Indonesia retail market poised to reach US$ 294.37 billion during 2021-2026

The Indonesia retail market is poised to reach US$ 294.37 billion during 2021-2026 progressing at a CAGR of 4% during the forecast period. Though the retail market for food and grocery seems to be growing, there are several issues and risks a market player has to contend with slowed down household consumption and increased price of food and grocery

Definition / Scope
Market Overview
Market Risks
Market Drivers
Market Restraints
Industry Challenges
Technology Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References

Definition / Scope

Food and grocery retailing is a marketplace where groceries are sold. Food retail is a small easy access store that offers a limited assortment of products, most often focused on snack foods, fast foods and ready to eat. Grocery retailing is a store selling foodstuffs, meats, dairy products and usually household supplies.

In Retail stores most of the actual sales to the customers take place. They act as both a marketing tool for the brands and a support tool for the customers to exchange and communicate important information.

The food and grocery retail market includes the retail sales of all food products, both packaged and unpackaged, as well as beverages (including retail sales of all alcoholic and non-alcoholic beverages), tobacco, and household products. more readable and data backed

Table: Indonesia Food and Grocery Retailing Market Key Segments

BY Distribution Channel	Offline Online
BY PRODUCT	Beverages Packaged food Unpackaged food Household products

Market Overview

The Indonesia retail market is poised to reach US$ 294.37 billion during 2021-2026 progressing at a CAGR of 4% during the forecast period. The market is driven by the expansion of retail landscape and growing popularity of private-label brands. In addition, expansion of the retail landscape is anticipated to boost the growth of the market as well.

The Indonesia food and grocery retail market is segmented on the basis of product and distribution channels. Based on the product, the food and grocery retail market is segmented into packaged foods, unpackaged foods, beverages (including retail sales of all alcoholic and non-alcoholic beverages), tobacco and other household products.

Unpackaged food is expected to be at the forefront of the market throughout the forecast period. On the other hand, segments such as packaged food and drinks are anticipated to account for sizable shares in the market during the same period.

Based on the distribution channel, the market is segmented into modern grocery retailers that are online and offline (brick and mortar channel). Due to the increasing internet penetration due to easy access to the internet, the prospect of growth for online retailers is exceptionally high in the region.The rising prominence of in-store bakeries in supermarkets is one of the prime reasons driving the Indonesia retail market growth during the next few years.

Food & grocery is the largest sector in the Indonesian retail industry, accounting for 64.9% of total retail sales. In 2016, food & grocery sales stood at US$ 178.5 billion and are projected to grow at a CAGR of 8.5% during 2016-2021 to reach US$ 268.7 billion by 2021.

Convenience stores is the largest channel in the sector, followed by hypermarkets, while online retail is still in a nascent stage. The online channel is estimated to grow at a CAGR of 22.5% during 2016-2021 with sales reaching up to US$ 369 million by 2021. The sector is dominated by local retailers such as Indomaret, Alfa, Super Indo, and Family Mart. Each witnessed growth in sales supported by a stable economy, which increased private spending.

Market Risks

Though the retail market for food and grocery seems to be growing, there are several issues and risks a market player has to contend with. Some of these are:

Slowed down Household Consumption

In Indonesia, household consumption has slowed down in the past two years, which is a great concern, as household consumption has been the biggest driving factor for the economy, and is 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 yet, there has been a slowdown in consumption growth.

Increased price of food and grocery

The rise in price of food and grocery compels the consumer to reduce their consumption. As a result, the market growth gets affected. The rising commodity prices of basic necessities including rice, vegetables and seed oils in turn drove overall value sales in grocery retailers.

In 2017, private consumption was affected by higher prices for food, electricity, and fees for vehicle registration, and in 2018, it is supported by lower credit cost, increasing employment, and an expansion of social welfare.

Top Market Opportunities

The top market opportunities of the food and grocery retailing market are explained below.

