02FMCG Sector Dynamic and Shoppers’ Response
De-aggregating brands’ strategy in each sector
The declining birth rate in Indonesia presents a daunting challenge for Baby Care categories, strongly signalling a need to adapt to shifting demographic trends. In the face of this challenge, manufacturers find themselves at a crossroads, with an urgent requirement to reassess their approaches to cater to a changing consumer landscape. The diminishing number of births poses potential hurdle; however, within this challenge, an intriguing opportunity is presenting itself.
Households with babies (0-6 years old) have emerged as resilient shoppers for Baby Care categories. They display a distinct inclination to prioritise baby goods over other FMCG products, underlining the enduring importance of these categories in their basket. Despite the broader demographic challenge, the growth rate for baby categories within these households outpaces the overall FMCG market by a substantial 2%. This resilience suggests that, while the market may be contracting, there remains a steadfast demand for Baby Care categories within this specific demographic segment.
As we dissect the households based on the age of the baby, a compelling trend reveals itself. While the relevance of baby categories gradually diminishes as the child grows older, the early stages of a baby's life wield substantial influence, driving households to allocate a larger share of their budget to baby-related products. These not only constitute a sizable proportion of the FMCG basket, but also grow consistently year after year. Manufacturers keen on capitalising on this trend must comprehend how needs and preferences evolve throughout the baby's journey.
Understanding behaviour and preferences during each life stage is paramount. For instance, the popularity of Baby Cologne among households with babies younger than three years old sharply contrasts with the preference for Baby Shower Gel among older infants. Identifying such nuances allows manufacturers to tailor their strategies, aligning with the changing demands of each life stage and ensuring sustained growth.
The Personal Care sector in Indonesia unfolds into two distinct segments: Personal Care and Beauty. Each has its own unique trajectory within the FMCG landscape.
In recent years, Beauty has taken centre stage, emerging as the darling of FMCG with a robust growth curve boasting a compound annual growth rate (CAGR) of 2% in penetration over the past three years. This surge is testament to the sector's resilience, and its ability to capture the imagination of consumers. In contrast, the Personal Care segment faces a different set of challenges, primarily the need to contend with saturated price competition that has driven affordability to the forefront. The overarching trend can be summarised as a dichotomy: while the key trend in Beauty is premiumisation, Personal Care emphasises prioritisation in the consumer basket.
The channel landscape is evolving, presenting both challenges and opportunities. Traditional channels like general trade (GT) and minis continue to dominate, but the real growth narrative can be found in digital commerce and health and beauty apothecaries (HABA). Over the past five years, HABA has achieved a remarkable CAGR of 18%, underscoring its emergence as a formidable player. Digital commerce reached a CAGR of 64% over the same period, signalling a paradigm shift in consumer shopping behaviour.
A deeper dive into the HABA segment reveals a strong premiumisation trend, which is reshaping specific Personal Care categories. This is particularly pronounced in Shampoo, Toothpaste, and Body Care, where consumers are increasingly gravitating towards more sophisticated and higher-quality products.
Not only that, but the trend also represents a shift in consumer attitudes towards self-care and a desire for products that align with their individual lifestyles. As consumers become more discerning and prioritise quality, retailers in the HABA space have a unique opportunity to differentiate themselves by offering products that not only meet functional needs but also elevate the overall personal care experience.
Diving into the Home Care sector unveils a dichotomy between two pivotal segments: Clothing and Home. The Clothing segment predominantly encompasses Laundry Care categories, while the Home segment boasts a diverse mix of Home Cleaners, Insecticides, Air Fresheners, and more.
Reflecting broader trends witnessed in overall FMCG shopping behaviour, consumers within the Home Care sector are adept at adjusting and rationalising their purchases of household necessities, as they navigate the shifting economic landscape.
Despite this, the rate of value growth is closely aligned, with FMCG at 5% and Home Care at 4%, primarily propelled by incremental price increases within the sector.
A noteworthy parallel behaviour can be seen within both the Clothing and Home segments, which share value growth of 4%. Consumers exhibit a higher inclination towards prolonging the use of products, indicated by a steady frequency of purchase trips within both segments. This consumer suggests a deliberate effort to maximise value and make informed choices, contributing to the sustained growth in spending.
