Indonesia Country Profile

Market Overview:

Euromonitor reports that Indonesia continued to grow at a healthy pace in 2016. Indonesia is performing better than most emerging markets. Real Gross Domestic Product (GDP) grew by 5% in 2016 after gains of 4.8% in 2015. The economy is being driven by public spending on infrastructure and private final consumption. Government consumption is also rising. Exports continue to decline owing to weaknesses in commodity prices and slow growth in major markets. Growth of real GDP will average about 5.3% per year through 2020. The International Monetary Fund (IMF) predicts that Indonesia will be the world’s fifth largest economy by 2030.

The real value of private final consumption grew by 2.5% in 2015 and growth of 4.3% was expected in 2016. An increase in the average minimum wage, a hike in the pay of civil servants in 2016 and several interest rate cuts support consumer spending. Infrastructure spending is rising but more slowly than expected. The infrastructure gap is also large. With a young population, low public debt, large domestic markets and a considerable resource endowment, Indonesia’s prospects are bright. Public spending will gather momentum.  

However, the low prices for many primary commodities will slow growth of private investment (FDI). Officials intend to channel an increasing portion of FDI into manufacturing – particularly manufactured exports – which they expect to be more stable than commodity-oriented industries. Domestic consumers are also expected to play a more important role in the future. Government officials predict that by 2025 about 135 million consumers will be able to spend more than US$10 per day. This figure is larger than the combined consumer base of Malaysia, Singapore and Australia.

Lagging development of infrastructure (transport and telecommunications networks, electricity, and water supply) slows the pace of economic growth. As a result, costs of transport, warehousing and distribution are higher than elsewhere in Asia. For example, logistics costs account for 24% of GDP in Indonesia, compared to 13% in neighboring Malaysia. In response, Indonesia has plans to spend US$450 billion on infrastructure in 2015-2019. Projects include seaports, airports, railways, power plants and water supply and waste treatment facilities. New structural reforms should support productivity growth.

The USDA Jakarta Office of Agricultural Affairs, OAA, hereinafter referred to as “Post” reports that Indonesia has adopted policies to protect its growing domestic industry from international competition and to help secure its trade balance. Agricultural self-sufficiency is a stated goal of the Indonesian government, and is used to justify trade barriers. Opportunities exist for exporters to serve Indonesia’s tourist market, Indonesia’s aspirational time sensitive urban population, and Indonesia’s growing food processing industry.

Indonesia is now considered the most stable democracy in Southeast Asia. In 2001, Indonesia embarked on an ambitious and challenging decentralization effort. Today Indonesia is one of the most decentralized countries in the world with substantial funds and authorities devolved to the regional levels. In October 2014, Indonesia swore in its new president, Joko Widodo. Under President Widodo’s leadership, Indonesia’s agricultural trade policy has continued to prioritize food self-sufficiency.

Indonesia maintains free trade agreements (FTA) with ASEAN-South Korea, ASEAN-China, ASEAN-Australia and New Zealand, Indonesia-Japan; Indonesia-Pakistan. Despite the gradual reduction in tariffs and quotas following these agreements, exporters and importers still continue to face lengthy and cumbersome custom procedures and non-tariff measures.

U.S. exports of agricultural products grew 23% to nearly US$2.7 billion in 2016.  It has regained its #1 position in Southeast Asia slightly ahead of Vietnam. U.S. exports of consumer ready products increased 3% to US$464.9 million, or 17% of the agricultural total. Indonesia is the 5th largest market in Southeast Asia for the export of U.S. processed food products, totaling US$373.7 million in 2016, although down 7% from the prior year. Top 2016 processed food exports from the U.S. to Indonesia included processed/prepared dairy products, food preparations, processed vegetables and pulses, syrups and sweeteners, prepared/preserved seafood, prepared/preserved meats and non-alcoholic beverages.  

Post reports that market opportunities include Indonesia's 2017 population of 261 million, which is relatively young, with 16.9% of the population between 15-24 years and 16% between 25-34 years old. Nearly 57% of the population lives on Java. Java also has the best infrastructure, although urban areas in Sumatera, Sulawesi and Kalimantan are developing rapidly. 53.3% of Indonesian people (135.9 million) are estimated to live in urban areas in 2015. The middle class population grew from 37% in 2004 to 56.7% in 2013. This group spends US$2 to US$20 a day (“Satu Dasawarsa Membangun Untuk Kesejahteraan Rakyat – A Decade of Development for People Welfare” - Cabinet Secretary April 2014).

