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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.
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.
For many Asian markets, Indonesia included, returnable glass bottles have traditionally been the most cost-efficient way to package beverages. Under this model, regional bottling plants fill glass containers and ship the beverages to retail outlets for purchase. Consumers then purchase the drinks and return the bottles for a small refund. By re-using the glass packaging, unit prices are typically lower than beverages that use disposable packaging.
However, the cost of shipping glass bottles across the island nation and returning them to manufacturers is increasing due to rising fuel prices. Returnable glass bottles have gone from 15% of all soft drink packaging units in 2008 to just 10% in 2013.. Meanwhile, soft Gable-top liquid cartons and PET plastic bottle packaging have grown in popularity as they present a one-way transaction for retailers and consumers. Many of these pack types feature plastic screw closures, allowing consumers to reseal the beverage if not completely consumed. Nevertheless, these packaging types are more expensive than returnable glass bottles and may price out the growing lower-income segment of Indonesian consumers. With prices for raw materials such as sugar growing, manufacturers are continuing to seek ways to keep costs down.
Thin wall plastic containers or plastic cups provide a solution. Unlike gable-top liquid cartons and PET plastic bottles, these containers cannot be resealed. However, the cost of the production of these containers is much lower than that of other single-serve beverages. They also provide the convenience of one-way distribution and are much lighter to ship than glass bottles, resulting in unit prices closer to returnable glass bottles without the hassle of shipping containers back to the manufacturer.
Source: Euromonitor International
These pack types are already very popular amongst consumers of bottled water. While the bulk of bottled water volume sales come from 5-gallon or 19-litre packs, almost 10.5 billion units of thin wall plastic cups containing 101-300ml were sold in 2013. Offices and households have long served guests these chilled plastic cups of water to help ease the oppressive Indonesian heat. Brands such as Danone’s Aqua (pictured below) are also served in restaurants.
Photos courtesy: flickr user Abas Koro, flickr user Very Setya Permana, P.T. Maha Jaya Sukesindo, Ake Abadi
Manufacturers of RTD tea (Indonesia’s second most consumed soft drink) have taken notice. Orang Tua Group sells Teh Gelas (which translates as “Tea Cup”) exclusively in thin wall plastic cups. Thanks to this packaging, the brand’s off-trade volume share of RTD tea increased from 1% in 2009 to 4% in 2013, with retail sales totalling over US$44 million. Garudafood Group also sells its Mountea brand in similar containers. Even energy drink brands such as Kino Sentra Industirindo PT’s Panther and Ake Abadi’s Banteng have taken to the new packaging in order to reach low-income consumers.
Unlike RTD tea’s leading brand Sosro, which is still sold in glass and PET bottles as well as liquid cartons, The Gelas and Mountea are not thought of as fashionable. Their packaging alone denotes a lower quality amongst many Indonesians, especially since it is very similar to the packaging used for low-priced bottled water. However, for the millions of low-income residents in Indonesia, these beverages present an affordable way to partake in the soft drink culture. As the country remains in a state of economic uncertainty, consumer price sensitivity is becoming an increasing concern for soft drink manufacturers. The increased cost of both production and distribution will continue to present an obstacle. By embracing thin walled plastic packaging, manufacturers can lower costs, appeal to a larger percentage of the population, and perhaps attract new consumers seeking to start cutting back on expenses.