Consumer Business May 2015. Deloitte Consumer Insights Capturing Indonesia s latent markets

Consumer Business May 2015 Deloitte Consumer Insights Capturing Indonesia s latent markets

Contents Foreword 3 The driving forces in Indonesia s retail landscape 4 Deloitte Consumer Insights: Indonesia 7 1. Spending patterns 11 2. Buying behaviour 13 3. Brand preferences 14 4. Communication channels 15 5. Buying channels 17 6. Geographical differences 19 Deloitte Retail Insights: Indonesia 21 1. Stocking behavior 25 2. e-commerce 27 Looking ahead 29 Capturing Indonesia s latent markets 31 Appendix 32 Contact us 34 2

Foreword With its sheer size as the largest consumer market in Southeast Asia, Indonesia is undoubtedly one of the key markets for consumer business companies in the region. In particular, its main metropolitan areas of Jakarta and Surabaya have emerged as hotbeds for companies seeking to dominate the playing field, with higher levels of urbanisation and income per capita. Additionally, a number of other cities have been exhibiting strong economic growth in recent years and present latent markets ripe for capture. In this publication, we examine some of the key driving forces in Indonesia s consumer business landscape. Then, we present the results from the second edition of the Deloitte Consumer Insights survey conducted in the first quarter of 2015 across 2,000 households in five major Indonesian cities: Jakarta, Bandung, Makassar, Medan and Surabaya. Following the inaugural survey conducted in Indonesia in the fourth quarter of 2013, this edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences, as well as reveal some of the new shifts and opportunities that have arisen since the previous survey. This year, we also introduced a new section to highlight findings from our first Deloitte Retail Insights screening exercise conducted in 200 modern and traditional trade retail outlets in Indonesia across seven different product sub-categories. This was introduced with the objective of augmenting the consumer survey insights to provide a more holistic understanding of Indonesia s retail landscape. We then share our point of view on the key considerations for consumer business companies in this diverse and dynamic marketplace. These include the need for a segmented channel and product strategy to capitalise on the changing spending patterns of consumers as they transition into higher income segments; the necessity for a tailored approach for Indonesia s major geographic regions; as well as the imperative to leverage new media and technology for innovative consumer and business solutions. With increasing heterogeneity in its consumer demographics and market conditions, the current modus operandi will need to be reviewed and revised if companies wish to capture Indonesia s next waves of opportunities. We hope that this publication will provide them with a glimpse into the insights for success. Eugene Ho Southeast Asia Leader Consumer Business 3

The driving forces in Indonesia s retail landscape Indonesia s retail market is characterised by its immense size. While it brings countless opportunities to consumer business companies in the form of a massive and still growing middle class, digital consumers, as well as rapidly urbanising cities outside of Jakarta, a multitude of challenges such as the high cost to serve across the expansive archipelago exist. In this section, we explore four key driving forces in Indonesia s retail landscape that also later manifest themselves in the results of the Deloitte Consumer Insights survey and Deloitte Retail Insights screening exercise. A burgeoning middle class As many of Indonesia s low income consumers continue to transition to the middle income segment defined broadly as those with annual household incomes of between IDR 36 million to IDR 120 million they are becoming increasingly sophisticated in their spending habits and product choices (see Figures and 1 and 2). While this means an expected increase in expenditures in many consumer business categories such as beverages and packaged food, companies will also require more differentiated and segmented product offerings to capture the consumer s share of wallet as considerations such as price becomes less salient when compared to factors like the overall product quality and trustworthiness of brands. Figure 1: Education and urbanisation rates in Indonesia (2004-2014) 100% 90% 80% 70% 60% 50% 40% 30% 10% 0% 83% 77% 63% 53% 49% 45% 2004 2009 2014 Urbanisation rate Proportion with secondary school education Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit 4

