Just a few years ago, a major bank predicted that Indonesians would, on average, earn US$3,000 per capita by 2020. At the beginning of 2011, Indonesia hit that mark, beating the prediction by nearly a decade. While other countries in the region and around the globe have been affected by significant economic uncertainty, Indonesia’s economy is running at full bore, with a rapidly expanding middle class that is now the third-largest in the world. At 48 percent of the population and accounting for 44 percent of all FMCG spending in the country, middle class consumers are shaping today’s retail scene. Recently, during its 35^th Annual Marketing and Media Presentation in Jakarta, Nielsen provided nearly 1,000 clients and stakeholders with a snapshot of what Indonesia’s middle class is doing in terms of media usage and shopping patterns, and how companies can reach them effectively.

While all income groups have benefited from Indonesia’s accelerated growth, the middle class has enjoyed the most rapid advances in terms of spending increases and quality of life improvement, and increased demand in a range of consumer categories from home electronics and appliances to health and beauty products. The Indonesian middle class prefers to combine the convenience and fresh offerings found through traditional retail channels such as wet markets with the price-savings and expansive product offerings of the modern trade.

What are middle class Indonesians buying?
Some key facts about middle class shopping trends that retailers and manufacturers need to consider include:

• Fresh food makes up 37 percent of their monthly spending. Ice cream, noodles, and biscuits are the biggest movers thanks to product innovations.
• Value for money is key for nearly all (97%) middle class shoppers.
• 88 percent of middle class consumers said they want to experiment with brands.
• More than half (53%) shop in a modern trade outlet twice a month.
• They tend to visit the minimarket closest to their home, but promotions can disrupt their regular routine: 90 percent are looking for stores “with attractive and interesting promotions.” They also desire a diverse assortment of goods, friendly service and a comfortable environment.
• Mini-markets see the highest levels of spending, followed by supermarkets, with traditional retailers still highly important for fresh foods and the location convenience they offer.

What are middle class Indonesians watching?
Indonesians of all income levels love to watch TV, and nearly all (95%) middle class homes own a TV, with 96 percent watching programs every day. Other traditional media such as radio and newspapers are also popular, but are increasingly being consumed online, a trend driven primarily by Indonesian youth.  Internet usage and mobile phone ownership are surging, each increasing every quarter. Mobile penetration is already high, and purchase intent for smartphones is strong. These devices are fast becoming the primary platform for a variety of activities, such as watching video, accessing the Internet and connecting to social networks, opening a space for marketers and content providers to focus their efforts to include mobile in their content distribution. Nevertheless, relevancy and convenience to the consumers remain key to mobile content distribution.

Key media usage trends for middle class Indonesians include:

• Middle class Indonesian households watch an average of 4.5 hours of TV a day. Sports programming is the most popular, followed by drama series and other entertainment genres.
• Local content is appealing to middle class, which is why each city has its own newspaper.
• Almost a quarter (22%) of middle class consumers have Internet access, and spend 1.5 hours a day accessing the internet.
• Nearly three-quarters of middle class consumers in major cities (71%) have a mobile phone, with almost half saying they use the devices to access the Internet. More than one-third (35%) have a smartphone.
• Indonesians love social networking: 94 percent are connected to social networks, and 89 percent have a Facebook account.

Reaching the middle class
Given the abundance of opportunities in the marketplace, how can retailers, manufacturers, marketers and media companies connect with the middle class consumer? In a number of consumer goods categories, innovation has proven to be a growth engine. For example, in the ice cream category, the number of new varieties has surged by nearly 32 percent, with single packs the driver of sales. Volume sales of snack noodles surged 92 percent in the past year, thanks in large part to new flavors and a repositioning of the category (what used to be seen as a basic meal now is a great, convenient snack). The instant coffee market has expanded, and middle class consumers contributed 71 percent of volume growth within that category.  In contrast, categories that presented few innovations saw slower growth.