Post reports that the population has become increasingly literate and Westernized during the past decade, due to the number of Indonesians who have studied and traveled abroad; they easier access to international media including internet and cable television; there are increased numbers of smart phone and internet users (more lap top and Wi-Fi locations). There has been expansion of modern malls in major urban areas; growth of major international hotels, restaurants, quick serve restaurants, bakery chains; and continued growth of foreign tourists.

Indonesians generally tend to be internet savvy and there is widespread use of social media. Facebook, Twitter, Path, Instagram, and Ask.fm are widely used as a medium to share information, especially among younger, middle class adults. In the second quarter of 2016, Facebook Indonesia reported that 88 million Indonesians were active Facebook users, with 94% accessing the website via smartphone. According to market researchers, Indonesia will have 102.8 million internet users by the end of 2016 (the world’s 6th largest internet user after China, U.S., India, Brazil and Japan). The demand for imported food ingredients is growing. Food manufacturers are continually developing new food and beverage products including snacks. 

Challenges for U.S. exporters include the fact that prices of imported products are relatively high compared to locally produced products. Consolidated shipments with products from several suppliers are often more cost effective for Indonesian retailers, but this increases documentation problems. Product shelf life should be considered for shipments to Indonesia due to the extended transportation and inconsistent customs clearance procedures & time. Third-country competition and promotion remains strong, especially from Australia, New Zealand and China.  Food product imports from ASEAN partners in Malaysia, Philippines, Vietnam and Thailand are growing.

Import regulations are often complex and non-transparent, thus requiring close business relationships with a local agent. Getting a Food Product Registration (ML) number for imported retail packaged food products is complicated, but required. Labels must be written in Indonesian and attached before entering Indonesia. Consumers tend to require smaller package sizes and importers tend to require smaller shipment sizes, making shipments smaller and more costly.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Indonesia had been estimated to reach US$24.5 billion in 2016, making it the largest in Southeast Asia. That represents a growth rate of over nearly 57% or US$8.9 billion since 2012. The forecast for growth in this market is also promising. By the year 2021, the retail sales in the packaged food market in Indonesia is expected to reach US$40.1 billion, a growth rate of 48.2%, or US$13 billion. High growth categories in the forecast include ice cream and frozen desserts, breakfast cereals, ready meals, processed meat and seafood, savory snacks, sauces dressings and condiments, dairy and rice pasta and noodles.

Post reports that while traditional markets still account for the majority of retail food sales in Indonesia, modern retail holds a significant share and is growing. The burgeoning hypermarket, supermarket and minimarket sectors offer opportunities for U.S. food products. U.S. apples, table grapes, oranges, lemons, processed vegetables (French fries), processed fruits (dates, raisins, jams, nut paste); snack foods and juices enjoy a prominent position in Indonesia's retail outlets and traditional markets. Further growth and changes in consumer preferences, along with improved refrigeration and storage facilities, will also create additional opportunities for U.S. exporters.

The first Aeon supermarket opened at the end of March 2015 in Jakarta (BSD City, Tangerang Selatan) and is owned by PT. Aeon Mall Sinar Mas Land Indonesia (PT. AMSL Indonesia). Aeon’s second location will be opened in North Jakarta in early 2017 and followed by another supermarket in SentulBogor.  SaveMax Super Grosir, owned by PT. Emporium Indonesia (Gunung Sewu Group), has opened two supermarkets located in the Jakarta region (Tangerang City and Cibubur). PT. Ramayana Lestari Sentosa Tbk (Ramayana) and SPAR International B.V. (entered Indonesia in September 2014) have opened 15 SPAR Supermarkets in Jakarta and its surrounding areas.

