Indonesia's confectionery sector is predicted to grow in a big way. By 2018 it is forecast to be worth US$2.6bn up from US$1.37bn in 2013. But with local players dominating the scene thanks to their knowledge of local tastes and the ability to offer cheaper options, international players looking to get in on the action may struggle. Hannah Abdulla explores
Indonesia's confectionery sector is nothing short of bustling. By 2018, it is forecast to be worth US$2.6bn, up from US$1.55bn in 2013 and from US$1.1bn in 2010 according to the latest Euromonitor data.
With a population of 253m and an average median age of 29 years old, it presents an attractive opportunity for confectionery players.
Indonesia's confectionery sector contains a number of notable local and international players. Leading the scene is Petra Foods, which though headquartered out of Singapore, "for all intents and purposes, it almost feels like a local player," Torsten Stocker, a Hong Kong-based partner and head of AT Kearney's consumer goods practice, tells just-food.
Petra's chocolate confectionery portfolio includes ten master brands such as SilverQueen, Ceres and Delfi. According to Euromonitor, it is the number one player in chocolate confectionery.
Another strong player in the Indonesian confectionery market is Mayora Indah – a local firm – which was founded in 1977 as a biscuit manufacturer. It now has a presence in the coffee, nutrition, sugar confectionery and chocolate confectionery segments. Overall it has the third largest market share in confectionery.
Stocker says the local players in Indonesia's confectionery market "have been around for a long time and have built up their distribution channels quite early on, even down to the local village stores in remote areas". He adds: "Another part is brand building – often the products have been made specifically for the Indonesian market."
Of the major international companies, Perfetti Van Melle is the leader in Indonesia's gum and sugar confectionery categories. Mars Inc also has a presence in gum, and Mondelez International is the second-largest player when it comes to chocolate confectionery.
Mondelez has been in Indonesia for over 30 years. Its portfolio in the country now includes Cadbury Dairy Milk, Cadbury Fruit & Nut, Cadbury Cashew & Cookies and Toblerone.
Nestle, too, has a presence and is the fifth largest confectionery player in terms of market share in Indonesia, according to Euromonitor data. Its product product line in the country includes KitKat, Fox's sugar candy, Polo candy, Nestle Crunch and Milo chocolate bars.
Looking at the sector by category, chocolate is booming in Indonesia, helped in part by its youthful population.
In 2014, the category was worth US$888.2m. By 2018 it is forecast to be worth US$1.38bn, Euromonitor says. It is perceived as a "premium" product the research firm said, often offered to business partners and relatives during festive periods, namely Hari Raya Idul Fitri, Christmas and New Year.
Despite growing health awareness that is seeing chocolate have to compete with other snack categories such as health biscuits and snack bars, it is predicted to continue to grow in popularity in Indonesia, with this "premium" positioning continuing to influence sales, Euromonitor forecasts.
But one thing is evident: domestic players are favoured by consumers when it comes to chocolate, with a suggested reason being local manufacturers have a greater understanding of local tastes and preferences. "Their products are perceived as tasty and high in quality but also affordable," explains a Euromonitor spokesperson.
The sugar confectionery category is led by Perfetti Van Melle but houses a raft of local players. Mayora Indah, and Indonesian Kapal Api Group and Konimex Pharmaceutical Laboratories have the next largest market shares respectively.
Sugar confectionery has the lowest retail prices and is ultimately an affordable and popular treat. However, it is a fragmented category, with the top five local companies boast a total value share of 39% according to Euromonitor. As a result, the segment is fiercely competitive, which appears to weigh on the growth prospects for the market when measured by sales value.
"Sugar confectionery is predicted a single-digit volume CAGR over the forecast period. Intense competition will force manufacturers to continue with their aggressive promotional activities and ongoing innovation and new product development," the Euromonitor spokesperson says. "Prominent manufacturers are likely to strengthen their positions in sugar confectionery over the forecast period thanks to their wide product portfolios and continuous investment in innovation and new product development."
There are signs that, in recent quarters, the confectionery sector has been affected by the economic slowdown in Indonesia. "Confectionery is discretionary spending – if there is a slowdown, confectionery would of course be impacted," Stocker says.
Announcing its first-half results in August, Petra blamed the weakening economy in Indonesia for a fall in its group profits. The firm, for which Indonesia represents 70% of sales, said net profit for the six months to 30 June tumbled 41.4% to US$15.2m. Revenue slid 6% to US$221.3m, with a 3% fall in the second quarter.
"With a slowing economy and fears of further contraction, Indonesian consumers have become more cautious with their spending and this has affected demand across most categories of consumer goods including chocolate confectionery. Our trade partners have reduced their inventory in response to the slower consumption and this had a negative effect on our sales," CEO John Chueng said.
In an analysis of its first-half results, Petra indicated it did not believe the sales fall was "specific to the company’s product range. Based on shelf space data in Indonesia, consumer demand for our major brands remained positive".
It is difficult to get an accurate picture as to how wide this slowdown spans. Mondelez declined to comment on the matter while local player Mayora Indah and Perfetti Van Melle did not return requests for comment.
However, the easing in the country's economic growth – and the impact on consumer confidence and expenditure – only adds to the challenges facing confectionery majors eyeing a possible entry into the market.
"In Indonesia, where a lot of the big foreign players already exist and have been there for a long time. If you come in as a small or mid-sized brand, the good thing is you have ready demand, people understand the category – but of course you are fighting against the established brands," Stocker says.
Another notable way in which local Indonesian confectioners are advantaged over international players is the demand for halal foods in the country and their ease of access to local certifiers. Indonesia's population is predominantly Muslim. In fact, it houses about 12.7% of the world's Muslims. As a result halal-certification is an important factor in consumers' purchasing habits. This can often negatively impact those importing confectionery products since local manufacturers are more trusted, and, according to Euromonitor, imported brands "are questioned".
"A lot more consumers pay attention to it [halal], I don't know to what extent this is a deal breaker – if you're not halal – but I think it is probably safe to assume if you want to position yourself as a mass market brand, it is better to certify yourself. At the end of the day its just good business sense," Stocker adds.