Figure 2: Population demographics in Indonesia (2004-2014) Million 300 250 200 150 100 50 0 221 3% 10% 24% 63% 237 12% 31% 32% 25% 250 25% 42% 26% 7% 2004 2009 2014 Higher Income (More than IDR 120 million per annum) Upper Middle Income (IDR 60-120 million per annum) Lower Middle Income (IDR 36-60 million per annum) Lower Income (Less than IDR 36 million per annum) Source: World Bank, Indonesia Bureau of Statistic, The Economist Intelligence Unit High cost to serve Indonesia s fragmented retail market is characterised by underdeveloped infrastructure: in the 2014 World Bank Logistics Performance Index, Indonesia ranked the lowest amongst other key Southeast Asian markets (see Figures 3 and 4). Traditional trade outlets such as Warungs and Minimarkets continue to be preferred by the majority of consumers and still account for the majority of the retail presence in Indonesia. Consumer business companies will require extensive distribution networks to tap into the market, resulting in one of the highest costs to serve in Southeast Asia with numerous route-to-market challenges. For many companies, there is a need for innovations (e.g. packaging) and segmented market approaches to overcome the restrictions of limited, and hence competitive, shelf space in these traditional trade outlets. Figure 3: Ranking of key Southeast Asian markets in the 2014 World Bank Logistics Performance Index Singapore Rank #5 Malaysia Rank #25 Thailand Rank #35 Vietnam Rank #48 Indonesia Rank #53 Source: 2014 World Bank Logistics Performance Index 5

Figure 4: Logistics costs (as a percentage of GDP) in key Southeast Asian markets 30% 25% 27% 25% 15% 10% 8% 5% 0% Indonesia Vietnam Thailand Malaysia Singapore Source: 2014 World Bank Logistics Performance Index Nascent digital media platform takes off Indonesia s Internet usage has risen sharply over the last few years and consumers especially the middle income segment are more connected than ever, with easy access to information. Social networking is by far the most popular activity in Indonesia, with 72 million active users 1. Although this is the highest number amongst Southeast Asian markets, it represents only 28% of Indonesia s total population, in contrast to Malaysia and Singapore with a representation of 55% and 66% of their populations respectively. This implies a huge, untapped potential for consumer business companies to engage their consumers through digital platforms as Internet penetration takes off. Figure 5: Number of active social media accounts in key Southeast Asian markets Percentage of total population 80 70 28% 40% 49% 31% 55% 66% 72 60 Million 50 40 30 40 32 28 20 17 10 0 Indonesia Philippines Thailand Vietnam Malaysia Singapore Source: World Bank, Wearesocial Cities outside Jakarta as growth drivers Traditionally, Jakarta, accounting for approximately 17% of Indonesia s economy, has been the focus of retail attention 2. In recent years, however, other smaller cities outside Jakarta typically with populations of less than 10 million have emerged as attractive, alternative targets due to the strong competition within Jakarta as well as the promising and accelerating growth and urbanisation rates of these cities. 4 1 Wearesocial: Digital, Social & Mobile 2015 2 Indonesia Central Bureau of Statistics 6

Deloitte Consumer Insights: Indonesia 7

Deloitte Consumer Insights: Indonesia Following the inaugural Deloitte Consumer Insights survey conducted in Indonesia in the fourth quarter of 2013, this second edition of the survey aims to provide perspectives on Indonesian consumer spending habits and behaviour by product category and channel preferences as well as reveal some of the new shifts that have arisen since the previous survey. While some of the findings uncovered in this edition remain consistent with that of the previous survey, a few trends appear to have magnified. Their trajectories have been highlighted in the Spot the difference sections of the respective pages. Methodology The survey was conducted in the first quarter of 2015 across 2,000 households via face-to-face interviews in five major cities: Jakarta, Bandung, Makassar, Medan and Surabaya. Consumers were surveyed on their spending pattern, buying behaviours, brand preferences, communication channels, buying channels and geographic preferences across seven consumer product categories: Beverages Clothing and Footwear Confectionery Household Cleaning Products Packaged Food Personal Hygiene Products Tobacco 8