Jason Supermarkets (owned by Hero Group), launched supermarkets in Jakarta, while Loka Supermarkets (owned by Mega Mahadana Hadiya – Trakindo Group) has opened supermarkets in Malang - East Java, Tangerang, and Cibubur.  Matahari Group opened its first “smart club,” Trader Wholesale, in Tangerang on December 17, 2015. Lulu Group International of Abu Dhabi, managed by PT EK Prima Ekspor Indonesia, launched a hypermarket and department store in East Jakarta (Cakung) in May 2016. Lulu hypermarkets are also scheduled to open in BSD – Tangerang Selatan and Sentul-Bogor in the near future.

Convenience stores are expanding rapidly in Indonesia. Following the introduction of 7-Eleven in 2009, the stores have grown in popularity amongst young consumers and students. Convenience stores differ from Indonesian minimarkets in that they offer fewer SKUs than minimarkets while offering ready to eat foods and a dining area. Locally owned minimarkets are progressively expanding to residential and office areas throughout Java, Bali and other provinces. Minimarkets are in direct competition with traditional independent small grocers (warungs), on the basis of price, cleanliness, food safety, and comfort. Independent small grocers face this challenge by offering personalized, flexible services to their community. 

In 2012, PT. Sumisho E-Commerce Indonesia (a joint venture company between Sumitomo Corporation –Tokyo and PT. Sumitomo Indonesia) launched Sukamart as an on-line grocery store in Jakarta. Currently, several retailers offer on-line shopping. These include Klikindomart.com by Indomaret; Alfacart.com by Alfamart and MatahariMall.com by Matahari group (Hypermart). PT Supra Boga Lestari (Ranch Market group) will launch Kesupermarket.com soon.

There are a variety of specialty food stores serving high-end consumers in major urban areas. Ranch Market, The FoodHall, Grand Lucky, etc. provide premium grocery shopping and imported goods. Fruit boutiques, such as Total Buah and All Fresh are common and western-style bakeries are also growing due to new consumer awareness of western style breads and pastries. The Kalbe E-store offers online retail and home delivery services for grocery and health products. Many of these stores have suffered from import registration number (ML) requirements for processed food and retail packaging issues.  

Hypermarkets and supermarkets offer a wide range of food and beverage products and are generally located as anchor stores in shopping centers. One way supermarkets differentiate themselves from traditional retailers is by marketing high-quality fresh produce, a substantial portion of which is imported. Indonesian middle and upper income level consumers are increasingly shopping at these stores.

Hypermarket and supermarket retailers usually contain in-store bakeries, cafés and restaurants, and prepared meals, with grocery products typically contributing about 65% of total sales. Additional in-store services beyond typical food retailing are expected to grow. These include credit and debit card services, ATMs, floral departments, laundry services, home delivery services, in house bakery production, and delis/restaurants. Indonesian hypermarkets/ supermarkets also offer pre-paid mobile phone credits, liquefied petroleum gas (LPG), and store credit cards in cooperation with banks.  Retailers are expanding their restaurant and playground areas to attract customers (for example, Trans Retail and Lotte Mart).

Minimarkets, convenience stores, and other shops carry a wide range of convenience food items such as readymade meals, bakery products, processed foods, ice cream, and beverages. They sometimes carry a limited offering of fresh fruits and are open 24 hours. These stores are found throughout Indonesia’s major urban centers and are also co-located with gasoline stations, such as Bright, Circle K, Bonjour, Indomaret and Alfamart; and railway station.

The success of big retailer chains, wholesalers, and hypermarkets in offering Indonesian consumers a wide variety of products at lower prices is expected to stimulate the growth of imported food sales. More middle and low-income consumers are using organized retail outlets. Increasing competition will force existing supermarkets and other modern retailers to focus on targeted consumer groups, to become more sophisticated in their marketing efforts, and to improve store operation efficiencies. The number of minimarkets and other small stores will continue to grow. The greatest expansion is on the islands of Java and Bali, in residential areas and cities outside of Jakarta.

Best Product Prospects:

Post advises fresh fruits demonstrate better growth potential than any U.S. product categories already present in the Indonesian market. U.S. processed fruit and vegetables products, as well as snack foods, have also shown growth. Some of the best-selling processed foods include frozen french fries, popcorn, corn chips, mixed fruit juices, frozen and canned vegetables, ice cream, raisins, jams, almonds, baking mixes, dressings, sauces, and seasonings. There are good opportunities for high-value U.S. items that are not yet imported in significant quantities. These include potato chips, breakfast cereals, baby foods, organic foods, and specialty fruits (especially berries).

