The future of Asia: Indonesia’s spending habit
A report by McKinsey & Co. titled “The Future of Asia” highlighted that Indonesia is in the midst of an income surge. Along with it, the country offers potential consumption growth of $400 billion (Rp5 quadrillion) out of the $10 trillion (Rp142 quadrillion) opportunity across Asia over the next 10 years.
Rising income indeed affects consumption growth, but it is also important to focus on the increasingly diverse consumer cohorts in the cities that are driving the growth, the report stated. There are 10 consumer shifts that affect this growth.
Smaller households. The average household size in Asia has shrunk by 10% over the past two decades. One driver is declining fertility rates from 2.6 in 2000 to 2.3 in 2020.
Aging. Indonesian seniors are still mostly offline, but about a third of them are expected to be online by 2030.
The digital natives are rising and expected to represent 50% of consumption by 2030. Gen Z in Asia is eager to try new brands (twice as much as Gen X) and are highly connected as they spend an average of 8.5 hours a day on their phones.
Women’s economic empowerment. With the increase of women’s participation in the economy, they represent $240 billion (Rp3.4 quadrillion) of Indonesia’s GDP opportunity. Women’s labour participation has increased by 4.7 pp since 1990.
New channel mix. E-commerce is expected to have a CAGR of 25% from 2020 to 2025. Over 4 million resilient conventional grocery stores are benefitting from new e-B2B platforms, such as GoToko and BliBli.
Asian brands gain share. Asian brands make up 60%-90% market share in CPG, electronics, and automotive. Electronics and automotive are dominated by cross-border regional trade, mostly from China, Japan and South Korea. Local brands like Indofood are now dominating the CPG.
New notions of ownership. Digital goods such as audio books and video streaming have grown at 35% CAGR across Asia from 2015 to 2020.
The big convergence. Digital ecosystems cover more needs of the population. Superapps are growing across the region, such as Gojek with about 18 million active online users covering various needs from mobility to e-wallet services.
Segment of one. About 54% Indonesians are interested in offers that are personalised on their data, but only 43% are willing to share their data since 35% do not trust brands to keep their data safe.
Eco responsibility. About 80% of Indonesian consumers claim to be more concerned about packaging sustainability compared to before the pandemic. High proportion of Asian consumers have changed their behaviour out of concern for sustainability and climate change.
By 2030, up to 70% of the Indonesian population will belong to the consuming class, a 45% increase from today. Incomes are rising, with 80% of the consumption growth coming from the two highest tiers of the consuming class (Rp420,000-Rp990,000 and Rp990,000+ per day). This contrasted with the reality of the past two decades, when almost all of Indonesia’s consumption growth came from the two lower income tiers (Rp156,000-Rp426,000 and Rp426,000-Rp990,000 per day).