Indonesia’s Rising Middle-Class and Affluent Consumers

Indonesia’s Rising Middle-Class and Affluent Consumers

          
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Indonesia’s Rising Middle-Class and Affluent Consumers

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    Demographic and Regional Shifts

    Indonesia’s economy is growing rapidly, and the country’s rising proportion of MACs will likely bring a wave of consumer spending; greater ownership rates of homes, vehicles, and white goods; and increased adoption of services such as financial counseling and education. Currently, MACs represent about 30 percent of the Indonesian population, or 74 million people, and that group will grow far larger in the coming decade, in both absolute and percentage terms. About 8 million to 9 million people currently enter the MAC segment each year, and by 2020, this group will reach a total of 141 million people, or 53 percent of the population. (See Exhibit 2.) At that point, the island of Java alone will have more MACs than the entire population of Thailand, and Sumatra will have more than the populations of Malaysia and Singapore combined.

    exhibit

    About half of the country’s MAC population currently resides in the five most-populous provinces in Java, and this concentration will likely remain in the coming years. The MAC population on some other islands is projected to grow faster—Sulawesi, for example, is forecast to see an increase in MACs by 109 percent from 2012 to 2020, compared with a 69 percent rise in greater Jakarta and a 96 percent rise in the rest of Java—yet those regions are starting from a smaller base. In fact, Java’s absolute MAC-population growth for the same eight-year period is roughly 35 million, more than the MAC population growth of the six remaining islands combined. (See Exhibit 3.)

    exhibit

    At a city level, however, the MAC population is becoming more dispersed. Currently there are 12 cities with more than 1 million MACs, and another 13 with more than 500,000, accounting for 44 percent of the country’s total MAC population. By 2020, these numbers will double—22 cities will have more than 1 million MAC consumers (including emerging cities such as Palembang, Makassar, Batam, Semarang, Pekanbaru, and Padang), and 32 will have more than 500,000, accounting for 53 percent of the MAC population.

    The growth in the number of locations with large MAC populations has tremendous implications on business operations. Given the highly fragmented geographical nature of Indonesia, companies need to decide on the level of reach they want to achieve and which locations to target. For example, if a company currently reaches about 50 percent of the MAC population and wants to maintain that level through 2020, it will need to double its presence. (See Exhibit 4.) As a result, the geographic footprint required for a company to reach MAC consumers will be constantly expanding, including increasing numbers of what companies today consider to be low-tier locations (such as those with smaller populations). Companies will need to rethink the way they operate and scale up—how they organize their sales force and the organization, how they manage their supply-chain networks, and how they distribute goods.

    exhibit