Indonesia is one of the fastest growing soft drink markets in Asia Pacific, trailing only China and India in terms of absolute off-trade volume growth during 2008-2013. Strong GDP growth, which resulted in 31% growth in disposable income over the last five years, fuelled this consumption, as newly enriched consumers turned more and more to packaged beverages to quench thirst brought on by the tropical temperatures. However, economic uncertainty amidst rising inflation, coupled with rising production and distribution costs, is threatening Indonesian soft drink growth. As manufacturers examine ways to cut costs, thin wall plastic containers present a successful compromise between the returnable glass bottle model and the more expensive PET plastic bottles that have gained in popularity.
Rising Inflation could Burst Soft Drink Bubble
As soft drink consumption becomes a larger part of Indonesian life, struggles in the country’s economy are creating problems. Growing inflation has increased unit prices for many consumer goods and services across the island nation. Fuel has become increasingly expensive in the face of the depreciating rupiah – an important expense considering the near 1,000 islands inhabited across the Indonesian archipelago. Costs of imported raw materials such as sugar and packaging supplies have also created a burden. All have had a hand in the 31% unit price increase for soft drinks over 2008-2013. Furthermore, Indonesia's Gini coefficient (which measures the statistical dispersion intended to represent income distribution of a nation’s residents, with zero being perfect equality and 100 complete inequality) increased from 35.0 in 2008 to 41.4 in 2013 underscoring a rising disparity between the country’s rich and its poor. To maximise access to all Indonesians, manufacturers have turned to packaging costs as a way to lower unit price.