Food Service Sector:

Post reports that the Indonesian Hotel Restaurant Institutional (HRI) sector is extremely diverse, consisting of high-end hotels and restaurants that serve local and international cuisine, fast food outlets, cafés and bars, bakery, and low-end small restaurants, street-side restaurants known as warungs, and vendors that sell food to customers on the street. Catering operations serve airlines, factories, private social functions, cruise and military ships, and offshore mining and oil operations with expatriate staffs.

There were 2,197 star-rated, boutique and resort hotels with 217,474 rooms in Indonesia in 2015. These hotels are primarily located in West Java (283 hotels), Bali (281 hotels), Jakarta (228 hotels), Central Java (204 hotels), East Java (143 hotels), North Sumatera (111 hotels), DI Yogyakarta (89), South Sulawesi (78 hotels), West Nusa Tenggara (63), South Sumatera (61) and Riau (60). International hotel chains include Aston, Conrad, Crown, Fairmont, Four Seasons, Hilton, Hyatt, Intercontinental, J.W. Marriot, Kempinski, Mandarin, Le Meridien, Nikko, Novotel, Oberoi, Pullman, Raffles, Ritz Carlton, Sheraton, St. Regis, Swiss Bel, and Westin.  Locally-owned boutique and resort hotels are expanding and state-owned companies are also entering the hotel business

Bali remains the most visited tourist destination in Indonesia, followed by Jakarta, Batam, and Tanjung Uban (Bintan Island). A total of 10.2 million tourists visited Indonesia in 2015. Government of Indonesia (GOI) data indicates that in 2015, Singapore, Malaysia, China, Australia, Japan, South Korea, India, the Philippines, and Taiwan accounted for the highest numbers of tourists from the Asia Pacific region. These were followed by arrivals from United Kingdom, the United States, France, Germany and the Netherlands. Tourist arrivals are expected to reach 12 million in 2016.

Fast food outlets continue to thrive, despite the dominance of roadside stalls and vendors in the food service industry. The most prevalent fast food outlets include Kentucky Fried Chicken (560 outlets as of November 2016), A&W (230 outlets as of March 2016), California Fried Chicken (275 outlets as of December 2015), McDonald’s (168 outlets as of February 2016), and Pizza Hut (219 outlets plus 107 delivery outlets as of October 2016). These outlets are popular due to affordable prices, high standards and quality, and a pan-Indonesia footprint. Burger restaurants (ex: Burger King, Carl’s Junior, MOS Burger, Fatburger, Wendy’s) and pizza (ex: Domino pizza, Marzano Pizza) outlets from different companies have opened in Jakarta and its surrounding over the last few years. Korean fast food such as BonChon Chicken and Kyochon are also growing.  Coffee shops are also growing (Starbucks, Excelso Cafe, The Coffee Bean & Tea Leaf, Kopi Tiam, etc). Chain fast food outlets and specialty coffee shops are spreading from mixed retail locations to stand-alone shops.

Four and five star hotels catering to tourists and up-scale diners are more likely to serve imported food products. Cafés and bars specializing in Western and other non-Indonesian cuisine are also significant users of imported food products. Western style fast food outlets purchase imported foods, but variety is limited. Restaurants serving noodles, Japanese food, pizza, and fried chicken, as well as bakery product outlets and coffee houses are prominent and tend to use imported beef, fresh and canned fruits, frozen potatoes and vegetables, dressing, sauces, bakery ingredients, juice and mixed drinks, whipping cream, bakery ingredients and mixes, delicatessen products, and various coffee ingredients, such as creamer, honey, and flavorings. Irreplaceable food ingredients for French, Italian, Japanese and Korean restaurants depend greatly on imported products (cheese, condiments, oils, sauces, rice, and canned foods).

Best Product Prospects:

Post advises that the HRI industry will continue as a leading consumer of imported food items.  Opportunities for high-value U.S. food items include fresh fruits and vegetables, red meats, (Halal), bakery dough, butter, fruit and vegetable juices, cheese, breakfast cereals and pancake mix and tree nuts. Many of these items are not yet present in significant quantities due to a lack of customer knowledge (dehydrated & mashed potatoes) availability (specialty fruits and pea flour), and regulatory hurdles (there is a complicated procedure to import and distribute the alcoholic beverages and egg yolk products).

