Premiumisation in Indonesia

Is it now really the right time for premiumisation in Indonesia?

Premiumisation is becoming a hotter and hotter topic in Indonesia these days and FMCG business is no exception. However, the question remains: is now really the right time?

Euromonitor data shows that Indonesian income has increased by 58% in 5 years. Nonetheless, 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 purchase is also fewer than higher SES. Moreover, to target specific consumers outside Java and Sumatra will also be very challenging due to the wide budget gap between them.

So, what about the current condition of the premium segment in Indonesia? Our data shows that Indonesian households buy premium category products, but the growth is mostly coming from value growth, not an increase in the buyer base. Premium brands encounter difficulties recruiting new buyers, but can easily raise their value. A premium category example is liquid soap: bar soap buyers can be recruited to this category, but they cannot be influenced to replace bar soap with liquid soap.

The next question is, are premium ranges growing? Yes, they are growing, but not in all categories. For example, categories like Ice Cream and Baby Milk Powder have a big market share for their premium segment when compared with toothpaste, for instance. In the end, premiumisation is not the only way to lead the category, since low pricing innovations are also performing very well.

Yet, despite of some difficulties in penetrating the market through the premium segment, there are some keys to the success of premiumisation in Indonesia:

• Do not expect to reach a large target straight away
• Education remains a priority for boosting premium ranges and categories
• Build trust through health and safety
• Go beyond the basic and build a professional image
• Go beyond the product itself and give consumers lifestyle inspiration
• Innovate with new products to meet new consumption needs

Furthermore, an example from China (which is also experiencing an economic slowdown) shows that premiumisation or upgradation remains a critical trend there for the total FMCGs to continue growing. The good performance of premium products there during the economic slowdown should inspire manufacturers in Indonesia.