Local products face fierce competition from foreign brands
Local products face fierce competition from foreign brands
Rudijanto, Contributor, Jakarta
"Say it with flowers" is a saying that inspires people to
express their feelings through a romantic floral gesture to those
they love most. But "Say it with discounts" is probably the most
effective way for processed food producers to win the hearts of
Indonesian consumers.
Severely battered by prolonged economic turmoil, Indonesian
consumers have developed a deep sensitivity to prices. Even
though their purchasing power has been greatly weakened, they
still do not want to reduce their consumption levels.
This strong desire to consume has been supporting the growth
of the Indonesian economy as foreign investors continue to shun
the country.
With over 200 million mouths to feed, Indonesia is certainly a
huge market for the processed food industry, ranging from instant
noodles, and canned meat, fish and fruit, to bottled sauces and
beverages. While the purchase of luxury goods can wait for better
times, the consumption of food products cannot wait. This fact
has supported the growth of the processed food industry even amid
the current economic difficulties.
The executive director of the Indonesian Food and Beverage
Industry Association (GAPMMI), Thomas Darmawan, has revealed to
the press that total sales of processed food will increase from
Rp 185 trillion (about US$21.75 billion) last year to Rp 200
trillion in 2003. The approaching Moslem holiday of Idul Fitri,
as well as Christmas and the New Year, will certainly boost the
domestic consumption of processed foods.
However, the Indonesian market is a unique one. Without
sufficient knowledge of all the characteristics of this market,
producers and newcomers to the industry may simply end up
producing good products, but for the wrong market.
"Price-oriented products have the biggest market share since
the public tend to buy low-priced products, especially for
routine consumption, such as canned fish," says Alexander S.
Mulya, Senior Business Analyst, Head of Brands & Communications
at MARKPLUS, a marketing & strategy consultant.
Thomas admits that reduced purchasing power has changed
consumption patterns. Instead of reducing consumption, he says
that people are tending to purchase cheaper products. "If
previously they ate noodles in hotels, now they tend to eat in
ordinary restaurants," says Thomas.
In this price-sensitive market, products sold at discount
prices or lower prices than those of similar products tend to
attract consumers. This sensitivity to price will continue as
long as the economic outlook is still uncertain.
The religious issue is another factor that strongly
characterizes the market. Being a predominantly Muslim country,
Indonesia has a particular preoccupation in ensuring that food
products are halal, or permissible to Muslims. Under Islamic law,
certain foods, especially those with pork, are forbidden to
Muslims.
Neglecting this issue will lead to disaster. Most Indonesians
still remember a case that involved popular seasoning product
Ajinomoto two years ago. Finding that Ajinomoto contained pork
enzymes, the Indonesian Council of Ulemas (MUI) declared that the
product was forbidden to Moslems.
The impact of the declaration was disastrous for Ajinomoto,
and all its products had to be withdrawn from the market.
"To assure consumers that our products are halal, the best
thing to do is to obtain a certificate from the MUI as its
declarations are widely accepted. The MUI also has test
laboratories and a good reputation," says Alexander.
With the number of better informed consumers increasing,
particularly in the cities, producers can no longer neglect
health issues in the industry. Consumers will shun products that
contain any substances that are detrimental to health.
Last year, the Indonesian Consumers Institute (YLKI) published
a study that showed that some food products contained genetically
modified material.
Indonesian producers have various advantages in the local
market due to their knowledge of consumers' tastes and concerns.
However, most of them have started to worry about increasing
imports of processed food products.
Data from GAPMMI reveals that processed food imports, both
legal and illegal, will reach US$1.5 billion, or Rp 12.95
trillion this year. This figure constitutes an increase over last
year's total imports of $800 million, if illegal imports are
included.
Facing growing imports, many Indonesian processed food
producers are looking for government help. Most of the producers
complain about high production costs in Indonesia.
Thomas believes that the domestic processed food industry will
be unable to compete with imported products due to these high
production costs. Aside from taxes paid to the central
government, producers now have to set aside money to pay the
various levies imposed on them by local governments. This is an
unfortunate side effect of local autonomy.
The recent increases in fuel prices and electricity charges
have also had a major impact on production costs.
Many processed food producers expect the government to support
them in their fight against imported products in the local
market. Processed food producers feel that the government has
given more attention on agricultural products than processed food
products.
"Certainly, farmers need protection but we have to remember
that agriculture cannot be separated from the processed food
industry," said Thomas in a local newspaper.
Thomas added that although many European countries and the
U.S. keep on pressuring Indonesia to reduce import duties, these
countries are still protecting their own industries. Aside from
taxes, these countries also apply other non-tariff barriers to
protect their markets from imported products.
A concrete example of such protective practices is the fact
that Indonesian exporters have to pay not only the 8.5 percent
import duty when they export candy products to Europe but also a
US$0.5 sugar tax. This is because some European countries still
impose a sugar tax.
Indonesia's processed food exports are expected to reach
US$1.2 billion in 2003. Last year, the country's exports reached
US$1.1 billion. In spite of the increase projected for this year,
Thomas believes that the export prospects will darken in the
coming years due to the strict regulation of imported goods in
developed countries.
With various taxes and levies in the home as well as the
export markets, one may wonder if Indonesian processed food
producers will still be able to offer competitive prices in the
long run for both domestic as well as overseas customers. How
long will they be able to adhere to the "Say it with discounts"
strategy?