Since the lifting of pandemic restrictions, on-the-go and on-premise consumption of non-alcoholic beverages has surged in Indonesia. However, consumers remain price-sensitive in light of rising inflation in the country. This poses a challenge to drink manufacturers seeking a fine balance between health & wellness and affordability to succeed in the domestic soft drinks market. GlobalData estimated that Indonesia soft drink segment is projected to grow at a CAGR of 6 to 8% over 2023-2028 period.
Bobby Verghese, Consumer Analyst at GlobalData said, “The COVID-19 pandemic stimulated consumer demand for healthy food and drinks in Indonesia. Even as the pandemic concerns have waned, health and wellness trends are exerting a strong influence on beverage purchases in the market. This aligns with GlobalData’s Q1 2023 consumer survey finding that the food and beverage purchases of 78% of Indonesians are often or always influenced by how well the product/service impacts their health and wellbeing*. They are opting for natural soft drinks, such as packaged water, juice, and nectars, undermining demand for sugar-laden soft drinks categorie, such as still drinks, squash/syrups, and fruit powders. The health trend is also spurring demand for low-/no-calorie/sugar/fat variants of carbonates, energy drinks, and iced/RTD tea drinks.”
Deepak Nautiyal, Director of Consulting, APAC, GlobalData said, “As consumers revert to their hectic pre-pandemic lifestyles, they are demanding functional beverages to keep them healthy and energized. However, due to the prolonged Russia-Ukraine conflict and the climate change phenomenon, fuel and commodity prices are rising. Manufacturers are under pressure to pass on these rising input costs to consumers to conserve their margins. Notably, GlobalData’s survey revealed that 87% of Indonesians are concerned about the impact of inflation on their household budgets*. Amid this cost-of-living crisis, consumers are exercising frugality, with the impact reverberating in both retail and on-premise sales. These bargain hunters are switching to cheaper brands and labels or cheaper stores.”
Verghese also mentioned growing political uncertainty in the domestic market particularly in the run-up to 2024 Indonesian general elections. Soft drink manufacturers are forced to strike a fine balance between price and health benefits. Leading companies have already rolled out small single-serve packs of premium beverages with rounded “single currency-note” price tags to position them as pocket-friendly indulgences. Additionally, beverage makers are offering discounts on bulk packs and multipacks to boost volume sales. “Shrinkflation” is also increasingly visible in retail stores and foodservice venues, with serve-portion sizes shrinking and prices remaining constant. “However, this strategy can cost companies their long-term consumer goodwill especially as word-of-mouth publicity of such tactics can travel fast through social media, “ added Verghese
Nautiyal concluded, “The onus is thereby on manufacturers to shift consumers’ focus from price tags to the value-added features of the product. For instance, several juice startups have recently introduced 100% natural juice shots formulated with specific health and functional claims. The concept of customized health drinks in a small capsule pack can be positioned as a value-for-money proposition over a larger juice drink pack that is loaded with sugar, calories, and artificial additives. Soft drinks makers can develop more consumption occasions for small packs, such as after-work hours relaxation or post-workout recovery. And, as macroeconomic conditions improve, manufacturers can incentivize consumers to trade up to larger packs of these health shots for more frequent consumption.”