However, the coping mechanisms within each segment diverge. In Clothing, consumers have a tendency to buy more units by prioritising smaller packs. This approach allows them to manage budget constraints without compromising on essential laundry care. Conversely, within the Home segment, consumers adopt a more selective approach, emphasising affordability by prioritising cheaper brands or alternative formats.
Venturing into the Pantry Essentials sector, a diverse dynamic unfolds, with three primary categories shaping the kitchens of Indonesian households: Staples, Quick Process, and Cooking Aids. Each plays a unique role, catering to the varied tastes and preferences that are reflected on plates across the country every day.
Staples emerges as a cornerstone, led by Instant Noodle, found in the pantries of the majority of Indonesian households. Complementing this is the Quick Process segment, comprising categories requiring minimal processing, such as Frozen Food, Instant Soup, Canned Items, and Ready-To-Eat Sausages. Finally, Cooking Aids encompasses an array of Seasonings, Dressings, and Dippings – a variety of products that elevate dishes to new heights.
Growth in the Pantry Essentials sector has largely been propelled by price increases. However, while volume growth has remained stagnant across the segments, the effect of inflation has had divergent impacts. For the Staples segment, this effect has been negative, which has hindered its growth. In contrast, both Quick Process and Cooking Aids have demonstrated resilience, achieving organic growth. Notably, there are hints of a premiumisation trend in the Quick Process segment, as consumer mobility is higher compared to previous years.
Instant Noodle has achieved almost full penetration across Indonesian households. However, its growth trajectory is now being dragged down as household consumption levels decrease, a result of rising prices. Consumers are pushed to undergo an adjustment period, aligning with the new price baseline and potentially revitalizing consumption to previous levels.
Within the Quick Process segment, Frozen Food emerges as dominant, accounting for 73% of the total market value. This category not only registers the highest growth rate among Pantry Essentials but also boasts substantial growth potential. Although it has the highest penetration within the segment, at less than 60% this still leaves ample room for expansion. Canned Food and Ready-To-Eat Sausages follow, contributing to the sector's robust growth.
In the Cooking Aids segment, a nuanced picture emerges when we categorise by penetration and frequency levels. Three distinct groups form: primary categories with over 80% penetration and high purchase frequency, secondary categories with 50-80% penetration and lower frequency, and tertiary categories with penetration below 50%. This provides insights into the maturity stage of each category, guiding strategies to either expand the shopper base or increase purchase frequency.
The Out-of-Home (OOH) sector stands as a distinct group within FMCG, not only due to its substantial share of value within related categories compared to in-home, but also marked by Worldpanel Indonesia's innovative approach to capturing purchases. This enhanced methodology now encompasses both pre-packaged and freshly prepared items, extending its scope to include on-premise consumption experiences.
The unique journey of the OOH sector is vividly reflected in its organic year-on-year growth, which is four times higher than for in-home purchases. This momentum is not a statistical anomaly; but a reflection of the increasing levels of mobility in today's post-pandemic scenario. Sustaining this growth has become paramount, especially considering that shoppers exhibit a willingness to invest over 10% more on products purchased OOH compared to their in-home counterparts.
+11% spend per buyer growth on OOH purchase while IH are coping more with price increase
To comprehensively understand and sustain this growth momentum, delving into the dynamics of Indonesia’s shoppers is imperative. Taking an age-centric perspective offers a clear lens, shining a light on preferences and daily OOH consumption patterns.
Each age group presents a unique set of behaviours. While Kids lead in the number of trips, it's the Adults who contribute the most spend on each trip. However, the story shifts with Teens and Young Adults, making it necessary for OOH category brands to build a thorough understanding of their preferences and characteristics to inform strategic decisions.
Zooming further in on each age group, dissecting their habits by usage or time of consumption provides invaluable insights. For Teens and Young Adults, OOH categories are predominantly purchased during break: over lunch, or after school or work during the journey home. Aligning product availability with their surroundings, be it schools, workplaces, or commuting hubs, becomes crucial. Additionally, tailoring product portfolios to resonate with their preferences ensures relevance and engagement.
