Indonesia is the next must-win market for cosmetics company executives looking to expand their brand’s consumer base. Home to the world’s fourth largest population, it has an enormous, and rapidly growing, middle class. With GDP growth of 5.6% year-on-year, Indonesia’s economy is expected to surpass that of Germany and the UK by 2030—bringing 80 million new consumers into the fast-moving consumer goods (FMCG) marketplace.

Cosmetics manufacturers that understand the Indonesian market, including shoppers’ priorities and retail trends, will be best positioned to take advantage of these growth opportunities. Although Indonesia is comprised of more than 18,000 islands, with a diverse culture made up of 300 different ethnicities speaking 750 local languages, consumers display quite similar shopping behavior.

Little and Often
Indonesians are frequent shoppers, taking, on average, 414 trips a year to buy FMCG goods, which equates to 35 times a month. Shoppers make more than one trip a day, meaning that the barrier to market entry is low. This frequency also gives manufacturers a high number of potential purchase occasions on which to target consumers, and expose them to the new brands and products they launch to the market.

However, average spend per household per shopping trip is less than in other Asian countries, so providing smaller pack sizes is important if cosmetic brands are to drive trial and make themselves more accessible and, therefore, more likely to be selected. Offering free samples, a common tactic in Korea, could also prove successful in Indonesia.

Traditional Retail Rule
Unlike other nations, traditional trade remains the dominant channel in Indonesia, as almost 80% of FMCG goods are sold through smaller family-run stores and corner shops. In fact, warung shops, small format traditional trade stores, can be found everywhere.

Among the modern channels, minimarkets and convenience stores account for more than 60% of total FMCG sales, and approximately 1.5 million new households shopped in these stores for the first time last year. The top two, Indomart and Alfamart, have more than 15,000 outlets across Indonesia, providing global cosmetics manufacturers with a way of widely distributing their products in a country in which complex geography and underdeveloped infrastructure can make this a challenge.

With access to smartphones increasing, digital channels are key: 10% of urban households in Indonesia now claim that the internet is their main source of information on FMCG products. Manufacturers must have a digital marketing strategy in place, and be ready to exploit digital channels as a key touchpoint, especially social media, considering the high importance to consumers of word-of-mouth and recommendation from friends when they are making a purchase decision.

Cosmetics Demand
The desire for cosmetic products is rising across Indonesia. The category achieved double digit growth in 2013, with growth in rural areas even higher than in urban areas. The penetration of cosmetics is at 81%, equivalent to 40.3 million households, similar to the number of households in Germany. The average household spend on cosmetics is comparatively small, however. Most consumers, in both urban and rural Indonesia, buy their cosmetics through traditional trade channels.

The facial cleansing segment is the main growth driver, suggesting that the market is still relatively skewed toward more basic products, but also that the use of makeup is on the rise.

Attracting New Users
There is potential for brands in almost all cosmetics segments to increase their penetration, in particular the less basic segments including nail polish, face masks and eye makeup. Adapting their positioning and developing products to meet local consumers’ specific needs is one way of achieving this and something that cosmetics brand Wardah has done very successfully.

Indonesia is the world’s most populous Muslim nation. There are specific rules that Muslim women should abide by, one of which is wearing the jilbab headscarf in everyday life. The jilbab has developed into a fashion item, worn by women known as Jilbaber who are stylish and chic and interested in beauty as well as fashion.

Wardah captured the opportunity to grow its brand footprint by offering fashionable halal cosmetic products targeted towards the Jilbaber. Halal means “permissible” or “allowed” in Arabic; and for cosmetics to be halal they must be alcohol-free and animal cruelty-free, and contain no pork by-products.

By bringing the concept of halal cosmetics to Indonesia for the first time, Wardah met the demand for halal lifestyle products in a way that appealed to both to the Jilbabers’ values and their desire to be on-trend. The penetration of the brand’s facial make-up more than tripled within 18 months.

Cosmetics companies that want to succeed in the Indonesian market should be ready to meet the increasing demand for halal cosmetics, and to embrace local values and culture. Women are also becoming more interested in products that whiten their skin, for instance. And men must not be forgotten! Being well groomed has become more of a priority for Indonesian men, who are receptive to purchasing foreign brands.  

Developing extensive distribution networks is essential to navigating and reaching shoppers in the complex Indonesian market, which has a population that is dispersed, few large cities, and a retail landscape that is fragmented and dominated by small format, traditional channels. 

---

Ashley Kang
Kantar Worldpanel

Ashley Kang is regional beauty director at Kantar Worldpanel, leading both local (Korea) and regional beauty business development. Ashley has elegantly made Kantar Worldpanel a trusted advisor for clients for the past 12 years—not just for local Korean players, but global heavyweights such as L’Oréal and Estée Lauder. More info: www.kantarworldpanel.com