Great Potential in Indonesia's Modern Retail, Food & Beverage Sectors

In 2017 turnover in Indonesia's processed food and beverage industry is expected to grow by 8 percent (y/y) to IDR 1,400 trillion (approx. USD $108 billion) from an expected IDR 1,300 trillion in 2016. Meanwhile, the nation's modern retail industry is projected to expand in the range of 10 - 15 percent (y/y) to IDR 225 trillion (approx. USD $17.3 billion).

Tutum Rahanta, Deputy Chairman of the Indonesian Retailers Association (abbrev. Aprindo), says the combination of accelerating macroeconomic growth and controlled inflation are the main supporters for growth of Indonesia's modern retail sector. In 2016 Indonesia's gross domestic product (GDP) is expected to expand by 5.1 percent (y/y) up from the realization of 4.79 percent (y/y) in 2015. Recently, the World Bank announced it sees the Indonesian economy growing further by 5.3 percent in 2017 and 5.5 percent in 2018.

Aprindo Chairman Roy Nicholas Mandey added that after several years of economic slowdown, the retail sector of Indonesia has been recovering in 2016 on the back of low domestic energy prices (electricity, gas and fuel), the stronger rupiah exchange rate (versus the US dollar), rising government spending (on infrastructure development), low inflation (around 3 percent y/y), and accelerating economic growth. Due to these factors members of Aprindo have been eager to expand their businesses this year.

Based on a Bank Indonesia (BI) survey, Indonesia's retail sales grew 14.4 percent (y/y) in August 2016, supported by sales of non-food items, extending the promising trend recorded in the preceding month (retail sales growth at +15.7 percent y/y). However, this survey also signals that retailers expect retail sales to slow in November 2016 due to rising inflation (a seasonal phenomenon).

Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (GAPMMI), agrees and expects the processed food and beverage Industry of Indonesia to rise by at least 8 percent (y/y) provided the government will not implement any policies that could undermine this growth (for example, the government once uttered the idea to implement a plastic excise tax). Besides the five above-mentioned factors, Lukman added that rebounding commodity prices also boost people's purchasing power.

Lukman is also optimistic that direct investment in Indonesia's processed food and beverage industry will surpass IDR 50 trillion in 2016, up 16 percent from IDR 43 trillion in 2015. However, investors urge authorities to lower interest rates as that would make business expansion much more affordable. Lukman emphasized that Indonesian authorities need to be consistent and committed (for example through effective implementation of the economic policy packages) in order to support this industry and thus be able to compete with counterparts in Malaysia and Thailand.

Indonesian Modern Retail Industry:

	2013	2014	2015	2016¹	2017¹
Turnover in IDR trillion	148	168	181	200	225

^{¹ indicates forecast}

Indonesian Food & Beverage Industry:

	2015	2016¹	2017¹
Sales in IDR trillion	1,209	1,300	1,404

^{¹ indicates forecast
Source: Investor Daily}

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