development of indonesian food and beverages industry

FOOD & BEVERAGE

DEVELOPMENT OF INDONESIAN FOOD AND BEVERAGES INDUSTRY By Christine Anggi Sidjabat

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ood and beverage industry has always been the most important and contributive sector in Indonesia. Last year, this sector contributed as much as 7% to the GDP and 28% to total industrial manufacturing output; it is accounted as the biggest contribution towards GDP for non-oil sector. Food and Beverage sector’s business prospect seems promising, since it grew signi icantly, for instance it grew with 13.6% in 2013. Growth of import for raw and processed food and beverage are positive for both industrial and household purposes; the household purposes food and beverage import was 224.9 USD in 2013 and 267.8 USD in 2014 while the industry purpose food and beverage import was 590.8 USD in 2013 and 689 USD in 2014. Thus, the aforementioned igures indicate that food and beverage sector is constantly developing, both for domestic manufactured and imported products. This article mainly discuss about what trends will come for Indonesian food and beverage market and industry, by observing at the current condition.

Consumer Spending Many has projected that Indonesian consumer group will be increasing in number, due to the growth of young and urbanized population 14 / 3rd IS ISSUE SSUE July - September er 2015

with improvement in income and consumer con idence. According to Economist Intelligence Unit, Jakarta would be the biggest city with young and consumptive population in the world by 2030. UN also forecasts that 2/3 of Indonesian consumers will be urbanized by 2050, and 60% of the mentioned population is located on Java Island. Nielsen also reported that Indonesia has the highest consumer con idence in Q4 of 2013, based on their local job prospects, personal inances, and immediate spending.

increased from year to year. Based on a statistic by BPS of average daily per capita consumption of protein from 2011 to 2012, ish consumption is increased by 0.09 grams, meat increased by 1.65 grams, while egg & milk down with 0.5 in its igure from 2011 to 2012 but still considered pretty high among other kind of proteins. Growing trend for these animal proteins are most likely to be increased in following years, opening the possibility for bigger market in the country.

Since food and beverage is a primary needs, the development of consumer con idence will surely in luence its spending towards food and beverage products. In 2013, the monthly average expenditure per capita for food was 27.41 USD; it is making up to 45.86 percent of the total monthly expenditure per capita. This shows that food and beverage products are the main contributor of spending for Indonesian families, and as the income improvement keeps going, food and beverage sector will always pro itable.

Besides animal-origin proteins, Indonesian consumers are shifting preference to healthier choices of foods. Due to the rise of middle class and the health awareness, Indonesian consumer’s starts to have the ability to pay extra for better quality. More educated and middle-to-high income society tends to pick organic and healthy foods/beverages, even though it costs them more than usual. For example, Canadian Research found that the most growing Indonesian beverage consumption from 2006 and 2011 was isotonic beverages; it was accounted for 16.3% of growth. This research also showed that the carbonated soft drink has the lowest percentage of growth in the same period. This is showing that Indonesian consumers are willing to be engaged

Trend towards Healthy Food Even though Indonesian consumption for animal protein like ish, egg & milk, and meat are still considered low compared to other countries, this consumption igure is steadily

FOOD & BEVERAGE

in a more healthy way to eat and drink, proven by their preference to choose the healthy isotonic beverage, which can rehydrate their bodies, rather than the unhealthy carbonated soft drink. On baked goods sector, healthy bakeries with healthy and organic ingredients are also projected to be the new trends on 2015. The using of healthy ingredients such as organic fruits, vegetables, nuts, and wholegrain lour forecasted to be a common move made by all bakery industries. Some products such as; carrot cake, beetroot cake, whole grain bread, are introduced to the market and gain their own share therein. It might be a sign for food manufacturers to innovate their products to comprehend with market trend towards healthy food and beverage products, in order to gain market preference.