Rising Disposable income

Increased disposable income as a result of economic growth has fueled the spending on consumables. Rise in income means consumers would spend more on household products.

The economy of Indonesia is being growing so, the income of people is also increased and they spend

Large population base

The retail sector in Indonesia remains one of the most promising markets among Asian countries, on the back of its large population of 258.5 million in 2016.

There is a large population of middle class people with higher household purchasing power and increasingly modern spending habits. This has boosted the growth of the retail market in Indonesia.

Rise in tourism

Indonesia has one of the fastest growing tourism industries which are attracting large volumes of consumer’s to the country increasing expenditure on retail foods and groceries.

A large number of tourists means increased consumption of food and other items which obviously lift up the retail market.

Tourism market helps in the growth of the economy of the country which leads to the rise in income of people and their consumption.

Therefore, the rising tourism market has indirectly boosted the retail market of Indonesia.

Market Drivers

The major factors driving the food and grocery retailing market of Indonesia are explained below.

Growth in Ecommerce

The growth in e-commerce will have a positive impact on the market and contribute to its growth significantly over the forecast period. Many small and established Indonesian retail brands are going online, resulting in a significant boom in Internet shopping in the region.

With Internet connectivity becoming more robust and affordable, consumers are beginning to feel secure and comfortable while purchasing online.

The online channel will present immense opportunities for retailers in Indonesia during the forecast period. Moreover, the growth of m-commerce is expected to support the growth of the online retail segment in Indonesia during the next five years.

Increasing number of middle-class consumers and rising brand consciousness

An increasing number of middle-class consumers and rising brand consciousness among them have been driving the market for food and grocery retail in Indonesia.

Increasing the number of middle-class consumers means increased consumption of household products and other grocery items. Rise in Brand conscious consumers are always boon to the retail market.

Expansion of modern retail sector

A key factor driving the growth of the retail market size in Indonesia is the expansion of the retail landscape. The organized retail market in Indonesia is growing significantly across the country with companies expanding stores and considering the business potential in new areas.

Most of the unorganized retail outlets are increasingly being replaced with big retail hypermarkets, supermarkets, and other retail chains. This is expected to continue on a large scale during the forecast period, which will significantly lead to the market growth of the Indonesian retail sector.

Market Restraints

There are different restraints of the market of food and grocery, which are explained below.

Outbreak of the COVID 19 pandemic

Due to the outbreak of the COVID 19 pandemic the income of the people is decreased which led to reduced household expenses. People started to spend on the most essential things only.

This created a major risk in the retail market. Despite the risk, the region is expected to recover intensely in the second half of the year 2020, as the demand for packaged foods and grocers increases.

The rising prices of fuel and electricity

The rising prices of fuel and electricity suppressed the purchasing power of Indonesian consumers. High numbers of price-conscious consumers therefore limited their spending on grocery products during the year.

This resulted in slower value growth for grocery retailers than what was seen in the channel in last year.

Industry Challenges

An industry faces certain challenges while running its business. The major challenges faced by the Indonesian food and grocery industry are explained below.

Strict Government Regulations

Government makes and implements laws related to the food and grocery retailing market. The strict government regulations always hinder the proper growth of the market.

The regulations of the government regarding the taxes, import duties and restrictions in certain items restraints the market growth.

Threat of rivalry

There would be much more competition in the market between similar product industries.

To compete with similar products and grow the business, it’s a big challenge for all the industries.

Bargaining power of suppliers

The suppliers of raw materials and many other items do bargain with the buyers or the industry owners.

The suppliers try to raise the price of their goods but the industry owner tries to minimize the price. This creates a dispute between them which is a great challenge faced by the food industry.

COVID 19

The outbreak of the pandemic has however affected the market negatively, but the region is expected to recover intensely in the second half of the year 2020, as the demand for packaged foods and grocers increases.

