UPGRADATION, PREMIUMISATION IN INDONESIA
Is it now really the right time for premiumisation in Indonesia?
Premiumisation is becoming more and more hot topic in Indonesia right now and no exception for FMCG business. However, the question is remaining the same: Is it now really the right time?
Euromonitor data shows that the Indonesian income is increasing by 58% in 5 years. However, it is quite hard to get SES C, D, and E on a premium offer since their average budget is much lower and the number of FMCG categories that they purchased is also fewer than higher SES. Moreover, to target specific consumers outside Java and Sumatra will be very challenging as well, as the budget gap between them is so large.
So, what about the current condition of premium segment in Indonesia? Our data shows that Indonesian households buy premium category, but the growth is mostly coming from value growth, not the increase of buyer base. Premium brands find difficulties in recruiting new buyers, but could easily lift the value. One example from a premium category, liquid soap, it could recruit the buyers from bar soap buyers, but it could not influence these buyers to replace bar soap to liquid soap.
The next question is, are premium ranges growing? Yes, it is growing, but not all categories. For example, categories like Ice Cream and Baby Milk Powder have big market share for its premium segment if we compare it with toothpaste for instance. In the end, premiumisation is not the only way to take the lead of category since the innovations with low pricing are also performing very well.
However, despite of some difficulties in penetrating the market thru premium segment, there are some key successes of premiumisation in Indonesia:
- Do not expect to reach a large target yet
- Education remains a priority to boost premium ranges and categories
- Build trust on health and safety
- Go beyond basic and build professional image
- Go beyond product itself and giving consumer inspiration on lifestyle
- Innovate new product to meet new consumption needs
Furthermore an example from China (which also experiencing economic slowdown) shows that premiumisation or upgradation remains a critical trend there for the total FMCG to keep growing. The good performance of premium products there during the economic slow-down should inspire manufacturers in Indonesia.