By Adhitya Nugroho
Although Indonesia is one of the largest paper
pulp producers in the world, Euromonitor International’s
research reveals per capita sales levels are among
the lowest in Asia-Pacific, at a meagre US$0.18
in 2007. This resulted in overall tissue product
sales of just US$42 million.
Within tissue products, toilet paper and facial tissues collectively
account for the biggest proportion of value sales (80%). That
said, across all tissue products sales have been held back by
the practice of using a cloth and water for general cleaning purposes
and this practice is evident even in the top tier cities due to
price sensitivities.
TOILET PAPER USAGE
Interestingly, Indonesians have traditionally used
toilet paper and facial tissues largely for general cleaning
purposes alongside a cloth and water as opposed to personal hygiene
use in the toilet. This practice is very much ingrained in daily
lives and very often one would find toilet paper placed on dining
tables, both at home and in foodservice outlets. Thus, there
has been little impetus on the part of manufacturers to improve
product quality or the absorbency of toilet paper, whilst there
has also been a lack of concerted marketing initiatives.
Nevertheless, with a rise in product appreciation and a clearer
understanding of the key positioning of products, coupled with
exposure to foreign cultures via both media and travel, toilet
paper is gradually moving into toilets. This development is especially
prevalent in Java and on Sumatra Island where the Paseo and Nice
brands, owned by Asia Pulp & Paper Co Ltd, compete with the
Tessa and Multi brands from Graha Kerindo Utama PT, a domestic
Indonesian company.
BOXED VS ON-THE-GO USE
Because of their high unit prices the use of boxed
facial tissues remains limited to higher-income groups. The general
population perceive little difference between these highly-priced
products and toilet paper, and consumers are therefore unwilling
to pay a price premium for them. Boxed facial tissues are typically
available in either hard cardboard boxes or flexible plastic
packaging and it is the former that is seeing greater innovation
activity, with manufacturers producing products incorporating
aloe vera or marketed in combination with Looney Tunes packaging.
Comparatively, pocket tissues have a wider consumer base since
they are more affordable and consumers can understand the additional
benefits they offer, particularly in terms of convenience and
outside-of-the-home hygiene. There are also more frequent innovations
in pocket tissues, centring on improvements in ingredients (Paseo
Eucalyptus), texture (Dynasty 3 Ply Non Perfumed), scents (Kleenex
Rose & Sandalwood) and packaging format as well as packaging
graphics, such as the inclusion of cartoon characters to attract
younger consumers (Tessa Looney Tunes).
PARTY-LED SALES FOR NAPKINS
Napkins dominate sales of paper tableware and are
most commonly purchased for use at parties or by upmarket consumer
foodservice outlets for use at dining tables. As a result of
such limited sales, totalling only US$7.7 million in 2007, very
few brands are present in the market. As is the case across many
other developing economies in Asia-Pacific, kitchen towel sales
are still negligible despite the presence of brands such as Paseo
(Pindo Deli Pulp & Paper Mills PT) and Multi (Graha Kerindo
Utama PT). Product demand is extremely niche and suffers from
very limited distribution, with product availability largely
confined to hypermarkets.
MARKET LEADERSHIP
Although many global tissue brands are available
in Indonesia, they face stiff competition from a multitude of
locally produced products such as Tessa from Graha Kerindo Utama.
Given the lesser emphasis placed on superior product qualities
(absorbency and softness), manufacturers which have focused on
driving volume sales through expanding their distribution reach
have recorded the greatest success.
The penetration and availability of tissue products differ on
each island in Indonesia. Java Island boasts a superior transport
network and distribution infrastructure in its cities and inter-provinces,
which are further supported by an ever-expanding range of middlemen
and distributors.
For instance, on Java Island, toilet paper and facial tissues
can be found even in third-tier cities such as Wonosobo, but this
same depth of penetration is not replicated across the other islands.
In Sumatra, penetration is improving in second-tier cities that
have better logistics, transportation and retail networks, whereas
in Borneo and Sulawesi product availability is very much limited
to first-tier cities such as Samarinda. Wider penetration has
been made possible by the growth of modern retail channels such
as convenience stores. The two biggest operators of convenience
stores, Alfamart and Indomaret, collectively operate more than
4,000 outlets across Java Island. In sharp contrast, kitchen towels
are mostly found in first-tier cities such as Jakarta and Surabaya
in Java and distribution is limited to modern retailers such as
supermarkets.
RETAIL OUTLETS KEY
The outlook for tissue products in Indonesia remains
strong over the next five years.
As with other developing countries in the Asia-Pacific region,
the face of Indonesia’s retail landscape is expected to
change over the forecast period. Modern retailers in the supermarket,
hypermarket and convenience store channels, which have concentrated
their expansion plans on Java Island, are expected to shift their
focus to the other islands, starting with Sumatra. Leading convenience
store retailers such as Indomaret and Alfamart are predicted to
expand their presence to Sumatra Island over the next 1-2 years,
and to Borneo in the next 3-5 years, thus expanding their sales
points and providing consumers with a whole new shopping experience.
The expanded presence of larger store formats such as supermarkets
and hypermarkets also offers the capacity to sell products in
larger value pack sizes as well as providing space to accommodate
both domestic and multinational products, spanning multiple price
points.
Progress in the retail sector should allow tissue product manufacturers
to offer greater variety, spanning both basic as well as luxury
ranges, catering for the differing needs of the diverse Indonesian
population. Leading the way would be established players such
as Pindo Deli Pulp & Paper Mills, Univenus Co PT (the local
subsidiary of Asia Pulp & Paper) and Graha Kerindo Utama,
which have the experience and technical expertise to vary their
ranges and offer local products that cater to specific local needs
and purchasing abilities.
At the same time, the regional governments on each island are
committed to further developing and improving basic infrastructure
such as roads, water supplies and logistics systems so as to attract
foreign or domestic investors. This, in turn, will further expedite
retail developments at regional level and especially in rural
areas, where there is a large untapped consumer base for disposable
paper products.
RISING INCOMES
Along with a positive outlook for the Indonesian
economy, the proportion of middle-income consumers is projected
to grow with the bulk of households’ annual disposable
income expected to rise close to US$2,500 by the end of 2012.
This is expected to result in stronger sales of emerging products
such as boxed facial tissues and demand for higher pulp quality
within toilet paper and facial tissues.
While facial tissues and toilet paper will still account for
the bulk of sales, paper tableware and especially napkins are
expected to see increased distribution of more than 21% as greater
numbers of Indonesian consumers make use of consumer foodservice
outlets. Increased consumer sophistication in the bigger cities
will generate demand for softer, embossed and 3-ply tissues such
as Graha Kerindo’s Multi Luxury, an area of development
for seasoned manufacturers, whereas other regional manufacturers
will continue to focus on affordability.
Consumer attitudes and purchasing power with regard to tissue
products vary considerably across the Indonesian
archipelago and manufacturers which segment the market according
to price and product quality can expect to be more successful.
Ringing cash tills await manufacturers which are able to tap into
the growing consumer base in the middle and upperclass groups
by leveraging on the expansion of the modern retail network across
the Indonesian islands. TW
Adhitya Nugroho is a research analyst with Euromonitor in Singapore.
Contact: Adhitya.Nugroho@euromonitor.com.sg