The Covid-19 pandemic and its related restrictions are having a severe impact on Indonesian household spending in2020, with real household spending projected to decline by 1.8% y-o-y. While measures by the government to stem the spread of the virus were eased in June, a surge in new cases has forced many regions to re-introduce restrictions. This will put further pressure on household spending over H220.

While the government is supporting households through a number of programmes, the economic realities of multiple periods of lockdown will weigh on spending over the remainder of the year. Good fundamentals, solid demographics and a low base will see real household spending return to positive growth in 2021, where we forecast spending to expand by 3.6% y-o-y.

Technology Trends

On-demand food retail

With modern society demanding instant gratification, consumer expectations continue to grow with many wanting to purchase items quickly and conveniently without any disruptions to daily life. One food retail innovation within the on-demand food retail sector which will continue to grow in popularity is food lockers or pods.

Self-service solutions company Keuken builds and sells food pods for train stations, takeaway restaurants, supermarkets, highway services, offices, airports, and meal-kit and food delivery companies. The company also creates cloud-based software for retailers and provides training for staff on how to manage the pods.

In-store experiences

Although online food retail growth shows no sign of slowing, the world of brick-and-mortar continues to be the foundation of the retail sector.

And due to many physical store chains suffering, retailers are beginning to build their physical retail spaces into technology-focused experiences.

Pricing Trends

Food industry input costs, profits, and productivity largely determine the price of food products when they reach the consumer.

Consumers have been paying more for groceries during the coronavirus pandemic. Transporting goods from point A to point B has slowed for multiple reasons; including workers getting sick from the virus and truckers struggling to get products to stores fast enough.

In 2020, the product value of Indonesia’s large and medium food and beverage processing industry was estimated at $92.3 billion. The value of raw materials used by large and medium processors in 2020 was $59.0 billion.

Regulatory Trends

The retail industry includes many different sub-sectors, ranging from groceries to clothing to furniture and beyond. Each of them faces its unique regulatory challenges, although all retailers are affected by nationwide labor impositions such as minimum wage and overtime pay laws. As with all industries, government regulation adds compliance costs and possible legal liabilities to the retail sector.

Additionally, most brick-and-mortar retailers are charged sales taxes while Internet-based retailers are not.

Brick-and-mortar retailers have to deal with an ever-growing litany of labor relations laws and contract restrictions with employees. These begin with how much employees can be paid and how long they can work, but the DOL also imposes labor certification processes and makes it relatively easy for retailers to be brought to court by disenchanted current or former employees.

Other Key Market Trends

The average net profit margin in the grocery industry is around one percent of sales. Wage and fringe benefit expenses average approximately 10 percent of sales (Food Marketing Institute, various issues).

Consequently, it is unsurprising that labor cost concerns are repeatedly cited by supermarket managers and executives as a leading concern (Progressive Grocer, various issues).

In the last two decades, the grocery industry has also experienced a dramatic increase in the use of technology while stores have become larger and more diverse. At the same time, union density and the real value of the minimum wage have declined.

Market Size and Forecast

The Indonesia retail market is poised to reach US$ 294.37 billion during 2021-2026 progressing at a CAGR of 4% during the forecast period.

The Food and Beverage (F&B) sector plays a vital role in the Indonesian economy. In the primary sector, production of raw material for the F&B industry by plantation, agriculture, and fisheries accounted for around 14.3% of Indonesian GDP, as of 2018. In the secondary sector, manufacturing of F&B accounted for 5% of GDP and 27% of all manufacturing output.

According to USDA Foreign Agricultural Service, Indonesian grocery retail sales reached $115 billion in 2019 (Traditional Grocery Retailers held 82 percent share). The Indonesian food and grocery retailing market is driven by rising disposable income, large population base, growth in E-commerce, increasing middle-class consumers, expansion of the modern retail sector and rise in tourism.

The major restraints of the market are the outbreak of the COVID 19 pandemic, slowed down household consumption, increased price of food and grocery, rising prices of fuel and electricity, and strict government regulations.

