Marketing Strategy of Hot Drinks in Indonesia
Hot Drinks
in Indonesia
EXECUTIVE SUMMARY
Positive economic outlook and
evolving lifestyle trends boosts hot drinks
After many of the effects of the
global economic downturn began to dissipate, improved levels of disposable
income boosted the performance of hot drinks in 2010. The positive economic
outlook also spurred on thriving businesses and boosted coffee consumption
among the workforce. An advertising war between leading coffee manufacturers
was welcomed as Indonesian consumers are easily influenced by advertising.
Increasing urbanisation and health awareness also boosted the performance of
other plant-based hot drinks which are perceived as meal substitutes.
Consumption of other hot drinks also improved due to more widespread
availability of economy brands able to tap into previously untouched middle and
lower income consumer segments.
Market shaped by advertising war and
coffee trend created by urbanisation
Manufacturers of coffee invested
heavily in marketing activities within a highly competitive environment to
stimulate consumer interest in 2010. An advertising war between leading coffee
players as well as the investment of Unilever in boosting consumption of tea
boosted the overall performance of hot drinks in 2010. The growing café culture
as a means of socialising among young urban dwellers, as well as growing
urbanisation in which people cram more activities into their daily schedules,
also improved the performance of coffee sales. The growth of social media also
played a part as consumers are spending more time online outside of school/work
hours.
Domestic players lead in coffee and
tea with hot drinks home to multinationals
Domestic manufacturers dominate
coffee and tea due to their longstanding history and good understanding of
local consumer tastes. This is especially true in coffee where local consumer
preference continues to be fresh ground coffee over instant variants. Coffee
tends to attract higher levels of brand attachment which multinationals find
hard to shake. Meanwhile, off-trade volume sales of tea continue to be boosted
by on-trade establishments which provide tea service with meals and the preference
for economy products with a strong brand image and history where local
manufacturers shine. Multinationals dominate other hot drinks due to a strong
presence within flavoured powder drinks and malt-based hot drinks.
Traditional retailers remain significant
despite emergence of modern formats
Other hot drinks are popular among
consumers from all walks of life in Indonesia in both urban and rural areas.
Despite rapid expansion of modern retailers in the review period, traditional
retailers continued to account for significant share of total volume sales in
2010. Independent small grocers still made a greater contribution than
supermarkets/hypermarkets in the review period despite being outperformed in
terms of growth. Off-trade volume sales of hot drinks outperformed on-trade due
to the preference of foodservice operators purchasing coffee and tea products
from off-trade channels. Other hot drinks are unpopular via on-trade outlets.
Expectations of higher levels of
disposable income in the forecast period
With a positive economic outlook,
consumer purchasing power is expected to continue to gain strength over the
forecast period. In line with growing health awareness, consumers are likely to
increase their consumption of tea and other hot drinks. Despite being perceived
as unhealthy, the consumption of coffee will continue to grow from strength to
strength due to galloping urbanisation and higher pressure in the working
environment brought about by thriving businesses and a strong economy.
KEY TRENDS AND DEVELOPMENTS
Advertising war boosts consumer interest in and consumption of coffee
Leading
manufacturers within coffee engaged in an advertising war in order to erode the
market share of competing products. Besides increasing the stakes, this
development stimulated consumer interest in coffee as Indonesian consumers
remain heavily influenced by strategic marketing activities.
These
activities were also supported by new product developments featuring novel and
unique tastes, as well as additional ingredients such as ginger, ginseng,
mocha, chocolate, caramel, cappuccino and mochaccino flavours. New launches
also included products that feature foam, designed to create the experience of
consuming coffee at cafés. Advertising also communicated these new products and
their key differentiators over existing coffee products.
Current Impact
Leading
manufacturers within coffee Mayora Indah, Santos Jaya Abadi and Nestlé invested
heavily in integrated marketing campaigns in a bid to erode the volume share of
their competitors. Due to Nestlé’s strength in instant coffee, the major direct
competition is between Mayora Indah and Santos Jaya Abadi in fresh ground
coffee which is preferred by the majority of local consumers. Nestlé, however,
also made strides to emulate the strength of fresh ground coffee with instant
coffee products with similar characteristics and communicated these in its
advertisements. Furthermore, Nestlé invested in a campaign to introduce its new
product line-up which features new blending technology that produces coffee
with a richer aroma and flavour, in line with local consumer preferences.
Thanks
to economic growth and higher levels of disposable income, consumers responded
well to manufacturers’ strategies in developing coffee sales. Seeking a more
sophisticated lifestyle, adventurous Indonesian consumers are generally open to
new product developments offering new and unique taste experiences. The growing
café culture also boosted consumer awareness of the types and unique tastes of
various coffees. Manufacturers also responded to increasing consumer affluence
by launching various types of coffee including new premium and value-added
variants to take advantage of consumer demand.