In addition to innovation, other trends seen among Indonesia’s middle class consumers include:

• Kids playing a role in modern shopping: 95 percent said that they “hardly ever refuse” the invitation from their kids to go to the minimarket.
• Convenience is key: today’s middle class consumers are pressed for time, with the demands of work and family life. Products that make life a bit easier are clear winners.
• Appeal to the fact that they are smart shoppers: Indonesians know how much items cost and where they are located in the store. Retailers must create a welcoming environment, promote value for money and win customers’ loyalty.
• Connect with consumers: they are increasingly online, and they discuss brands and products in that space. Retailers must strive to engage with them on social networks.
• Be relevant: tailor marketing – especially online and mobile campaigns – to consumers and their need-states.

Trade promotions include products featured in ads and in-store circulars, products displayed on end of aisle caps or away from their normal self location and products with temporary price reductions.

“Although we shouldn’t be surprised by an increase in promoted sales during a recession, it’s stunning to see an additional 1.3 billion purchase decisions being influence by in-store promotions,” said Tom Pirovano, Director, Industry Insights at Nielsen.

Other key findings from Nielsen’s study:

• Chicagoans buy the most on promotion, with 55.9 percent of products sold on promotion, followed by Phoenix, Oahu and Indianapolis.
• San Antonio, Oklahoma City/Tulsa and Birmingham have the lowest promotion sales.
• Impulse purchases such as ice cream, crackers and carbonated beverages sell the most on promotion.
• Conversely, magazines, ice and tobacco sell the least on promotion.

In other promotional activity, Nielsen found that coupon activity – -which has seen a strong resurgence among American consumers over the last year – was highest is disposable diapers (21% of which were sold with a coupon), dough products (14%) and sanitary protection (12%).  By measuring the average number of units purchased per trip, Nielsen identified canned cat food, baby food and canned dog food as the best candidate for buy-one-get-one (BOGO) promotions. This same measure found that coffee makers, baking powder and dishwasher rinse aids are the weakest categories for BOGO promotions.

“The key for consumer product manufacturers is to set goals for each trade promotion, and then measure the results to determine which promo events are the most efficient and effective,” said Pirovano.  “Retailers who can drive their feature ads with the right mix of products, price points and display support will have success with both their vendors and shoppers.”

Growth (by value) of British food sales for the four-week period ending December 27 was up by 2.6% year-over-year overall and by 4.5% year-over-year for grocery multiples.

“The consumer was much more cautious this year, and it was a back to basics Christmas,” Mike Watkins, senior manager, retailer services, Nielsen, noted.  “Sales of packaged grocery (+11%), frozen (+10%), and confectionery (+8%) were buoyant, while sales of liquor (+4%), heath and beauty (+1%), and deli counter (+1%) were more muted.”

Overall, “Out of Town” super stores (25,000 square feet+) were the star holiday performers, with sales up by 8% in the two weeks ending December 27, according to Nielsen.  The data suggests that shoppers held back on Christmas shopping, waiting until last minute and then maximizing their spending at larger stores.

Among “Out of Town” retailers, Asda had particularly strong sales growth (+6.7%).  The chain increased its market share from 15.7% during December 2007 to 16.1% this December, according to Nielsen.

Morrisons also showed impressive growth (+9.1%) during the 12 weeks ending December 27.  The retailer increasing its market share from 10.1% during Q4 2007 to 10.6% for the fourth quarter of 2008.

“Retailers with keen pricing and a value for money offering have really performed well over Christmas,” Watkins noted.  “It is evident that consumers really did cut back on the luxuries and make do this year.”

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Is the outlook any brighter for the new year?  Food marketing expert Phil Lempert, of SupermarketGuru.com, offers his take on what consumers and retailers can expect in 2009.

Nielsen Wire: How did consumer habits change in 2008 — and how should retailers adjust?

Phil Lempert:
In 2008 shoppers used more coupons, bought more store brands, and started using shopping lists again. I have little doubt that these “learnings” will stay with many of these shoppers through their lifetimes — the same way our grandparents who lived through the depression held on to many of the values learned through that experience. At the same time, shoppers have become smarter – they are reading more labels and asking more questions. They are also demanding better service and the chance to be heard, which is a new challenge for retailers who are trying to hold down payroll costs.

In a recent consumer survey we conducted for Readers Digest Entertaining Group, 72% of shoppers said that they will continue to use the shopping strategies they’ve discovered over the past six months even when the economy recovers. The rules have changed, and more than ever the consumer is the commander of the shopping experience.