The technology used by the industry affects the growth of the market. With modern society demanding instant gratification, consumer expectations continue to grow with many wanting to purchase items quickly and conveniently without any disruptions to daily life. One food retail innovation within the on-demand food retail sector which will continue to grow in popularity is food lockers or pods.

Fig: Indonesian Food and Grocery Retailing Market Trend by Products (in US$ Billion)

Fig: Indonesian Food and Grocery Retailing Market Share by Distribution Channel (in US$ Billion)

Market Outlook

Packaged food dominated the market for food and grocery retail with more than 40% share of the total revenue in 2019. High consumption of the packaged foods and grocery products, such as bread, butter, cheese, desserts, frozen groceries, edible oil, processed meat, savory snacks, and yogurt, has fueled the growth of the packaged food segment.

Factors including effortless cooking and consumption, easy handling, and better protection from external tampering have been driving the demand for these grocery products among the consumers.

Furthermore, the busy schedule of the consumers is encouraging them to opt for convenient foodstuffs and other grocery items. In addition, packaged food products are poised to gain popularity over the coming years owing to the widening base of the working population.

Over the past few years, demand for ready-to-eat, ready-to-cook, and bakery products has been witnessing significant growth across the globe. This has been accelerating the growth of the packaged food segment. Manufacturers have been innovating and internationalizing their packaged food and grocery products to expand their consumer base.

The supermarkets and hypermarkets held the largest share of over 55% in 2019. The majority of consumers prefer to handpick things themselves. Consumers feel more comfortable with selecting their own grocery items, especially with fresh products.

Generally, consumers have very specific preferences for fruits and vegetables. For example, they prefer some products green and some ripe. Other factors driving this distribution channel include price discounts, shopping experience, immediate purchase of grocery products, and availability of a wide range of products in a single shop. Furthermore, enhanced services such as click and collect have fueled the sales of grocery products through this channel.

Online distribution channels are projected to witness the fastest growth in the upcoming years. Retail giants including Walmart, Kroger, and Target have been investing in online ordering and distribution capabilities in order to compete with large e-commerce platforms, such as Amazon. Constant increase in smartphone and broadband adoption, especially in the developing nations, has been boosting online retail sales.

Flexible retail option is the key factor fueling the growth of the online distribution channel. Online sales of several food products, such as liquid milk, chocolate, chips/crisps, cookies, have increased notably over the world. Furthermore, rising enthusiasm and comfort for digital shopping among the millennials and Generation Z consumers have been boosting the growth of the segment in the food and grocery retail industry.

Fig: Indonesian Food and Grocery Retailing Market Outlook by Products (in US$ Billion)

Technology Roadmap

In an ever-changing retail environment, grocers and online food retailers are constantly innovating and utilizing technology to ease the consumer shopping journey.

They’re also finding ways to use technology to streamline business operations. From smart shelf labels to the use of artificial intelligence, technology is paving the way for a grocery experience unlike anything shoppers have seen before.

Walmart, has expanded use of autonomous robots to search for out-of-stock or misplaced items and missing labels. Farmstead uses artificial intelligence to calculate and predict how much food to order from its local sources in order to prevent waste in the supply chain.

Additionally, British online retailer Ocado utilizes artificial intelligence and machine learning to better understand which customer communication needs immediate attention and to prevent fraud.

As for customer-facing technology, scan-and-go checkout is growing at a rapid pace and is being tested and deployed by the likes of Kroger, Meijer and smaller retailers alike in an attempt to make checkout easier for customers.

Distribution Chain Analysis

Fig: Supply chain of Indonesia’s Food and Grocery Retailing Market

Competitive Landscape

Participating companies have been expanding their geographic presence across the globe in order to increase their consumer base. For instance, in April 2019, Walmart announced to invest more than USD 800 million in Texas, California, Florida, and other states of the U.S. to open new retail stores and renovate.