Demographics of survey respondents Figure 6: Geographical distribution of consumer survey respondents Figure 7: Gender distribution of consumer survey respondents 10.1% 10.0% 10.0% Jakarta Bandung Makassar Medan Surabaya 10.1% 59.8% 50.1% 49.9% Figure 8: Age distribution of survey respondents Age group, years 15-24 25-34 35-49 50-64 11% Percentage of survey respondents 29% 29% 32% Figure 9: Monthly household income distribution by city Income distribution Jakarta Bandung Makassar Medan Surabaya 2% 2% 11% 2% 12% 16% 15% 22% 18% 16% 22% 22% 19% 23% 22% 21% 24% 23% 25% Percentage of survey respondents 43% 16% 8% 15% 8% 15% 9% 16% 8% Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 Figure 10: Monthly household income distribution of survey respondents vs. actual household income distribution Actual 7% Survey 26% 18% 42% 40% 16% 0% 40% 60% 80% 100% 11% Monthly household income, IDR million Less than 3 3-5 5-10 10-15 More than 15 From the monthly income distribution of survey respondents by city, it appears that Jakarta has a greater proportion of middle and higher income households as compared to other cities. This finding is consistent with Jakarta s Gross Regional Domestic Production (GRDP) per capita, which is about four times higher than the other cities 3. Overall, the income distribution of the survey respondents is fairly representative of the actual income distribution within Indonesia. 3 Statistic Indonesia 2012 9

Key consumer insights The insights revealed by the first edition of the Deloitte Consumer Insights survey remain largely consistent in this second edition: the burgeoning middle class is moving away from spending merely on necessities to other discretionary expenditures; price sensitivity has decreased as household income levels increase; Local brands are still performing strongly over Foreign ones; TV remains the dominant communication channel; and Warungs retain their crown as the most frequented retail outlets. But a few shifts uncovered by this survey are worthy of attention. Consumers, for instance, are beginning to exhibit greater levels of sophistication, prioritising attributes such as Trust and Overall Quality over Price in their purchase decisions, even in the lowest income segment. For the first time, this edition also features an entire section focused on the geographical differences between Indonesia s key cities, with a particular emphasis on those outside the main metropolitan area of Jakarta. 10

1. Spending patterns Clear inflection point at monthly household income level of IDR 5 million As was found in the previous survey, a clear inflection point in spending patterns exists at a monthly household income level of IDR 5 million. Households with incomes below that threshold tend to spend almost 100% of their household incomes every month, leading a hand-to-mouth lifestyle and focusing mainly on basic necessities. Figure 11: Average monthly household expenditure Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 1,075,000 1,653,000 3,160,000 3,613,000 4,296,000 4,818,000 5,853,000 On the other hand, the spending patterns of consumers with monthly household incomes of above IDR 5 million revealed a shift from basic necessities, such as Beverages, Clothing and Footwear, Packaged Food, Household Cleaning products, and Personal Hygiene products, towards supplementary products such as Credit Card Instalments, Leisure and Holiday, as well as Welfare and Savings as more disposable income becomes available at this income level. Households with monthly incomes above IDR 5 million also have a greater propensity to allocate funds for financial services, including Credit Card Instalments and Welfare and Savings, setting aside about 24% of their total monthly expenditures for these purposes, in comparison to the Households with monthly income of IDR 3-5 million which allocate only 10% of their total monthly expenditures. Thus, the IDR 5 million income level mark is also the inflection point at which consumers have access to, and appear to be leveraging, debt to finance their lifestyles (see Figures 12 and 13). With overall consumer sentiment on the rise, 80% of respondents have indicated optimism that the economy would improve within the next five years. The lower income segments, for instance, have shown a clear indication of a planned increase in spending in the categories of Confectionery, Household Cleaning, Packaged Food and Tobacco, except for the lowest monthly income consumer group of less than IDR 1 million. These categories are most likely to increase their spending with economic growth and increased income levels (see Figure 14). Spot the difference As compared to the previous survey, there have been increases in spending on the Beverages and Packaged Food categories. This pattern was consistent across almost all income levels, although differing in magnitude depending on income levels. For Beverages, expenditures increased from 4%-8% of total spending in the previous survey to 5%-11% in this survey, while for Packaged Food, the figure showed significant increment from 12%-27% to 18%-32%. In contrast, spending on Leisure and Holidays decreased from the previous survey from 6%- to 3%-8%. This could have been a result of the overall increase in product or service prices, positive economic outlook and the increasing adoption of modern consumption patterns. Spending on Leisure and Holidays as well as Welfare and Savings categories remains skewed towards the higher income segments and continue to be of lower priority for the middle and lower income segments which are primarily focused on basic necessities. 11

