Indonesia's domestic consumption is expected to continue its steady growth in the next five to 10 years as Indonesia's rapidly expanding middle class is becoming increasingly consumptive and eager to follow the latest trends (purchasing the latest trendy products). This expanding middle class is the result of robust economic growth in Southeast Asia's largest economy. Although currently slowing, the country's annual gross domestic product growth has reached an average of almost 6 percent since 2005.
Moreover, as domestic consumption accounts for around 55 percent of GDP growth, increased consumption by the middle class will safeguard continued economic growth. As such, these two factors - strong GDP growth and the expanding middle class - are two forces that reinforce each other and are highly dependent on each other as well.
In 2012, Indonesia's middle class numbered around 75 million people (out a total population of 240 million). Research firms the Boston Consulting Group (BCG) and McKinsey both expect that the country’s middle class will expand to between 130 and 140 million people by the period 2020-2030.
Fabrice Carrasco, Acting Director of the Indonesia-Vietnam-Philippines Kantar Worldpanel, said that Indonesia is one of the few countries in the world of which GDP growth is mainly supported by domestic consumption. This is in contrast to most other countries, which are generally more dependent on exports or government spending.
A survey of the Kantar Worldpanel indicates that Indonesia's consumer force has five characteristics:
|• High interest in digital and technological products, particularly communication devices such as the newest smartphones|
|• Brand loyalty; when an Indonesian consumer is happy with a certain brand, he/she is highly unlikely to switch to another brand that produces a similar product|
|• Personality; an Indonesian consumer will buy products that are in accordance with his/her personality (for example clothes)
|• Health & skin care; health and skin care products are highly popular among the middle class consumers|
|• Usefulness; Indonesian consumers tend to purchase those products that are really useful to them|
Carrasco said that the higher prices of subsidized fuels (introduced in June 2013) and corresponding higher inflation have reduced Indonesians' purchasing power slightly. As a result, a segment of Indonesian consumers have shifted their focus to products of lesser known - and less expensive - brands.