Since the authorities lifted all COVID-19 restrictions, on-the-go and on-premise consumption of non-alcoholic beverages has surged in Indonesia. However, consumers remain price-sensitive due to the recent inflationary spike and economic uncertainty. This calls for soft drinks manufacturers to strike a delicate balance between health & wellness and affordability to succeed in the Indonesian soft drinks market, which is set to expand at a value compound annual growth rate (CAGR) of six to eight percent over 2023 to 2028, according to GlobalData, a leading data and analytics company.
Bobby Verghese, Consumer Analyst at GlobalData, said that 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 strongly influence beverage purchases. This aligns with GlobalData’s first quarter 2023 consumer survey finding that the food and beverage purchases of 78 percent of Indonesians are often or always influenced by how well the product and service impact their health and well-being. They are opting for natural soft drinks, such as packaged water, juice, and nectars, and undermining demand for sugar-laden soft drinks categories, such as still drinks, squash, syrups, and fruit powders.
“The health trend also spurs demand for low to no-calorie, sugar and fat variants of carbonates, energy drinks, and iced and RTD tea drinks, said Verghese.
Deepak Nautiyal, Director of Consulting, APAC, GlobalData, said that consumers demand functional beverages to keep them healthy and energised as they revert to their hectic pre-pandemic lifestyles.
However, fuel and commodity prices are rising due to the prolonged Russia and Ukraine conflict and the climate change phenomenon. Manufacturers must pass these rising input costs to consumers to conserve their margins. GlobalData’s survey revealed that 87 percent 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 retail and on-premise sales. These bargain hunters are switching to cheaper brands and labels or stores,” said Nautiyal.
Verghese continued that while inflationary pressures were expected to ease, the political turmoil in the run-up to the 2024 Indonesian general elections will continue to fuel economic uncertainty.
“Soft drinks manufacturers are compelled 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 food service venues in Indonesia, with serve-portion sizes shrinking and prices remaining constant. However, this strategy can cost companies long-term consumer goodwill, especially as word-of-mouth publicity of such tactics can travel fast through social media.
Nautiyal said that the onus was 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 percent natural juice shots formulated with specific health and functional claims.
Customised health drinks in a small capsule pack can be considered a value-for-money proposition over a larger juice drink pack loaded with sugar, calories, and artificial additives.
“Soft drink 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 incentivise consumers to trade up to larger packs of these health shots for more frequent consumption,” concluded Nautiyal.