My recommendation to retailers and manufacturers is to strengthen your relationship with your current customers and to reach out to new ones. People are nervous and looking for stability and accountability — those who offer both will win.

Nielsen Wire: How else are retail grocery stores adjusting to the struggling economy?

Phil Lempert:
With higher costs and lower available capital, many retailers will be struggling to keep their operations at an acceptable level (acceptable to both their shoppers and themselves). At the same time, many stores are in need of new technology at the front end in order to comply with the new extended bar code, as well as preparing for RFID compatibility.

The move to build smaller stores (10,000 – 15,000 square feet) – led by Walmart and Tesco – may be one solution. Significantly reduced overhead and employee costs allow this format to be profitable with much smaller volume (and may well prove to be exactly the format aging baby boomers, in particular, are looking for). The concept of having one superstore in a community, with dozens of satellite stores dotting neighborhoods will be tested over the next year, and I suspect it will be the winning formula in many locales.

Nielsen Wire: Other than prices, what factors will affect consumer choices in grocery aisles in 2009?

Phil Lempert:
In the same Reader’s Digest survey I mentioned earlier, 76% of people said they were bored with the foods they were eating and wanted more new products and recipes. Look for the winners in all categories to be those national brands that innovate (think Healthy Choice’s steamer line of frozen foods) or bring in new flavors (Budweiser Chelada) to satisfy convenience and flavor, while staying within the constraints of our new value equation.

Clearly, there has been a shift towards “local.” People want to know where their products come from — especially imports. Now, consumers expect packaged goods to identify their source, much as bottled water has done for decades. Hunt’s canned tomatoes, which are grown and packed in California, and ice creams that contain blueberries from Maine are just two examples of the transparency that will become increasingly common in grocery stores. Marketing the source, quality, and taste of ingredients will become the advertising sweet spot in 2009.

Nielsen Wire: How have advertising and marketing strategies changed for grocers in this economy?

Phil Lempert:
The old ad model does not deliver the sales or influence that it once did, which is why brands and retailers have moved on to new media that are less costly, faster, more targeted to produce, and instantly measurable. The medium is certainly the message these days, and the old mode ad vehicle simply doesn’t appeal to future consumers. Advertisers must think more holistically about their advertising — and forget the idea that buying time on the Super Bowl and producing a lavish commercial that is designed to appeal to all is little more than fodder for an episode of Mad Men.

I just had the opportunity to be a judge in the National Grocers Association Creative Choice Awards, and while I can’t reveal any of the winners until they are announced at their awards ceremony in February, I can tell you that independent grocers, with limited budgets in most cases, are doing some of the most creative and effective advertising during this economic downturn.

Nielsen Wire: But can’t chain stores just point to their prices, which are often better than smaller independent stores?

Phil Lempert:
Ads that only promote price may give a short term bump in sales, but the truth is that advertising that builds a relationship based on what a product or brand stands for and the benefits it offers the customer is more effective in building life-long value. 

My recommendation to chain retailers, in particular, is to examine what smaller grocers are doing with their ad budgets and websites. They may be shocked to find that these less glitzy and more personal ads are stealing their shoppers.

About Phil Lempert
Known as “The Supermarket Guru,” Phil Lempert is one of America’s leading consumer trend-watchers and analysts.  Lempert is the food trends editor and correspondent for NBC News’ Today show, where he reports on consumer trends, food safety, and money-saving tips. He is also a monthly columnist for Progressive Grocer magazine and Gourmet Retailer magazine, and is the host of the weekly new products webcast “5 New Food Products in 5 Minutes: The Hits & Misses.”

FreshDirect, the largest online grocer in the New York area, is experiencing growth in a variety of areas, including ready-to-eat meals. “People are traveling less and eating out less,” says Steve Druckman, chief marketing officer at FreshDirect.  The company reports that length of time between orders has shrunk by 20% in the last four months, which suggests that customers are using the service more frequently.  

Amazon.com, America’s largest online retailer, is also getting into the mix by trying out a service called AmazonFresh in the Seattle area.