Outlook
The
advertising war between leading manufacturers is expected to continue over the
forecast period within a very competitive environment. Furthermore, new product
launches by one manufacturer will be a direct threat towards a well established
brand of another, all of which will lead to ongoing counter strategies.
Continuous
brand development is also expected as manufacturers will attempt to approach
new users while simultaneously maintaining a loyal consumer base. As coffee is
a product with a high level of brand attachment, it is expected that
manufacturers will continue investing in developing their brand and maintain
consumer interest. Possible destinations for sponsorship investment will
include news programmes and programmes that feature current/political issues.
This will be in response to the more dynamic personalities of coffee consumers
who like to stay up to date with all the latest trends and new developments.
Future Impact
Products
will become more premium in response to manufacturers’ attempts to add
differentiating elements to their products. Growing affluence will lend itself
to a warm consumer response towards consumer goods offering sophistication
while developments in coffee will make it well placed to take advantage of the
trend.
With
heavy investment in advertising on television and in the print media, an
opportunity exists for manufacturers to create engaging events to create
experiential marketing activities, inviting consumers to participate in
interesting events. This will present an opportunity for brands to create
higher levels of attachment with their target audience. With extensive
investment in above-the-line channels, consumer response may grow weaker since
advertising is perceived as noise. As such, a unique and fresh approach may set
a brand or product apart from the rest. Or alternatively, manufacturers could
sponsor a unique television programme to set it apart from other similar
offerings.
There
are also regional brands of coffee in Indonesia which focus on distribution in
certain key cities. The all-consuming advertising war between leading brands of
nationally distributed coffee ensures that these regional brands are unable to
match them in terms of above-the-line exposure, which limits the strength of
their brand image. Over the long run, these regional brands may have to choose
a niche market in which to develop in order to be able to sustain and extend
their presence within coffee. For example, this could include developing a
premium variant to serve the affluent consumer segment or certain flavours of
coffee that appeal to the younger generations including school children,
university students or first jobbers, etc.
Café culture prevalent among young urban dwellers
Young
urbanites including school children, teenagers and young adults are
increasingly spending time in cafés and urban culinary hot spots to socialise
with friends and families. The growing café culture is both influenced by the
adoption of Western lifestyles and the nature of Indonesians who like to
socialise. Growing affluence also stimulated the desire for more sophistication
in lifestyle leading to increasing demand for indulgence products such as
coffee and tea. Cafés also play a part as venues for meetings for work and
social purposes.
Current Impact
Since
the arrival of the Starbucks phenomenon in Indonesia, the café culture has
grown from strength to strength. Followed soon after by Coffee Bean & Tea
Leaves, other franchises emerged during the review period in both local and
imported flavours. Investments in chained café franchises blossomed in the
review period due to low interest rates. The emergence of social media only
boosted this trend as cafés are increasingly perceived by young consumers as
hot spots in which to socialise and hang out.
The
consumption of coffee increased as an indulgence product, part of urban
lifestyles and culture in addition to being consumed as a product to help the
user stay awake. Demand for premium coffee products in particular increased due
to higher interest fuelled by the penetration of cafés and consumer education
in the art of coffee.
Outlook
The
growth of the café culture is expected to gain momentum over the forecast
period with both local and overseas franchises increasing their presence in key
cities in Indonesia with high concentration of young urban consumers. Culinary
hot spots are also increasingly put coffee higher up on their list of
priorities in the review period with an increasing presence of McCafé and KFC
Coffee as well as the availability of boutique cafés at upscale restaurants and
hotels.
Coffee
consumption outside the home is expected to increase interest in coffee as it
forms a big part of the lifestyle of young consumers. Coffee products available
at retail outlets are also gaining sophistication as they seek to emulate the
experience of drinking at cafés. The trend also boosted the popularity of
Italian speciality coffee such as cappuccinos.
Future Impact
The
high profile image of internationally recognised cafés only serves to improve
the image of coffee in the eyes of the consumers. This benefits coffee as a
sophisticated indulgence product, which may improve its performance despite the
rise in health and wellness trend and the negative perception that coffee
contains addicting substances and regular consumption may lead to health risks
in later life. Coffee products are in turn becoming more premium with higher
demand for sophistication.