Beverage Industry Development Due to the large Muslim majority, Indonesian beverage industry is dominated by the non-alcoholic beverages; it was estimated to gain

Since food and beverage is a primary needs, the development of consumer confidence will surely influence its spending towards food and beverage products.

8.5 billion USD with growth rate of 10 percent in 2013. Tea and coffee are two types of beverage which is the most common to be consumed by Indonesian, besides still water. It is mentioned by Roy Morgan Research that the largest composition of consumed beverages by Indonesians in seven days are hot tea with 22 percent, hot coffee with 15 percent, and iced tea with 12 percent. Meanwhile, the alcoholic beverages subsector is more regulated and closed for investment. Alcoholic drinks consumer are the upper-income group population, the expatriates, and the tourists. Duties that must be paid for alcoholic beverages are considered high; it can amount to 170% according to harmonized system of classi ication, which is making the price for these products more expensive. Common alcoholic drinks available in Indonesia are beer and wine, both products also have been produced by local manufacturer, for example like Multi Bintang with Beer Bintang and Orang Tua Group with its Orang Tua wine. 15 / INA MAGAZINE

FOOD & BEVERAGE

and population in Indonesia; those facilities are usually owned by food manufacturers, food services, and distributors. The other players on food and beverage may not equipped by the cold chain infrastructure, particularly by traditional market and small retail stores.

Beer and wine gains more consumers by the in luence of globalization, the urban lifestyles bring the Western culture to Indonesia. Moreover, the increasing foreigners’ presence in this country also contributes to Indonesian preferences to drink alcoholic beverages.

The Inϐluence of Retail Sector Increasing number of upper and middle income in Indonesia helps the modern market growing vastly. Now almost all big cities in Indonesia have at least one to three shopping malls, while the small convenience stores like Alfamart and Indomaret can be easily found in every region, both big cities and small towns. Smaller working families in Indonesia care more about food safety and quality, as well as health issues. Thus, this population prefers to purchase groceries including foods and beverages in hypermarkets, supermarket, or convenience stores; since the quality and safety of foods in these modern markets can be more guaranteed rather than products in wet market. According to BPS, the National Statistics Center, the biggest part of monthly food expenditure in Indonesia is prepared food and beverages, which is commonly found in modern markets. The foods’ labels and packaging are two features which are concerned by educated consumer, it is said by the Marketing Food Director for CorbionPurac Asia Pasi ic, that the consumers are being more aware of what goes to their food, and demanding food manufacturers to ind 16 / 3rd ISSUE July - September 201 2015

the naturals alternative. Through this modern market development, packaged and processed foods’ demand is lourished, offering the timesaving and convenient way of eating. As mentioned earlier, the packaged and processed food is more trustable by the urbanized population rather than fresh products on wet markets, because it most likely displays the nutrition facts, ingredients, expired date, producer, and other features. According to Euromonitor data, three most popular packaged foods among Indonesian people on 2010 to 2012 were dried processed food, bakery products, and dairy products. Even though the popularity of modern markets is increasing but the traditional market never lose its attractiveness, traditional market is still the biggest source of purchased food and beverage products.

Remaining Obstacles of Indonesian Food and Beverage Industry As a country with tropical weather, cold storage for food and beverage products are very essential for Indonesian food industry. Otherwise, stored food and beverage products would not stay longer, especially speci ic products such as dairy, vegetables, meat, and other products which are sensitive to spoilage bacteria. Unfortunately, the infrastructure related to food conservation and storage is still poorly managed, especially outside Java Island. The cold storage and air-conditioned facility unit that is provided cannot be comparable with wide geography

Other than cold chain infrastructure, to get along with Indonesian market, food producers should it in with Indonesian taste and preferences. Food and beverage products are taste-sensitive, thus the product speci icities should follow the trend and demand of target market. Local tastes and consumer behavior should be adapted into the products. For example, Indonesia prefers sweeter taste products and which are available in small packages. Brand marketing is very important to win the Indonesian consumer hearts, because in some cases, Indonesian consumer is known for their brand-loyalty. Finally, great future for food and beverage industry in Indonesia could be hurdled by the long process of bureaucracy to complete. Some food and beverage regulations, like many other regulations, are often being a challenge both for local and international companies. Despite of the aforementioned obstacles, food and beverage industry in Indonesia will keep on developing and evolving, along with its enlarging market and opportunity.

