of Statistics

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31

Capturing Indonesia’s latent markets

Indonesia remains one of the most attractive emerging markets for consumer business companies in the region with its large population, rapidly growing middle class, and increasing urbanisation. But winning in this market will be not be easy, mainly because of the vast diversity of the markets, heterogeneous mix of modern and traditional trade outlets and challenging distribution channels.

For consumer business companies, Indonesia possesses three promising, latent markets: the increasingly sophisticated middle class that is growing in size, digital consumers, as well as consumers in cities outside the metropolitan area of Jakarta. Capturing each of these different markets will require a unique set of tailored strategies.

It will be crucial for consumer business companies who wish to capitalise on the changing spending patterns to capture the burgeoning and newly minted middle income segment while, at the same time, maintaining a stronghold amongst the low income consumers who still account for the majority of Indonesia’s population. This will require a carefully calibrated set of modern and traditional trade channels, with the former targeted at the middle to high income consumers, and the latter at the mass market. Companies would also do well to focus on improving the overall quality of their products and other intangibles such as brand and trust, in order to capture the mindshare of consumers as they become less price-sensitive and more sophisticated in their purchasing decisions.

With the rise of the digital consumer, consumer business companies need to explore the possibilities that digital media and other new technologies offer. For some, this could mean setting up online storefronts to offer consumers a set of value propositions that were previously unavailable to them, such as early access to the latest season’s fashion in remote areas. Others may prefer to leverage technology in their operations as a solution to logistical challenges, such as congestion.

While Jakarta continues to be Indonesia’s largest metropolitan area, many of its other cities are now ripe for growth. Exhibiting higher growth rates and consumer optimism, these regions present consumer business companies with the opportunity for accelerated growth, and, perhaps more importantly, the potential to obtain a first-mover advantage – that is, if they act fast, and act now.

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Figure 1: GDP of Southeast Asia Countries Indonesia has the largest economy in SEA, contributing to 37% of SEA GDP.

Figure 2: Forecasted GDP of IndonesiaIndonesia is forecasted to experience significant growth with its GDP doubling to USD 1.7 trillion in 6 years’ time in 2020.

Source: The Economist, World Bank, Badan Pusat Statistik Indonesia

Source: The Economist, World Bank, Badan Pusat Statistik Indonesia

Appendix

2008 2009 2010 2011 2012 2013

2,3372,2642,136

1,846

1,4891,395

Indonesia

Cambodia, Lao PDR, Philippines and Vietnam

Malaysia

Singapore

Thailand

37%

13%

13%

17%

20%

39%

13%

13%

16%

19%

40%

14%

13%

16%

18%

38%

13%

13%

17%

18%

38%

14%

13%

18%

20%

37%

17%

14%

20%

14%

USD billion

2,500

2,000

1,500

1,000

500

0

2009 2014 2017f 2020f2004

1,700

1,172

846

539

257

+100.9%

+229.2%

USD billion

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

Page 33: Deloitte Consumer Insights Capturing Indonesia's latent markets

33

Figure 3: Percentage of Indonesian urban population by province Urbanisation is taking place across Indonesia.

63%

Central Java

32%Banten

41%

27%

52%

East Java

West Java

59%

67%

DI Yogyakarta

34%

33%

West Papua

East Nusa Tenggara

Maluku

Bali

Papua

West Nusa Tenggara

55%

30%

45%

32%

72%

56%

68%

60%

70%

68%

48%

West Kalimantan

South Kalimantan

17%

53%

32%

East Kalimantan

Central Kalimantan

47%

64%

North Maluku

49%

DKI Jakarta

37%

Central Sulawesi

South Sulawesi

Southeast Sulawesi

North Sulawesi

Gorontalo

West Sulawesi

100%

51%

Aceh

West Sumatra

48%

53%

South Sumatra

Riau

Urban

North Sumatra

Lampung

27%

31%

83%

Bangka Belitung Islands

28%

40%

73%

Bengkulu

68%

44%

Jambi

71%

37%

Riau Islands

73%

50% 50%

31% 69%

23% 77%

39% 61%

66% 35%

28% 72%

45% 55%

32% 68%

22% 78%

38% 62%

28% 72%

66%

Rural

Des

cend

ing

isla

nd G

DR

P

Java

Sum

atra

Kal

iman

tan

Sula

wes

iO

ther

s

Percentage point change (2010-2015)

Population(Million)

10.2

38.8

46.7

33.8

12.0

3.7

6.3

13.9

8.1

8.1

5.2

5.0

2.0

3.4

1.4

1.9

4.1

4.8

4.0

2.5

8.5

2.9

2.4

2.5

1.3

1.1

4.2

3.1

4.8

0.9

5.1

1.7

1.2

-

+3.5

+7.2

+2.7

+0.7

+4.1

+0.4

+3.4

+0.7

+2.6

+5.5

+2.4

+0.2

+1.3

+3.3

+0.7

+2.8

+2.9

+3.0

+3.1

+3.9

+2.9

+4.6

+3.8

-

+5.0

+5.3

+2.4

+3.7

+2.4

+2.3

+0.9

+0.7

Note: Provinces in bold have higher than average urbanisation growth

Source: Badan Pusat Statistik Indonesia

Page 34: Deloitte Consumer Insights Capturing Indonesia's latent markets

34

For more information on these insights, please contact:

Eugene HoExecutive DirectorConsulting +65 9670 [email protected]

Stanley SongDirector Consulting+62 21 2992 3100 (ext 30307)[email protected]

Kavita RekhrajDirectorConsulting +60 376 109 [email protected]

Contact us

Page 35: Deloitte Consumer Insights Capturing Indonesia's latent markets

35

Southeast Asia and Singapore Industry LeaderEugene HoExecutive Director+65 9670 [email protected]

GuamMike JohnsonPartner+1 671 646 [email protected]

IndonesiaJose SabaterPartner+62 21 2992 3100 [email protected]

MalaysiaJeffrey SooPartner+60 376 108 [email protected]

PhilippinesBonifacio LumacangPartner+63 2581 [email protected]

ThailandManoon ManusookPartner+66 2 676 5700 ext. [email protected]

VietnamNguyen Vu DucPartner+84 462 883 [email protected]

AuditTenly WidjajaPartner+62 21 2992 3100 [email protected]

ConsultingEugene HoExecutive Director+65 9670 [email protected]

Enterprise Risk ServicesJose SabaterPartner+62 21 2992 3100 [email protected]

Financial AdvisoryNg Jiak SeeExecutive Director+65 6531 [email protected]

TaxRobert TsangPartner+65 6530 [email protected]

Southeast Asia Consumer Business Practice

Page 36: Deloitte Consumer Insights Capturing Indonesia's latent markets

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