2018 RETAIL ASIA-PACIFIC TOP 500
also be seen that consumers were more selective in terms of al-
locating funds for consumption. This was evident through the
end of the commodity boom, even though commodity prices
for the past four consecutive years during the fasting month
of Ramadhan and the following Eid al-Fitri holidays had not
risen significantly. Previously, consumers would spend more
during the festivities than in regular months; however, during
the review period consumer spending remained insignificant.
Increases in the population’s education level and financial literacy
rate have negatively impacted consumers’ spending behaviour
as well. There was a shift in consumer behaviour patterns, with
people becoming more aware of the importance of savings and
investments, choosing to accumulate wealth before spending on
more important goals such as travelling and other experiences
that result in more emotional satisfaction.
The final driving factor had been a shift in spending pat-
terns, influenced by negative consumer sentiment in regard to
the local economic, political and security conditions — one
example is the tax amnesty programme, which had led to the
population experiencing a tax foray over the past two years.
Negative consumer sentiment was more prominent in 2017
due to the governor elections. All of these factors had resulted
in decreased business confidence and in the public becoming
more restrained in regard to their consumption.
Household consumption is the key to growth in the
retailing industry
Household consumption in Indonesia had slowed down in
the past two years, which was a great concern as household
consumption had been the biggest driving factor for the
economy, of greater importance than investment, exports and
government spending. Private consumption in the form of
household spending has always accounted for more than 50%
of the nation’s GDP; however, there has been a slowdown in
consumption growth. There is also a trend indicating that when
household consumption is growing, so is the retailing industry,
and vice versa. Increasing household consumption is, therefore,
the key to the retailing industry performing well.
Focusing on the middle- to lower-income group is
preferable
The target consumers of Indonesia’s retailing industry can be
segmented into two distinct groups that have different behav-
iours. The middle- to higher-income group is less affected by
the decline in purchasing power and tends to be affected more
Increasing household consumption is, therefore, the key to the
retailing industry performing well.
OV E R V I E W
by the economic and political conditions of the nation. The
middle- to lower-income group, on the other hand, tends to
be more price-sensitive and is affected by the pricing factor;
spending power is seen to be more stagnant in the low-income
segment. With more than 60% of Indonesia’s population in the
middle- to lower-income group and because managing product
pricing is easier than managing economic and political factors,
targeting the middle- to lower-income group is a wiser option
for stimulating more growth in the retailing industry. Due to
the limited amount of income that this target group has, these
consumers tend to spend almost all their disposable income
on their personal and household needs, focusing mainly on
basic necessities such as packaged food and beverages, apparel,
footwear, personal hygiene products and household cleaning
products. This is especially the case for the lower-income seg-
ment, which earns Rp5 million (US$345.79)or less per month.
Foreign investment increases across the retailing
industry
Given Indonesia’s healthy GDP growth rate, low inflation rate,
favourable demographics and quickly growing population, the
market is deemed to be very attractive for foreign investments.
The Indonesian government has realised the importance of re-
vising the current policies to welcome foreign investors, as the
latter can create jobs and sp ur the nation’s economic growth.
Restrictions on Foreign Direct Investments (FDI), commonly
referred to as the Negative Investment List (DNI), are being
eased and restrictions on foreign ownership are being scaled
back. Although current foreign investment is expected to spur
the nation’s economic growth, at the same time it will create
more competition in the domestic market, as players will not
only have to compete with other local firms but with foreign
players as well.
In 2017, some foreign expansion that occurred in the mar-
ket included Lulu Group’s Hypermarket and Department Store
from the Middle East opening more outlets; GS Supermarket
from South Korea also expanded in outlet number in the year;
Miniso, a Japanese-based designer brand, recently entered the
Indonesian market and expanded rapidly; a British supermarket
brand, SPAR, in partnership with local retailer Ramayana Group,
also expanded its number of outlets in 2017. These are some
examples of foreign operators that have been strengthening their
competitive positioning in the nation through outlet expansion.
Fragmented trade will continue to dominate
While Indonesia’s large population undoubtedly creates an entic-
ing market for retailers, it is well dispersed over large distances,
which poses significant challenges for vendors and retail players
looking to create integrated, nationwide networks. As a result,
consumer bases outside of a few primary urban centres remain
highly fragmented, especially in second- and third-tier cities. In
addition, what works in Jakarta or other first-tier cities in terms
of products and promotion, for instance, does not necessarily
transfer to second-tier cities or in rural areas for both cultural
and economic reasons. For example, in non-grocery special-
ists, within the store-based retailing channel, one of the largest
operators in the nation, Mitra Adi Perkasa Tbk PT, which has
a diverse fashion and lifestyle portfolio, only contributes a
small portion of total sales. In many of the regions and cities
in Indonesia, especially those that are outside of urban areas,
fragmented trade in the form of independent small businesses
owned by individuals is dominant. For example, in grocery re-
Retail Asia June/July 2018
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