Country Focus: Indonesia

Opportunity in Indonesia sparks race for market entry and expansion

By Simon Pitman contact

- Last updated on GMT

Opportunity in Indonesia sparks race for market entry and expansion

Related tags: Personal care market, Cosmetics, Personal care

Indonesia is powering ahead in terms of economic development, driven by rapid growth in the population and the economy. And this is translating into a surge in beauty product spend and market opportunities.

That economic growth has been fueled by significant progress in the development of the country’s infrastructure, helping to connect the country’s 18,000+ islands and in turn making the job of retail distribution significantly easier, giving many consumers access to a selection of products they could previously only get in the big cities.

This Country Focus article takes a look at the some of the biggest trends in the Indonesian market and how the news Cosmetics Design has been reporting on in recent months underscores what is happening.

World-leading beauty growth

For the beauty and personal care industry, the country looks set to deliver world-leading growth rates during the course of the next five years.

According to forecasts from leading market research player Mintel, annual percentage gains for beauty and personal care in local currencies are likely to be in the high teens for most categories – making it one of the fastest growth markets in the world.

In 2015, the beauty and personal care market in the country was estimated to be worth $5.97bn, a figure that is set to grow to $8.26bn by 2018, representing a CAGR of 11.4%, according to Mintel.

L’Oréal is on the case...

When L’Oréal earmarks a country as a major focus for future growth, you know that the growth forecasts are probably not without merit.

Back in March, L’Oréal CEO Jean Paul Agon spoke in an interview with the Jakarta Post of his belief that Indonesia offered many opportunities​ for the business.

During the interview he made specific reference to the company’s current market share in Indonesia, noting that it was currently at around 10%, which is less than the average rate of 12% worldwide and underlines the company’s room for further growth.

Halal spells big opportunities

Breaking the beauty market figures down, particularly strong growth is expected to be seen in colour cosmetics and all hair care categories, while the fragrance category could deliver growth of around 30% each year through to 2020.

But another category is also providing strong potential for growth in the country, halal certified products, which is also a significant growth market in a long list of other countries with large Muslim populations.

Currently Indonesia is the country with the largest majority Muslim population in the world. With an overall population of almost 260 million population – 87% of which are estimated to be Muslim, the country is likely to be one of the main drivers in the fast-growing global demand for halal certified products.

Challenges of doing business

But doing business in Indonesia, and in particular gaining entry for international companies, throws up many challenges, as regulation is complex and often confusing to follow.

Unilever has found out the hard way, trying to get certification for its halal product offerings in the country​, which underlines that even the biggest players and their significant resources can faces struggles.

Unilever executives underscored a number of specific problems that were hampering their endeavours, but stressed that the biggest problem was verifying that third party suppliers are meeting halal requirements.

Indonesian government backs industry growth

But given that the Indonesian government sees the beauty and personal care market as one of the key factors to maintain the future growth of the economy, this may indicated that regulatory hurdles may be smoothed out at some point in the future.

A few weeks ago, the Indonesian Minister of Industry, spoke of the strategic role the government sees for the industry, and acknowledged the size and scope of the market​.

"Indonesia has a strong potential given the large domestic market, its exports, the qualified human resources and the vast herbal ingredients that can be used as raw materials. The export value in 2015 reached USD 818 million or around Rp 11 trillion,"​ the minister said.

Domestic industry eyes opportunity

Indeed, while encouraging outside investment in the industry, the government is also keen to encourage home grown players, a factor that is being underscored by the expansion of the leading Indonesian brand.

At the beginning of this year, Martina Berto acquired another domestic player Rudy Hadisuwarno Cosmetics in an effort to expand its footprint in the market.

The company says it wants to invest significantly in the newly acquired hair care brand, which will also fall in line with ambitions to increase its sales by 10 – 15% this year. 

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