Source: EIBN Food and Beverage Sector Report 2014 BPS Statistics=z Natasha Telles D’Costa. Asia Pacific Beverage Industry: brewing up a storm. Foodreview International, Vol.1 Indonesia, 2013. http://www.euromonitor.com/healthand-wellness-in-indonesia/report

FOOD & BEVERAGE

BAKERY INDUSTRY AS PROMISING SECTOR

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s the 4th largest country in the world, Indonesia has the biggest population and demography in Southeast Asia with approximately 60 percent of the population is below 35 years old and the majority is Muslim. Nowadays, Indonesia bakery industry has experience remarkable growth as bakery trend is no longer seen as a dessert or appetizer. Variant menu of beverages, dairy products, sugar, bread, cakes, and pastries are gaining more attention from Indonesian consumers. Nonetheless, as a forecast, Indonesia bakery is set to become the main course among teenagers and children plus the existence of Westernization. Young people are the highest consumers of bakery products as their habits and trend are slowly changing along with the development.

Having more young people population as these are in a productive age, should also drive consumerism population1. Therefore, this type of consumption patterns makes the industrial bakery develops rapidly in Indonesia. The development is not only proven by the increasing number of companies in the business, but also by production and marketing, both for local and international markets. Ipso facto, the export market which continuously expanding along with the business community has led the bakery industry to promote and sell their products in many different countries. According to Chris Hardijaya, chairman of APEBI, Indonesia is expecting a better sales outlook in bakery industry for this year and therefore. Bakery industry is a very promising market sector, were both local and international players in

bakery industry are trying to bene it from this promising business. He also mentioned in previous 2012 sales of bread and pastries risen 12 percent to around 30 million rupiah2. For the upcoming event, a strong power of Food & Beverage industry, SIAL Group and Krista Exhibition will present SIAL INTERFOOD 2015 which will be held from November 1114, 2015, at the Jakarta International Expo. SIAL INTERFOOD focuses on the market for food, beverage, bakery and processing & packaging in Indonesia and throughout the ASEAN region. This event expects more visitors and the interest of other Indonesia companies who would like to participate. In the previous event report of INTERFOOD 2014, with a total of 650 exhibitors, 97 percent of exhibitors recommend

INTERFOOD to other professionals of the food industry. INA is supporting NCH in organizing Holland Pavilion at the upcoming SIAL INTERFOOD 2015. Hereby for more information please contact to Michel van Bommel 070 344 15 98.

1 http://www.thejakartapost.com/ news/2015/02/11/indonesia-sconsumer-sector-overview.html#sthash. TkebGCEu.dpuf 2 http://www.thejakartapost.com/ news/2013/07/01/bakeries-flourishmiddle-classes-adopt-new-lifestyle.html

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THE UNDENIABLE GROWTH OF INDONESIA’S FOOD & BEVERAGE INDUSTRY

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he food and beverage (F&B) industry includes the research and development, processing, production, wholesale and distribution, including branding and retailing, of a wide range of food and beverage products. Recent research by the EU SME Centre suggests that European SMEs are increasingly expanding their business abroad, and are making signi icant investments in product development, pricing and growth strategies in emerging markets. Rapid economic growth in South-East Asia is creating a burgeoning market for imported F&B products. Indonesia accounts for one third of the region’s GDP and has the ifth largest fresh food market in the world1. The turnover in Indonesia’s processed F&B industry grew by 4 to 5 percent in the irst quarter of 2015 from the same period last year2.

