Changing behavior in the face of inflation
With inflation climbing to its highest level in the past six or seven years, consumer confidence has recently taken a dip. As a result of this inflationary pressure, households are focusing more on necessities like transportation, utilities, and education, and holding back on spending non-essentials, such as durable goods.
Over time, shoppers have been able to absorb the price increases, but are responding by reducing the size of their basket and buying cheaper products. With more disposable income, upper-class consumers are coping with price increases by buying in volume, such as bigger packs that provide value for money. While middle and lower-class consumers opt for cheaper brands to cope with the pressure of inflation.
With an average price index (API) of 80-90, some affordable brands are managing to gain penetration and a high repeat rate above 60% by delivering efficacy at the right price. As a result, they are a good alternative for downtrading.
Around one third of FMCG categories have had significant price increases above total FMCG inflation of 7%. Higher prices are mainly in food categories, which can be a challenge as these are often essential purchases.
Food brands may need to adjust their strategy to win shoppers and provide more affordable options. The beauty sector, however, is still able to grow despite price increases, indicating that premiumisation might work to help drive growth and attract shoppers.
Rationalising spending drives changes in consumer preferences. With different spending profiles, it becomes more important to understand what motivates shoppers and their changing behaviours. As lower-class consumers are more likely to drop some categories from their basket, it means fewer categories can grow within this cohort.
Across the region, Java remains the backbone with the biggest population. But in other regions that are growing quickly there are opportunities to attract shoppers and optimise pockets of growth. Secondary cities and rural areas can increase FMCG spending by 8% compared to the main cities (5%), providing low-hanging opportunities for brands and manufacturers to win shoppers.
Consumers are also changing where they shop. With the growth in digital commerce adoption, shoppers are becoming more omnichannel in their purchasing behaviour with different shopping missions across offline and online channels. Minimarkets continue to expand outside of Java, while specialty stores have become the go-to for some categories, with growth in rural areas almost double that of the main cities.
Digital commerce on the other hand, is more important in the main and secondary cities, as well as in rural areas. As shopping behaviours contine to change, retailers and manufacturers will need a seamless road-to-market strategy between offline stores and digital commerce.
As digital adoption grows, brands will need to cut through the online noise in their digital marketing activities. Brands need to stand out online and communicate in a meaningful way with shoppers to create better engagement. By doing this they can optimise the different touchpoints to engage with different profiles of shoppers.
In Indonesia, TV remains a popular and important touchpoint for building awareness and mass communication. If the brand’s core buyers are adult shoppers (36+yo), a digital-first approach might be less important than it is for younger shoppers where the use of digital media will be more effective. Understanding media habits across different generations allows brands to create the right media strategy for the right shopper.
In terms of social media, Facebook is the most used platform across different generations of FMCG shoppers. Younger people – GenZ and Millennials – prefer Instagram and TikTok, while older shoppers prefer more informative media like Youtube and Google Search.
The forecasted trend is dynamic depending on the macroeconomic situation, our Expert Solution team can help you to navigate firmly amidst this dynamic. Find out more
Currently, the global macroeconomic climate has had limited impact on Indonesia, but this may change in the year ahead. Given the change in shopping preferences and behaviours, FMCG growth in the whole of 2023 is predicted to be lower than the previous year at 6.5%. Slower growth is expected across FMCG, including food as the main sector. But with better macroeconomic conditions, there could be a more positive outlook.
With limited cash outlay, shoppers are being forced to rationalise their purchases. Make sure products are at the right price and good quality to compete in the consumer’s basket
Look beyond Java. Outer Java has more potential with higher population growth and FMCG spending
As digitalisation continues to accelerate, secondary cities and rural areas are gradually catching up
Post-pandemic, availability in proximity channels is a must for a smooth recovery
Build a seamless omnichannel strategy as buyers are used to a hybrid lifestyle, especially for categories with high availability in digital commerce
With the acceleration of digital, it is essential to understand shoppers’ media habits and the different media to engage with the right shoppers’ profiles
This chapter uses Kantar's panel FMCG data per Oct 2022.
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