The HRI industry will continue as a leading consumer of imported food items. Popular products with growth potential include meat, bakery products, fruit & vegetable juices, butter, cheese, breakfast cereals/pancake mix and tree nuts. Opportunities for high-value U.S. food items include alcoholic beverages (beer and wine), egg yolks, dehydrated potatoes, and specialty fruits (such as berries). Many of these items are not yet present in significant quantities due to a lack of customer knowledge (dehydrated & mashed potatoes) availability (specialty fruits and pea flour), and regulatory hurdles (as noted above there is a complicated procedure to import and distribute the alcoholic beverages and egg yolk products which also apply in this sector).

Food-Processing Sector:

Post reports that in 2015, the product value of Indonesia’s large and medium food and beverage processing industry was estimated at IDR 1,238 trillion ($92.3 billion). The value of raw materials used by large and medium processors was IDR 791.8 trillion ($59.0 billion). According to the National Statistical Agency (BPS), there were approximately 5,700 large and medium-sized producers with 765,000 employees and 1.61 million micro and small scale producers with 3.75 million employees in 2015. 

The Indonesian food processing industry growth is attributable to several factors, including the introduction of new flavors and products with varying package sizes, growing middle class, aggressive promotional activities, modern retail expansion, and growing health awareness. Packaged foods sales growth ranged from approximately 4% (oil and fats) to 15% (snack bar) in volume in 2015. 2016 growth is expected to range between 2.5% (oils and fats) and 12.8% (snack bars). Packaged food growth is expected to continue. Urban women entering the workforce prefer the convenience of processed food products and will help drive this trend.

Educated consumers are increasingly seeking healthier options. Food manufacturers are responding by fortifying their products with vitamin; providing organic products, healthier ingredients, lower sugar, cholesterol, and fat content. Wheat flour, dairy products, noodles, cookies, and frozen processed chicken fortified with minerals and vitamins are available in the market. Soft drink industry growth is focused on new-to-market products, variants with attractive packaging, and novel flavors. Consumers seeking healthier options are driving demand for fruit juice, package coconut water, tea, sport and energy drink expansion, while demand for convenience is driving the development of instant coffee products.

Food processors are developing different branding and packaging for different market segments. For example, small packs cater to low income consumers or price sensitive consumer, while packaging for the food service industry is also available. Private labels are growing and are easily found on supermarket shelves. Ministry of Trade regulation in 2013 limits private label items to only 15% of stock keeping units (SKU). 

The Government of Indonesia is encouraging the growth of the food processing industry. Imports can benefit from this, as the GOI recognizes that some ingredients are not available locally. However, efforts to curb illegal imports, the global financial crisis, and populist politics lead to protectionism. Also, Indonesian importers are sensitive to foreign exchange fluctuations, and the weakening Rupiah has adversely affected imports. Import permitting issues are responsible for trade constraints with animal and horticultural products.

Indonesia offers significant potential for U.S. ingredient suppliers. Forecasted increases in U.S. sales are attributed to continued marketing efforts, GOI support for the local food processing industry, safety concerns about competing imported ingredients, and opportunities to differentiate and promote Indonesian products with high-quality U.S. ingredients. Additionally, ingredient demand will grow as new manufacturers enter the market and existing manufacturers expand their operations. For example, medium and large scale snack food manufacturers generally use 20% to 40% imported ingredients. Dairy processors mostly depend on imported dairy ingredients because Indonesia is only able to supply 25% of the demand. Food manufacturing expansion is expected in baking, food service, and retail sectors.

Best Product Prospects:

Post advises that primary ingredients such as wheat, refined sugar, soybeans, dairy, fresh fruit, and processed fruit have high demand and are frequently imported. Blending products used for enriching products such as corn starch, potato starch, dehydrated potato, garlic powder, onion powder, and chili powder are also in demand. Coffee extracts or concentrates fresh fruits and vegetables, cheese and tree nuts are also in demand. 

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