While opportunities for EU SMEs in Indonesia’s F&B industry are promising – the country is demanding more ‘Westernised’ products – it should be noted that the majority of the Indonesian population is Muslim. This means that all slaughtered food must possess halal certi ication and adhere to speci ic labelling requirements, and that importers should be aware of regulations related to alcohol3. As well as paying attention to Indonesia’s F&B regulations, EU SMEs 18 / 3rd ISSUE July - September 2015

should also take steps to ensure that their IP rights are protected. There are several types of IP that are relevant to the F&B industry.

Trade marks in Indonesia Concerns about food safety and halal observance in Indonesia, and the relatively high number of counterfeit and home-made products (especially in the alcoholic beverage industry) mean that F&B reputation is especially important. A trustworthy brand can be critical to the success of F&B products in Indonesia, as in other countries in South-East Asia. A company’s trade mark can therefore be critical for distinguishing the goods of one trader from those of another – i.e. it can function as a badge of quality. Indonesia uses a ‘ irst-to- ile’ system, meaning that the irst person to register a trade mark owns the right to it – regardless of who ‘created’ it irst. It is particularly important to register your trade mark in Indonesia because trademark piracy due to ‘bad faith’ registration is a serious problem. ‘Bad faith’ registrations occur when a trade mark is registered by a third party that does not own the trade mark, thereby preventing the legitimate owner from registering it.

Geographical indications It is also possible to register geographical indications (GIs) in Indonesia. This includes products that originate from a speci ic geographical

location and thus possess certain qualities associated with that area. Examples include Bordeaux wine, Parmesan Reggiano cheese and Parma ham. To register a GI, the registrant must belong to a collective organisation representing a group of producers in the area that produces the goods they want to register.

Packaging Creative packaging styles are developed to distinguish the external look of different products. Despite its commercial signi icance, the importance of packaging is often underestimated, as is the importance of protecting design aspects of products to prevent counterfeiting and replication. Packaging elements can be registered as trademarks, design patents or copyright; although, it is expected that 3D trademarks will be included in the new Trademark Law, which will be passed this year. 3D trademarks are another way to protect product packaging.

Design patents Design patents may be used to protect the visual appearance of products. They cover: • The shape of a product (e.g. Chambord’s distinctive bottle); • The pattern of a product (e.g. Tunnock’s Caramel Wafer); • The shape and pattern of a product; • The shape and colour of a product; • The shape, pattern and colour of a product.

FOOD & BEVERAGE

Two types of patents are recognised in Indonesia: • Standard patents: for products and processes – three to ive years to ile; 20 years patent protection; and • Simple patents: for products only – two to three years to ile; 10 years patent protection. In both cases, annual payments must be made after the grant to keep the patent valid. In the case of the standard patent, publication takes place 18 months or more after the iling date, whereas for the simple patent the application will be published three months or more after the iling date.

Copyright Copyrights can also be used to protect packaging rights in Indonesia. Shapes, ornamental features, products featuring works of applied and ine art can be protected, as can images of F&B products – brochures, catalogues, web content, labels and marketing materials. Copyright protects the expression of an idea, but not the idea itself. Copyright in a work is effective from the date of creation of the work, and there is no need to register copyright (though it is possible to record copyright at the Copyright Of ice).

Trade secrets A trade secret is widely understood as non-public information that is inancially valuable and is guarded with con identiality measures. In the F&B industry, trade secrets may refer to ingredients or processing methods that are critical to the taste, texture, appearance and smell of a product. A famous example is the Coca Cola formula. In Indonesia, trade secrets may be protected by applying physical, technical and contractual barriers. While there is no of icial registration process, EU SMEs intending to import F&B products to

Indonesia might consider asking their employees to sign agreements to agree to keep trade secrets con idential. All private documentation should also be marked: ‘con idential – do not disclose.’

Gradually, their business drew larger swathes of customers; the kiosk was upgraded into a small restaurant, and several food items were added to the menu.