Figure 12: Breakdown of monthly household expenditure (2015) Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 31% 32% 27% 28% 29% 23% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% *Includes Confectionery and Packaged Food 11% 5% 11% 7% 7% 9% 3% 3% 6% 5% 12% 6% 6% 6% 11% 11% 3% 2% 6% 5% 11% 6% 5% 7% 11% 15% 4% 4% 6% 4% 9% 6% 5% 7% 9% 12% 5% 8% 6% 3% 8% 5% 4% 6% 9% 11% 7% 2% 12% 6% 3% 8% 4% 4% 6% 9% 11% 8% 4% 18% 5% 8% 5% 3% 5% 10% 12% 8% 8% 16% Weightage Food* Beverages Tobacco Clothing and Footwear Personal Hygiene Household Cleaning Communication and Media Transportation Housing and Utility Leisure and Holiday Credit Card Instalment Welfare and Savings Figure 13: Breakdown of monthly household expenditure (2013) Monthly household income, IDR million Less than 1 23% 8% 4% 11% 8% 7% 6% 6% 2% 1-2 27% 7% 5% 10% 6% 6% 6% 10% 6% 5% 2-3 22% 5% 4% 10% 5% 5% 6% 9% 9% 11% 3-5 6% 5% 9% 5% 4% 6% 8% 10% 10% 5% 12% 5-7.5 5% 10% 5% 4% 4% 8% 11% 7% 17% 7.5-10 11% 5% 2% 10% 5% 4% 5% 9% 10% 12% 8% More than 10 12% 4% 9% 5% 3% 5% 10% 10% 11% 17% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% *Includes Confectionery and Packaged Food Weightage Food* Beverages Tobacco Clothing and Footwear Personal Hygiene Household Cleaning Communication and Media Transportation Housing and Utility Leisure and Holiday Credit Card Instalment Welfare and Savings Figure 14: Correlation between monthly household income level and percentage of consumers with plans to increase spending Percentage of respondents with plans to increase spending 80 60 40 20 0 Packaged Food Confectionery Household Cleaning Tobacco 80 80 80 Trend Line Less than 1 2-3 5-7.5 1-2 3-5 More than 10 7.5-10 60 40 20 0 Trend Line Less than 1 2-3 5-7.5 1-2 3-5 More than 10 7.5-10 60 40 20 0 Trend Line Less than 1 2-3 5-7.5 1-2 3-5 More than 10 7.5-10 60 40 20 0 Trend Line Less than 1 2-3 5-7.5 1-2 3-5 More than 10 7.5-10 Monthly household income (IDR Million) 12

2. Buying behaviour More affluence, less price sensitivity In the previous survey, it was observed that as Indonesians gain affluence, price and basic functionalities are no longer the only key drivers for purchase choice. Consumers become more sophisticated in their buying behaviour and in assessing and communicating what they like. This trend continues to be apparent in this year s survey. For Beverages and Packaged Food, this year s survey indicated that these are the two categories where consumers across almost all income levels have increased their share of expenditure over last year (see Figures 15 and 16). A clear inflection point can be seen at a monthly household income level of IDR 3 million and above, where price becomes a less important consideration and consumers begin to place greater emphasis on the product s characteristics and its brand image. Although Taste attributes remain the biggest driver in the purchase of Packaged Food, for instance, the importance of Smell attributes has also increased. Similarly, in the Beverages category, while Taste and Price attributes remain the key drivers, Safety, Health and Trust attributes are gaining importance. This could be a result of the increasing awareness of drinking water safety and a move towards greater health-consciousness. For both categories, the trustworthiness of the brand is also increasing in importance. Figure 15: Drivers of Packaged Food purchases by monthly household income level Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 3% 5% 2% 11% 5% 17% 10% 32% 11% 4% 8% 2% 7% 22% 4% 30% 8% 2% 9% 9% 2% 17% 7% 29% 8% 4% 9% 2% 9% 16% 3% 6% 11% 29% 10% 5% 12% 11% 2% 15% 7% 7% 28% 10% 4% 10% 10% 15% 6% 8% 29% 12% 6% 10% 2% 5% 5% 27% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage Availability Health Innovation Overall quality Packaging Price Promo Safety Smell Taste Trust Others Figure 16: Drivers of Beverage purchases by monthly household income level Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 10% 10% 4% 15% 28% 5% 2% 16% 9% 3% 15% 11% 2% 23% 4% 7% 5% 18% 9% 5% 15% 11% 3% 16% 3% 9% 5% 10% 6% 17% 2% 10% 3% 15% 3% 10% 4% 18% 11% 5% 19% 11% 4% 2% 10% 4% 17% 12% 7% 17% 2% 12% 3% 10% 3% 11% 5% 19% 2% 9% 2% 10% 3% 18% 15% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage Availability Health Innovation Overall quality Packaging Price Promo Safety Smell Taste Trust Others Spot the difference While Taste and Price attributes remain the top criteria in deciding brand choices for the Packaged Food category, three brand drivers have increased in importance across all income levels: Trust, Overall Quality, and Smell. This change represents the increasing sophistication of Indonesian consumers, as even consumers within the lowest income segment are starting to prioritise Trust and Overall Quality attributes. In line with this, the percentage of respondents in this income segment who considered Price attributes to be the top driver has decreased from 26% in the previous survey to 17%, while the percentage of respondents who prioritised Overall Quality increased from 5% to 11%. While there appears to be a decrease in the percentage of respondents who opted for Safety attributes, this does not imply that it has decreased in importance. Rather, this indicates that consumers are starting to have more holistic perceptions of brands and place greater emphasis on Trust, with Safety as an implicit expectation. 13

