Feeding a growing nation
The Indonesian food and beverage sector is still on pace to grow faster than previous years, thanks to increased investment, a clear push from the government, as well as various technological advancement, further boosted by the country’s massive, and ever growing, consumer base.
It may not come as a surprise for those working in Indonesia’s food and beverage sector, but the 47.12% increase between 2017 and 2018 in the imports of household processed food and beverage products could certainly count as a significant win for the exporting companies.
According to data from the Indonesian Trade Ministry, the imports of household processed food and beverage spiked upward to a four-year high of US$4.13 billion (Roughly Rp57.6 trillion) in 2018 from $2.8 billion in 2017 – the highest increase for imports in that category, which, in previous years prior to 2018, hovered between $2.2 and $2.9 billion. Why that category of imports increased so markedly is not immediately clear. Nevertheless, the data illustrates the growth potential inherent in this sector.
Indonesia’s food and beverage sector is one of the more consistently growing sectors in the Indonesian economy. In 2017, the food and beverage sector’s turnover reached $107 billion, a nine percent increase compared to the previous year. In 2018, the sector grew 7.91%, way above the national GDP growth of 5.17%. This year, the government expects the sector to grow 9%, owing to increased investments and the government’s own commitment to boost exports from the non-oil-and-gas sector. Industry Minister Airlangga Hartarto said in a statement that the government has projected that investment in the food and beverage sector would reach Rp 63 trillion in 2019.
Adhi S. Lukman, Chairman of GAPMMI, the Indonesian Food and Beverage association, echoed the government’s optimism, saying that the sector had always shown resilience to the various challenges posed by the global economy or domestic political changes. He attributed that resilience to the country’s strong domestic consumption, which, historically, contributes more than half of the country’s GDP.
Meanwhile, various analyses also points towards consistent growth for the sector. Based on Nielsen’s consumer confidence index and as well as data from Indonesia’s Central Statistics Agency, Indonesian consumers are more likely to continue to spend more on goods and services. Around 51% of the monthly expenditure per capita is spent on food compared to commodity food products like grains, meat, seafood, eggs and milk. Indonesian consumers also spend more for prepared food and beverage.
Another driver behind the growth of the food and beverage industry is the established number of modern retail stores in the country. From 2016 to 2017, there are around 29,600 convenience stores, 297 hypermarkets, and 1,674 supermarkets. The rising number of cafés and restaurants in Indonesia has also supported the development of the food and beverage industry. It is expected that that the number of hotels, cafés and restaurants would increase by 3-6% in the near future.
Another important factor that will contribute to the food and beverage industry is the tourism sector. In 2018, as many as 15.81 million tourists visited the country, up slightly from about 14 million in 2017 but a significant rise from 11.5 million 2016. To accommodate tourists, there are about 2,387 star-rated boutique and resort hotels in Indonesia, with International hotel chains and locally owned hotels expected to expand even more in the coming years. For 2019, Indonesia expects to welcome around 18 million tourists.
The most exciting factor however is the advancement in digitalization and how it has affected the sector. Far from being a disruptor, start-ups such as Go-jek and Grab has managed to empower the food and beverages sector by creating a convenience ecosystem centralized upon its ride-hailing service and online payment system – a model that is becoming more and more common around the world. Furthermore, the food and beverage sectors is one of the sector’s prioritized by the government for the implementation of Industry 4.0, an initiative that is projected to quadruple the value of Indonesia’s exports of food and beverages to $50 billion by 2025.
The prospective outlook of Indonesia’s food and beverage industry inevitably invites fierce competition. Companies interested in penetrating market must have a clear, firsthand view of the market in order to develop the proper strategy. Upcoming challenges include a mandatory halal certification rule, as well as a planned tax increase for companies importing consumable goods. That being said, the vast opportunities offered by Indonesia’s food and beverage sector should be worth the while.