There is no time limit to trade secret protection – it will remain a secret until it is publicly disclosed.

Case study: Es Teler 77 – an Indonesian success story4

Due to the restaurant’s increasing popularity, the family chose to register “Es Teler 77” as a trade mark to protect their company from fraudulent activity. They also registered the company’s service mark “Juara “

Es Teler 77 is an Indonesian fast-food chain, with over 200 restaurants in Indonesia and several in Malaysia, Singapore and Australia. It was established by Mrs. Murniati Widjaja and her husband in 1982, when they began selling a fruit ice drink called “Es Teler” from a kiosk outside a shopping mall in Jakarta.

Indonesia” in categories including restaurants, cafeterias, hotels, catering, beverages, food services, and various F&B categories (such as meatballs, iced drinks and syrups). Understanding the value of trade marks, the company created and registered another service mark: “Mie Tek Tek” – which would be used exclusively for noodle outlets.

Establishing a brand

Franchising

The name “Es Teler 77” was decided when the couple decided to add the Chinese lucky number 77 to the name of their kiosk. To advertise their brand name, the family sponsored local competitions and attempted to beat national records, such as creating the biggest Christmas tree in Indonesia. These events drew media attention and increased their small company’s pro ile.

Much of Es Teler 77’s success can be attributed to its strict franchising strategy. Franchisees are required to pay around EUR 7,600. This entitles them to a franchise term of 5 years. Franchisees are obligated to send their staff to an Es Teler 77 training centre for one week, followed by three weeks at an established Es Teler outlet. Franchises must be in either mall, shopping centre or supermarket locations.

Company background

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FOOD & BEVERAGE

The Es Teler 77 brand is widely known in Indonesia and South-East Asia due to its owners’ meticulous protection of its trade marks. The company has also invested in catchy marketing and has developed a strong and highly reputable franchise.

Take-away messages for EU SMEs in Indonesia’s F&B industry 1. Mandatory F&B regulations and labelling requirements do not cover IP protection in Indonesia. To

protect your trade marks, designs and copyrights in Indonesia you should always consider registering them. 2. Due to F&B safety concerns and the prevalence of counterfeit goods in Indonesia, brands and packaging are often key to the success of EU SME products. 3. Registration is the key to the protection of your IPR in Indonesia. 4. Design patents can be a good way to protect your product packaging. 5. Keep trade secrets con idential

– regulate access to information with physical barriers, such as contracts.

https://www.nzte.govt.nz/en/export/ market-research/food-and-beverage/ food-and-beverage-market-in-indonesia/ 2 http://www.indonesia-investments. com/news/todays-headlines/growthindonesia-s-food-beverage-industry-in2015-revised-down/item5386 3 www.beacukai.go.id; National Agency of 1

Drug and Food Control website

The ASEAN IPR SME Helpdesk is a European Union co-funded project that provides free, practical, business advice relating to ASEAN IPR to European SMEs. To learn about any aspect of intellectual property rights in Southeast Asia, visit our online portal at www.asean-iprhelpdesk.eu. For free expert advice on ASEAN IPR for your business, e-mail your questions to: [email protected]. You will receive a reply from one of the Helpdesk experts within three working days. The ASEAN IPR SME Helpdesk is jointly implemented by DEVELOPMENT Solutions, European Business Chamber of Commerce Indonesia and European Business Organisations Worldwide Network.

Global network, here I come Explorers used to cross oceans to meet new civilisations. Today we contact each other from the Great Wall of China to the shores of the Baltic Sea. Are you tapping into the potential of your local markets? Our global network of professionals can help break down borders anytime. To find out how we can help you develop lasting connections, go to ingcb.com. ING Commercial Banking Indonesia The Indonesia Stock Exchange Building, Tower 2, 22F, Jl. Jend. Sudirman Kav. 52-53 Jakarta 12190 Indonesia, Tel: +62 21 2996 2300

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