3. Brand preferences Local is still in favour Generally, the majority of Indonesians continue to show preference for brands that they perceive to be Local, over those that they think are Foreign. However, in reality, they often mistakenly perceive some Foreign brands to be Local. As income levels increase, the propensity to purchase Foreign brands increases too most notably in the Clothing and Footwear and Personal Hygiene categories with more than 50% of the higher income households preferring Foreign brands. For Packaged Food, the ability to cater local tastes drives consumers purchase and preference for Local brands. Figure 17: Preference for Foreign brands by monthly household income level Monthly household income, IDR million Less than 1 29% 56% 15% 1-2 42% 57% 2% 2-3 33% 63% 4% 3-5 5-7.5 26% 25% 63% 65% 11% 8% 7.5-10 67% More than 10 11% 63% 23% 2% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage Strongly Do Not Prefer Do Not Prefer Prefer Strongly Prefer Figure 18: First brand of choice by monthly household income level Monthly household income, IDR million Less than 1 Beverages 97% Clothing and Household Packaged Personal Footwear Confectionery Cleaning Food Hygiene Tobacco 86% 100% 89% 100% 28% 72% 100% 1-2 82% 92% 92% 93% 100% 86% 92% 2-3 80% 78% 86% 92% 99% 26% 74% 90% Foreign Local Private Label 3-5 5-7.5 7.5-10 More than 10 18% 82% 24% 76% 89% 87% 98% 33% 67% 90% 80% 23% 76% 17% 82% 86% 98% 32% 67% 89% 23% 76% 37% 61% 17% 82% 84% 99% 43% 56% 84% 29% 70% 68% 31% 34% 66% 24% 75% 95% 56% 43% 38% 62% 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage 14

4. Communication channels TV dominates, but Word of Mouth matters too The survey revealed that traditional media continued to dominate, with TV as the primary channel through which Indonesian consumers obtain information about products and brands across most income levels. Nevertheless, Word of Mouth via relatives, friends and colleagues, as well as In Store Promotion, also plays important roles in influencing purchase decisions. Figure 19: First source of information by monthly household income level Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 39% 25% 18% 22% 41% 16% 40% 17% 19% 16% 43% 16% 19% 18% 43% 17% 19% 18% 41% 2% 2% 16% 25% 17% 32% 2% 19% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage Relative Friends and Colleagues Expert TV Radio Print Ads Digital Media Outdoor Ads In Store Promotion Social media is only social for now While the Internet and Social Media are widely and actively used in Jakarta - which has been dubbed the social media capital of the world consumers tend not to use this channel for commercial purposes at this point in time. For Private Labels and Foreign brands in Clothing and Footwear, Confectionery and Packaged Food categories, however, Social Media is gaining traction and is more frequently used to influence the purchase decision. Figure 20: Preferred sources of information by product category and brand type Product category Brand type Beverages Local Private Label Foreign Clothing and Local Footwear Private Label Foreign Confectionery Local Private Label Foreign Household Local Cleaning Private Label Foreign Packaged Local Food Private Label Foreign Personal Local Hygiene Private Label Foreign Tobacco Local Private Label Foreign 21% 21% 27% 3% 2% 5% 18% 27% 23% 21% 27% 5% 3% 6% 16% 23% 24% 8% 5% 4% 22% 11% 15% 11% 19% 22% 22% 19% 22% 23% 22% 24% 23% 21% 16% 18% 24% 2% 2% 17% 2% 23% 26% 33% 33% 21% 25% 24% 6% 4% 27% 8% 12% 12% 4% 23% 27% 27% 2% 4% 28% 28% 25% 27% 28% 21% 27% 21% 3% 26% 3% 2% 4% 18% 21% 2% 5% 4% 4% 17% 5% 5% 3% 5% 5% 6% 3% 2% 5% 33% 3% 6% 4% 6% 19% 27% 22% 17% 9% 9% 19% 5% 4% 18% 15% 2% 2% 25% 8% 3% 4% 19% 25% 2% 6% 33% 15% 23% 2% 11% Relative Friends and Colleagues Expert TV Radio Print Ads Digital Media Outdoor Ads In Store Promotion 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage 15

