Rabobank Highlights Opportunities for Bakery in Indonesia, Catering to Middle Class Expansion

636022935655413184501.jpg

24 Jun 2016 --- Despite its huge potential, Indonesia is not an easy market to capture when it comes to the bakery business. The short shelf life of bakery products, the country’s vast archipelago, poor logistics and a lack of skilled bakers have all hampered the category’s desire for growth. Rabobank has identified the key challenges and opportunities for the bakery business in Indonesia.

As a largely rice-eating country, it is interesting to note that Indonesia is currently the second-largest wheat importer in the world, with 7.5 million tonnes imported in 2014/15. The consumption of wheat-based products such as noodles and bread has risen significantly in the past ten years, while per capita rice consumption has tended to stagnate, signifying a shift in what Indonesians eat as their staple food.
 
Between 2010 and 2015, baked goods grew at 11.7% CAGR in value and 5.5% in volume, as more companies expanded their capacity and opened new markets in smaller cities (see Figure 1). Artisanal bakeries contribute to almost half of Indonesia’s total bakery market value, followed by industrial bakeries (33%) and private label (18%).
 
According to BCG, the population of the middle and affluent classes (MAC) in Indonesia will reach 141 million in 2020, while 8 million to 9 million are predicted to enter the middle class each year. The growing middle class and a changing lifestyle pose a big opportunity for bakery companies, as these consumers have strong buying power, while they embrace modern, western lifestyles. But major hurdles must be overcome in order to successfully tap into this market potential.
 
Huge geographical spread, short shelf life
Short shelf life is a classic problem for the bakery business and an even bigger problem for a country with a geographical profile as unique as Indonesia. Transporting goods from Java to other islands could take three days or more via a combination of land and sea transport, while the shelf life of industrial bakery is only around five days. In order to have a nationwide presence, industrial bakery players need to invest in multiple factories across the archipelago. Poor infrastructure and expensive logistics aggravate the problem. Bandung Fe Institute reported that logistics costs are very high in Indonesia, at 24.64% of the GDP. This is far above those in Malaysia (13%), Japan (10.6%) and Singapore (8%).
 
Changing channels in the industrial bakery category
The lifestyle shift of Indonesian consumers is reflected in the type of channels that they use to buy industrial bakery products. In five years, the minimarket contribution to the industrial bakery category has grown significantly, at the expense of supermarkets and independent grocers. Minimarket giants such as Alfamart and Indomaret have more than 20,000 stores across the country, making them the most important channel for the growth of the industrial bakery business.
 
Lack of skilled bakers
Scarcity of bakers has become a major problem for artisanal bakeries. The market for talent is quite tough, and many bakers are more attracted to work in more prestigious hotels than in bakeries. This condition has hampered outlet expansions, especially in smaller cities.
 
The growth is out there: expanding to second- and third-tier cities
Smaller cities means less competition, but more eager and excited consumers. Consumers in commodity-rich areas such as Kalimantan, Sulawesi or Sumatra have strong buying power, but they have limited options when it comes to spending their money.
 
Industrial bakeries: longer shelf life
To overcome geographical barriers, industrial bakeries need to look into developing products with a longer shelf life. In other markets, there are bakery products that could last to more than 90 days, thanks to innovation in product and packaging.
 
Artisanal bakeries: going frozen
For artisanal bakeries, frozen dough offers the solution for the lack of skilled bakers. Investments in a frozen dough facility in Indonesia could reach USD 10m, depending on the location, with production capacity around 100,000 frozen breads/day. But, thanks to frozen dough’s long shelf life, a large bakery chain could benefit from a frozen dough business model to serve their outlets across Indonesia.
 
Hotels, restaurants and cafés in popular travel destinations such as Jakarta, Bandung, Surabaya and Bali are also important channels for frozen dough, as most of them do not have the facility to develop bakery products from scratch.
 
The growth of the middle class in Indonesia offers an interesting opportunity for bakery producers, although it is hampered by some significant challenges. But opportunities are arising from these challenges. Technologies such as frozen dough, long shelf life products and Modified Atmosphere Packaging (MAP) are not yet popular in Indonesia, yet these technologies might answer the challenges currently faced by the country’s bakery producers.

To contact our editorial team please email us at editorial@cnsmedia.com

Related Articles

Food Ingredients News

Cosucra finalizes investment project for pea protein expansion in the US

20 Jun 2018 --- Cosucra, originally active in sugar production, has undergone a profound transformation over the last twenty years to become a pioneer in the production of healthy ingredients derived from chicory and pea. The company’s most recent investments in its pea factory have been finalized and increased to €35 million (US$40.4 million) in a bid to conquer the US market and suit the needs of the industry. Half of this investment came from bank loans and half from self-financing, according to Cosucra.

Food Ingredients News

Hochdorf offloads Lithuanian milk protein plant

20 Jun 2018 --- Following a significant company review which showed it was no longer viable to operate a plant in Lithuania, the Hochdorf Group is parting company with Hochdorf Baltic Milk UAB, a milk protein plant in Medeikiai which is being taken over by an investment group.

Food Ingredients News

Liquid chocolate venture: Cargill invests €12 million in Belgian chocolate facility

20 Jun 2018 --- As the consumer demand for premium, high-quality Belgian chocolate continues to rise, Cargill has invested €12 million (US$13.8 million) in a new liquid chocolate production line at its Mouscron production facility in Belgium. This additional investment brings the total investment of the site up to €47 million (US$54.3 million). The investment increases the company’s capacity to produce milk and dark chocolate and creates up to 10 new jobs in Mouscron, Belgium.

Food Ingredients News

Taura’s reduced-sugar cookies hit the sweet spot

19 Jun 2018 --- Research into Taura’s reduced-sugar cookies containing concentrated fruit pieces shows that consumers perceive them to be just as sweet as full-sugar alternatives. The natural ingredients specialist says a consumer sensory panel showed that its reduced-sugar cookies with JusFruit pieces contain 30 percent less sugar but came out on top in taste testing.

Food Ingredients News

Marking 25 years in Germany: Bell Flavors & Fragrances invests in innovation, management and R&D

19 Jun 2018 --- Bell Flavors and Fragrances EMEA is making strategic investments in creativity, innovation and reliability, which are the primary objectives of the independently managed family-owned company. Bell intends to expand its significant role in the industry in the future and is, therefore, investing in the areas of logistics, research & development and quality management.

More Articles