The major players of the market have been indulging in strategies, like product innovation, mergers, acquisitions, partnerships, and geographical expansions, which in turn, has leveraged them to gain an esteemed position in the market. Owing to the changing taste and preferences of consumers there have been considerable development of products by various global and regional players.

Moreover, owing to the increasing demand for fruit flavored and dairy free products primarily in North American and European countries with increased lactose intolerance consumers, the major players are expanding its product portfolio with new products to suffice the market needs.

For instance: Coca-Cola expanded its footprints in dairy free smoothie under its AdeZ. Major players operating in the market include, Nestle SA., The Coca Cola Company, PepsiCo Inc., General Mills, among others.

In 2020, the major players of the Indonesian retail market were:

Convenience stores with 34,780 outlets. Major Convenience stores include Indomaret and Alfamart.
Hypermarkets with 333 outlets. There are four players in the hypermarket group: Carrefour/ PT Trans Retail Indonesia, Giant/ Hero Supermarket Group, Hypermart/ PT Matahari Putra Prima Tbk, and Lotte Mart/ Lotte Mart Indonesia PT.
Supermarkets with 1,428 outlets. There are six in the supermarket segment AlfaMidi/ Midi Utama Indonesia Tbk PT, Hero, Superindo, Ranch Market & Farmers Market/ Supra Boga Lestari Tbk PT, Food Mart, The Food Hall
Traditional grocery stores with 4,512,891 outlets (a decrease if compared to 2018).

Competitive Factors

Advanced technology

To be sure, grocery retailers are committed to embracing technology. Walmart recently opened its second tech research office in Texas to focus on operations technology and ways to bring new technology to stores.

Similarly, Ahold Delhaize announced that it would partner with a Dutch research group to study how artificial intelligence can create better recommendations for shoppers and how it can better manage the supply chain. So, due to the advancement in technology, there is high competition in the market between the retailers.

Wide range of products

The food and grocery retailing markets have a wide range of products. the market that has the most wide range of products come ahead in the market. Consumers can choose the products from a wide range so such markets can easily compete with other retailing markets.

Key Market Players

Several leading Indonesia retail market vendors that include CT Corp., PT Erajaya Swasembada Tbk, PT Hero Supermarket Tbk, PT Lion Super Indo, PT Multipolar Tbk, PT Ramayana Lestari Sentosa Tbk, PT Sumber Alfaria Trijaya Tbk, PT. Circleka Indonesia Utama, PT. Indomarco Prismatama, and PT Mitra Adiperkasa Tbk.

PT. HERO SUPERMARKET TBK is located in Tangerang, Banten, Indonesia and is part of the Grocery Stores & Supermarkets Industry. PT. HERO SUPERMARKET TBK has 11,000 total employees across all of its locations and generates $846.48 million in sales (USD). There are 223 companies in the PT. HERO SUPERMARKET TBK corporate family.

Super Indo has 182 stores across 45 major cities in Java Island and southern Sumatra and 5 franchise supermarkets (Super Indo Express) located in South Tangerang, Bekasi, & Depok. Supported by more than 8,000 trained associates, Super Indo provides a wide range of items for everyday needs with reliable quality and economical prices in its easily accessible stores.

Strategic Conclusion

The Indonesian Food and Grocery Retailing Market is likely to grow during the forecasted period. Due to the COVID 19 pandemic, it was affected for a few years but again it’s going towards the path of growth.

The drivers of the retailing market growth are rising disposable income, large population base, growth in e-commerce, increasing middle-class consumers, expansion of the modern retail sector, rise in tourism etc.

After the outbreak of COVID 19 pandemic the sales of packaged food has increased because consumers find it safer than unpackaged food. Consumers started preferring online medium for food and groceries. This is expected to continue and rise in the forecasted period.

References

Appendix

CAGR- Compound Annual Growth Rate
DOL- Department of Labor
USDA- United States Department of Agriculture
US$- United States Dollar