Indeed, Social Media is likely to gain greater importance going forward. As a TV-centric market with only about 30% of its population connected online (main concentration in Jakarta and key cities) 4, competition for the limited TV advertisement slots in Indonesia s ten national TV stations has become intense among mass marketing companies. Coupled with the typically lower returns on investment (ROIs) from traditional media ROIs from TV advertisements are estimated to be only about half that of Social Media advertisements companies have increasingly begun to turn to the digital space to strengthen their marketing strategies. Despite Indonesia s nascent digital market, a number of global companies have managed to successfully deploy Social Media to achieve their marketing objectives. Such efforts will certainly continue and help to expand the role of Social Media in influencing consumer decisions as Internet penetration rates continue to increase. Mini Oreo not-so-mini impact In order to raise awareness amongst young adults for its new product, the Mini Oreo, and to encourage them to purchase it as a snack, Mondelēz International launched a series of advertisements on Facebook 5. Partnering with Facebook s Creative Shop, and working with its agencies, it created a suite of engaging and creative photo advertisements depicting how the Mini Oreo can be consumed in a range of different occasions, such as during a meeting, bike ride or shopping trip. The campaign was a resounding success: within six weeks, the campaign reached 18.6 million target consumers, exceeding the campaign s target by 35%. In addition, the campaign also delivered a six-point lift in advertisement recall for the Mini Oreo, five-point increase in purchase intent for the Oreo brand, 8.4% engagement rate with the advertisements, as well as 146,794,864 impressions. 4 Economist Intelligence Unit 5 Facebook for Business 16

5. Buying channels Modern trade takes off, but Warungs still win As with the previous survey, this year's survey uncovered a correlation between income levels and preference for modern trade outlets. The middle and higher income consumers are more likely to purchase from Minimarkets and Supermarkets due to their better product assortment and availability, while the lower income groups are more likely to purchase from Warungs for the convenience and affordable prices (see Figures 21 and 22). Figure 21: Channel preferences by monthly household income level and product category (2015) Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 Beverages Clothing and Footwear Confectionery Household Cleaning Packaged Food Personal Hygiene Tobacco 75% 25% 57% 43% 58% 42% 63% 37% 72% 28% 58% 42% 77% 23% 81% 19% 64% 36% 74% 26% 61% 39% 73% 27% 61% 39% 94% 60% 40% 42% 58% 56% 44% 41% 59% 57% 43% 45% 55% 86% 50% 50% 31% 69% 44% 56% 27% 73% 49% 51% 29% 71% 74% 26% 45% 55% 17% 83% 37% 63% 22% 78% 40% 60% 27% 73% 78% 22% 36% 64% 87% 32% 68% 86% 31% 69% 84% 73% 27% 80% 97% 86% 93% 86% 94% 54% 46% 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage Traditional trade Modern trade Figure 22: Channel preferences by monthly household income level and product category (2013) Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 Beverages Clothing and Footwear Confectionery Household Cleaning Packaged Food Personal Hygiene Tobacco 90% 59% 41% 92% 68% 32% 93% 54% 46% 96% 65% 35% 46% 54% 64% 36% 54% 46% 69% 31% 42% 58% 94% 65% 35% 42% 58% 58% 42% 40% 60% 68% 32% 40% 60% 93% 28% 72% 38% 62% 32% 68% 46% 54% 44% 56% 41% 59% 88% 19% 81% 91% 19% 81% 19% 81% 26% 74% 92% 55% 45% Traditional trade Modern trade 7.5-10 23% 77% 97% 83% 92% 22% 78% 96% 45% 55% More than 10 83% 100% 86% 95% 89% 98% 42% 58% 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage Due to a combination of factors such as close proximities to consumers homes, convenience and opening hours, the two most frequented retail outlets across all product categories are (see Figures 23-25): Warungs (Traditional trade): Small, independent, kiosks (4-15 square metres) that are usually within walking distance or located close to residential areas, and sell Beverages, Household Cleaning products, Packaged Food, Personal Hygiene products, and Tobacco. Minimarkets (Modern trade): Expanded versions of Convenience Stores (100-1,000 square metres) which sell a wider range of products, and compete partially with Supermarkets but with fewer product varieties due to smaller floor spaces. 17