The
growth of the café culture is expected to boost the expansion of coffee
specialists. In addition to coffee specialists, other foodservice retailers are
also focusing more on coffee. These include restaurants, ice cream parlours,
cheese cake shops, pastry cafés and even chocolatiers. Manufacturers of coffee
will also court foodservice operators to market their products to produce
coffee-flavoured cakes, ice creams, chocolates and other desserts. Foodservice
outlets may also serve as partners to market brands of coffee and their
presence in urban hot spots may also act as a form of advertising.
The emergence of flavoured hot drinks
The
review period witnessed the emergence of flavoured hot drinks in Indonesia. In
addition to advertising wars, manufacturers were keen to add differentiating
elements to their products within a very competitive environment. As a consequence,
many new and unique flavours of hot drinks became available in the review
period.
Current Impact
Some
of the most recent flavours of hot drinks included ginseng, ginger, mochaccino,
cappuccino, brown sugar, chocolate and caramel flavoured coffee. In addition to
new flavour variants, coffee also features foam or the addition of chocolate
granules to emulate the café experience. Fruit flavoured and lemon tea bags are
also increasingly available in Indonesia as new variants to entice consumer
interest in the category. Other plant-based hot drinks are also marketed with
new unique flavours such as ginger. Ginger is well known as a traditional herb
for its efficacy in warming the body and curing common ailments such as colds
and flu during colder rainy seasons.
Some
of these flavours are not entirely new to the country, but had previously only
been adopted by brands serving a niche segment. Leading manufacturers of hot
drinks are also emulating the flavours offered by these niche and imported
products to make popularly accepted flavours of hot drinks available to the
masses with well-established brands.
Outlook
New
and unique flavours offer a refreshing approach to hot drinks and the more
dynamic younger audiences will warmly receive these product developments. There
are a large number of consumers who are still untouched and new and unique
approaches by manufacturers will provide them with the opportunity of
developing an interest in coffee. Fruit flavours are also a popular way to
approach younger audiences. Older consumer groups are less likely to try out or
adopt these new flavours for repeat consumption as they are generally only
interested in consuming more traditional flavours.
The
young average age of the Indonesian population and growing affluence in the
review period are expected to boost the performance of flavoured hot drinks.
Despite increased availability of flavoured hot drinks, the large majority of
sales are still expected to come from traditional flavours. This is attributed
to the vast majority of consumers who still belong to middle and lower income
groups in Indonesia. Nonetheless, these developments will serve their purpose
of approaching their intended target audience.
Future Impact
Several
flavours of hot drinks are available with limitations, such as niche pricing
strategy or limited distribution. Opportunities will remain for a host of other
flavours or existing brands to explore other possible flavours which will
further intensify the competitive environment. Among those, several will be
more successful than others in terms of being adopted by a mass audience.
Despite
the trend of new and unique flavours of hot drinks, manufacturers will need to
respond to consumer demand for traditional flavours of hot drinks for daily
consumption. The traditional and widely accepted flavours are still expected to
form the backbone of volume sales over the long term. Opportunities will exist
for products offering slight variations of accepted flavours such as milk
coffee, black coffee, aromatic tea or chocolate-flavoured other hot drinks.
Slight additions or changes in ingredients are expected to be the most accepted
developments by the majority of consumers.
Flavoured
variants of hot drinks are somewhat similar to RTD soft drinks to some extent.
The popularity of flavoured variants of hot drinks may put them in more direct
competition with soft drinks. The growing demand for convenience, however,
favours soft drinks over hot drinks.
Urban lifestyles drive demand for coffee
Increasingly
demanding urban lifestyles are leading to higher consumption of coffee among
Indonesians. Urbanisation is leading to lifestyle changes which involve
cramming more activities into packed schedules for both the workforce as well
as students. The growing demand for quick-fix solutions boosted the consumption
of coffee as a means of staying up late in order to prepare and perform for
work/school.
Current Impact
The
positive economic outlook is leading to a thriving business community,
especially after the negative effects of the global economic downturn have
begun to dissipate. This in turn is leading to overloading of the workforce as
it is culturally acceptable to keep the number of employees in an organisation
to a minimum in Indonesia. This development will lead to higher consumption of
coffee for workers helping them to cope with demanding schedules.
The
emergence of football as a sport in the country also affected coffee
consumption as male consumers often stay up late to watch football matches.
This was also boosted by the media hype around sporting events such as the
World Cup in 2010. Indonesians are easily influenced by strategic advertising
and now often watch football matches as part of their lifestyle. Besides
coffee, male consumers also consume energy drinks in both RTD and powder
concentrates format in order to perform at work after staying up late watching
football matches on television.
