Indonesia’s burgeoning consumer market offers both opportunities and pitfalls for investors and startups, according to experts at DealStreetAsia’s Indonesia PE-VC Summit in Jakarta held on January 15.
The opportunity is huge: Indonesia has a young and fast-urbanising population of 267 million people, and a $1.1-trillion economy – the largest in Southeast Asia. More than half of all the mobile subscribers in the region are in Indonesia, with a total at 435 million in 2017, or more than in North America.
Gitta Amelia, founder and general partner at venture capital firm EverHaus, noted that Generation Z, or people born in the mid-to-late 90s or later, make up 30 percent of the population in the archipelago.
“[They] have the potential to actually influence about 80 per cent of household purchases,” she said.
“We’re entering such an interesting pivotal shift in consumer behaviour driven by a couple of factors: The first is technology, the proliferation of media and the use of social media; the increase in disposable income as well as the increase in education,” she added. “There is a gap between what the market and producers are able to provide here and what the consumers now want.”
Amelia was speaking on a panel focused on the consumer opportunity in Indonesia. EverHaus, one of the youngest VCs in Southeast Asia, primarily focuses on the Indonesian market. It invests across sectors in pre-seed to pre-Series A deals ranging up to $500,000.
She also noted that while development in Indonesia’s metropolitan areas was picking up very quickly, the non-metropolitan areas were seeing consumer growth at twice the rate of the metropolitan areas.
“In the metros, you’ll have consumers that just want value and convenience. And in the non-metros, people are essentially just trying to get their hands on products that they have full awareness of because they have access to information on the internet, but they have previously not been able to get their hands on,” she said. “I think this is an opportunity we cannot miss.”
She added that digitally savvy companies targeting rural and non-metro communities could become “valued very highly” due to their ability to influence purchasing behaviours.
Separately, Deepak Shahdadpuri, managing director at DSG Consumer Partners, added that changes to media use, particularly the use of social media, has given even niche products a way to build consumer awareness, and comparatively cheaply compared with old-fashioned advertising.
DSG Consumer Partners is an early-stage venture capital investor in the consumer-product space in Southeast Asia and India. The VC firm closed its third venture capital fund at $65 million in August last year, exceeding an initial $50-million target. DSGCP has backed over 45 startups including OYO Rooms, Zipdial, Redmart, Veeba, Epigamia Greek Yogurt, Raw Pressery, among others.
However, the consumer sector is not a winner-takes-it-all play, argues Jefrey Joe, co-founder and managing partner of Alpha JWC Ventures.
“In a lot of cases the technology space is winner-take-all or maybe a very few can dominate,” he said. But when it comes to consumers, “I don’t think we can eat the same food every single day and also drink the same drink every single day.”
Jakarta-based venture capital firm Alpha JWC Ventures, an investor in coffee player Kopi Kenangan, closed its second early-stage fund at $123 million, higher than its $100 million target, in December. Its portfolio includes P2P lender Funding Societies, automotive marketplace Carro, and digital credit card provider Kredivo.
But while the market may appear wide open, the panelists also pointed to pitfalls, such as distribution, a lack of tech talent and difficulties pinpointing the right price points.
Amelia said logistics remained Indonesia’s largest bottleneck to distribution for companies. The country’s weak transportation infrastructure and its traffic jams have long been sore spots in Indonesia’s development.
She noted that logistics represents around 25 per cent of Indonesia’s gross domestic product (GDP), compared with around 5 per cent in developed economies.
Others pointed to a dearth of tech talent.
Grab-and-go coffee startup Kopi Kenangan co-founder Edward Tirtanata said there is a lack of software engineers in the country, with Indonesia only adding a few hundred new qualified workers every year. His company has instead hired a team of 20 in China, though that can also lead to delays.
Tirtanata also cited difficulties in finding the best ways to target Indonesia’s consumers. His first attempt at a coffee startup, called Lewis & Carroll, struggled in its attempt to carve out a premium niche.
“For the first two to three months, we didn’t have a single customer. Only friends and family. And then I found out the reason why people aren’t going to the store – it was too expensive,” he said.
“We have 260 million people, [but] most of them can’t afford a cup of 40,000 rupiah tea or foreign coffee,” he added. “There is no way most Indonesians can drink that every day. That is why I decided to do something that’s very affordable.”
He founded Kopi Kenangan in 2017, with beverages at a price point of around 18,000 rupiah, using what he called “cheesy” branding to bring down marketing costs.
Kopi Kenangan’s coffee-for-the-masses appeal has drawn broad interest from investors. In addition to Alpha JWC Ventures, Kopi Kenangan counts rapper and producer JAY-Z, tennis legend Serena Williams and basketball player Caris LeVert among its backers.