Figure 23: Channel preferences by monthly household income level and product category Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 Beverages 71% 18% 76% 57% 31% 44% 37% 40% 34% 31% 38% 38% 19%19% Clothing and Household Packaged Personal Footwear Confectionery Cleaning Food Hygiene Tobacco 43% 24% 50% 23% 43% 19% 66% 38% 23% 77% 56% 35% 27% 24% 82% 43% 52% 58% 64% 52% 38% 40% 32% 39% 29% 17% 26% 38% 18% 35% 49% 22% 34% 18% 21% 37% 25% 19% 35% 28% 37% 22%26% 23% 30% 40% 17% 46% 53% 40% 31% 33% 26% 30% 35% 29% 22% 25% 33% 21% 27% 27% 31% 48% 22% 38% 33% 24% 37% 24% 21% 31% 26% 34% 27% 22% 28% 35% 85% 76% 68% 70% 63% 47% 34% 21% 25% Street Hawkers Wet Markets Warungs Minimarkets Supermarkets Hypermarkets Brand Stores 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage Figure 24: Reasons for channel preferences by channel type Channel type Street Hawkers Wet Markets Warungs Minimarkets Supermarkets Hypermarkets Brand Stores 9% 10% 5% 26% 25% 4% 7% 12% 12% 12% 16% 10% 18% 11% 10% 10% 12% 18% 10% 12% 12% 11% 10% 15% 16% 12% 6% 11% 8% 18% 22% 18% 8% 5% 7% 10% 21% 23% 16% 6% 3% 8% 12% 9% 19% 24% 2% 2% 17% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Assortment Availability Convenience Location Opening Hours Price Promotion Service Weightage Figure 25: Reasons for channel preferences by monthly household income level Monthly household income, IDR million Less than 1 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 Street Hawkers Wet Markets Warungs Minimarkets Supermarkets Hypermarkets* Brand Stores* 21% 26% 18% 23% 17% 30% 30% 30% 33% 33% 33% 21% 27% 24% 18% 19% 17% 24% 17% 23% 23% 18% 25% 32% 18% 27% 42% 22% 23% 23% 25% 21% 17% 21% 21% 19% 33% 22% 26% 27% 17% 17% 18%18% 21% 17% 21% 19% 25% 25% 27% 22% 18% 18% 19% 23% 21%24% 18% 19% 25%19% 29% 31% 23% 29% 18% 25% 34% 26% 19% 19% 18% 23% 18% 4% 22%24% 19% 23% 17% 18% 24% 18% Assortment Availability Convenience Location Opening Hours Price Promotion Service 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage * Low income families (monthly household income less than IDR 1 million) typically do not shop in Hypermarkets and Brand Stores 18