Changing
urban lifestyles also affect college and high school children who have to get
used to the rigours of everyday life. In addition to school, many urban
students also take classes after school to develop their skills or their
hobbies. Demanding studies and social schedules boosted the consumption of
coffee as it is believed to boost performance levels. Both students and young
adults are also embracing the emergence of social media and spending more time
online outside of school/work, further boosting overall coffee consumption.
Outlook
Despite
the already strong development of the health and wellness trend, this trend is
expected to grow further in line with increasing urbanisation. The positive
economic outlook over the forecast period is expected to continue serving
businesses well and the workforce will continue being overloaded with work. The
penetration of social media in Asia is expected to accelerate as school
children are introduced to the internet at a younger age than previous
generations. The football fad is also expected to continue affecting coffee
consumption over the forecast period.
The
performance of coffee sales is likely to accelerate due to the growing café
culture where coffee is consumed as an indulgence product. In addition to
consuming coffee for its caffeine boost, urbanites are increasingly consuming
coffee as part of their lifestyle as cafés form a key element in their
socialising activities. The growing number of coffee specialists will only
serve to further spread the art of enjoying speciality coffee to a wider audience
of urban dwellers.
Future Impact
The
popularity of quick-fix solutions to problems is also waning thanks to better
education levels and the culture of solving problems by addressing them at the
root instead of using temporary solutions. Coffee is perceived as a quick-fix
solution to present problems and the growing health and wellness trend is
likely to affect coffee consumption going forward.
In
line with health and wellness awareness and higher education levels, consumers
are becoming smarter and in the long run may shun quick-fix solutions such as
coffee, which is perceived to cause health problems over the long term. This
may affect coffee consumption and consumers could turn to other drinks for
their caffeine boost such as tea, which contains around half the caffeine
content found in coffee. Vitamin supplements such as vitamin B are also
perceived as having the same effect as coffee in terms of boosting stamina and
energy levels to perform at work/school. Vitamin supplements may replace coffee
and energy drinks in RTD and powder concentrates formats as they are perceived
to be healthy energy boosters.
Health tea popular among young women
In
line with the growing health and wellness trend, manufacturers of tea are
marketing health enhancing products targeting young urban women. Blessed with
higher levels of disposable income due to a positive economic outlook, urban
ladies are responding well to these new product developments.
Current Impact
This
development led to the launch of healthy teas in the review period which are
marketed as both tea and jamu or the traditional Indonesian herbal solutions to
health problems. In addition to known efficacy for the health, herbal solutions
are also known to have no side effects as they are of natural plant ingredients
and not chemically produced. Consumer trust in such products continues to be
high, especially since some healthy tea products are endorsed by leading brands
in cosmetics and beauty, such as Mustika Ratu and Sari Ayu.
Such
launches include Lokol Tea which is a tea bag product to help reduce
cholesterol levels manufactured by Mustika Ratu. The company markets the
product in hypermarkets by setting up stands to introduce the product to its
intended audience and provide free samples. This launch complements the
company’s other products such as Slimming Tea and Tox Tea for detoxification.
In
addition to product launches, healthy tea and slimming tea products were also
regularly marketed with seminars and exhibitions during the review period.
Young urban females have responded very well to the growing health and wellness
trend and the natural characteristics of such solutions since consumer trust in
chemically produced slimming products is relatively low due to the perceived
possible side effects.
Outlook
The
growing demand for health enhancing products is expected to continue to gain
strength over the forecast period in line with increasing affluence and the
growing health and wellness trend. In order to enjoy their improved lifestyles,
young urban females will increasingly place more importance on health and
wellness for their families and themselves.
The
social nature of Indonesians, especially females, is expected to accelerate the
spread of product and brand knowledge through word of mouth. Direct selling
comprehensive slimming and health products are expected to pose a challenge to
consumer goods available via retail outlets. Certain brands of tea, such as
WRP, offer a comprehensive solution including slimming sugar, tea and meal
replacement. WRP also operates an upscale WRP Diet Center to offer consultation
for beauty and slimming programmes. These comprehensive solutions and
consultation centres may leverage certain brands above others which only offer
slimming tea products or simply make their products available via retail
channels.
Future Impact
Despite
the increased availability of health and slimming tea, these products are still
marketed as premium products serving a niche market of young, affluent, urban
females. This presents an opportunity for health and slimming teas which are
friendlier in terms of price to tap into the middle-income consumer segment in
line with the growing health and wellness trend.
Led
by the affluent sector of the population, the trend towards healthy tea and
other hot drinks is expected to trickle down to reach other income segments.
Opportunities will exist to market the anti-oxidants present in green tea, or
other functional benefits of hot drinks towards the majority of consumers who
belong to the middle-income segment and whom are also becoming increasingly
health conscious.