6. Geographical differences Indonesia is not just Jakarta To date, the majority of investments have been focused in larger cities such as Jakarta and Surabaya. However, with greater urbanisation across the country, cities outside these main metropolitan areas are becoming increasingly attractive with their high growth potentials and opportunities for consumer business companies. Due to Indonesia s diversity across its huge expanse of islands, targeting these cities will first require a review of their potential differences. As a case in point, Makassar the provincial capital of South Sulawesi and the eleventh most populous city in Indonesia that is well-known for its shipping and port industry has shown an attractive economic growth potential, with an annual GDRP growth of 17.1% since 2009, higher than the growth of 12.6% in the nation s annual Gross Domestic Product (GDP). Figure 26: Makassar s GRDP growth (2009-2013) IDR billion 60 50 +17.1% 50.7 58.8 40 43.4 30 31.3 37.0 20 10 0 2009 2010 2011 2012 2013 Source: Badan Pusat Statistik Indonesia Consumer optimism in these cities beyond Jakarta is palpable. For example, buoyed by the positive economic outlook, over 40% and 25% of consumers in Bandung and Makassar, respectively, have expressed plans to increase their expenditures on the Beverage category by more than 10% (see Figure 27). Given the varying degrees of urbanisation across Indonesia, consumer behaviours also differ by cities. Consumers in Makassar, for example, are more receptive to Foreign brands as compared to the other three cities outside Jakarta (see Figure 28). In addition, consumers in Makassar are more experienced with e-commerce. Second only to Jakarta, of its consumers have made online purchases at least once. Amongst those who have not made online purchases, their main concern was payment security. This sentiment is common across all the cities in the survey, implying a need to tackle the issue with the technology, operations and communications that have been deployed in more developed markets (see Figure 30). 19

Figure 27: Planned increase in monthly household expenditure by city Jakarta Bandung Makassar Medan Surabaya Clothing and Household Packaged Personal Beverages Footwear Confectionery Cleaning Food Hygiene Tobacco 39% 37% 25% 26% 42% 32% 56% 67% 53% 41% 43% 27% 37% 53% 47% 47% 47% 22% 43% 47% 43% 70% 43% 37% 19% 44% 33% 23% 37% 44% 19% 33% 41% 26% 43% 32% 25% 54% 75% 60% 31% 43% 69% 67% 34% 59% 66% 30% 29% 29% 35% 50% 61% 51% 44% 31% 40% 67% 66% 61% 66% 59% 21% 28% 31% 29% 66% 48% 34% 52% 34% 38% 35% 27% 66% 45% 55% 0% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% 50% 100% Weightage Less than 10% 10-25% More than 25% Figure 28: Preference for Foreign brands by city Jakarta 12% 66% 19% 2% Bandung 39% 57% 3% Makassar 10% 77% Medan 60% 38% 2% Surabaya 31% 64% 4% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Strongly Do Not Prefer Do Not Prefer Prefer Strongly Prefer Weightage Figure 29: Prior experience with online purchasing by age Age group, years 15-24 46% 54% 25-34 41% 59% 35-49 25% 75% 50-64 17% 83% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% Weightage Yes No Figure 30: Top 3 reasons cited for not making online purchases by city 70% 60% 61% 50% 40% 30% 10% 0% 29% 4% Jakarta 35% 27% 16% Bandung 33% 28% 24% Makassar 24% 5% Medan 40% 33% Surabaya No credit card Don t know how Not secure More expensive 20

Deloitte Retail Insights: Indonesia 21

Deloitte Retail Insights: Indonesia For this edition of the report, the Deloitte Retail Insights screening exercise was conducted to shed light into some of the key aspects of Indonesia s retail outlets. Methodology 200 retail outlets across different categories including Supermarkets/Hypermarkets, Minimarkets, Warungs and Wet Markets were screened on product availability, shelf visibility and promotion types carried across nine product sub-categories: Product category Beverages Confectionery Household Cleaning Packaged Food Personal Hygiene Tobacco Sub-category Beverages Chocolates Dish Washing Laundry Care Breakfast Cereal Instant Noodle Bath and Shower Hair Care Woman Sanitary Tobacco 22

Overview of retail screening Figure 31: Geographical distribution of retail outlets 17.5% 21.0% 20.0% 20.5% Jakarta Bandung Makassar Medan Surabaya 21% Figure 32: Types of retail outlets screened 25% Traditional Pasar* 38% Warungs Minimarkets Hypermarkets / Supermarkets Others** * Includes Wet Markets and Street Hawkers ** Includes Convenience Store, which is a relatively minor retail outlet in Indonesia and does not exist in all cities. Minimarket is a localised/enlarged variation of Convenience Store. Figure 33: Type of retail outlets screened by city Jarkata Surabaya Bandung Medan 29% 29% 29% 29% 43% 43% 43% 43% 17% 35 40 42 41 Traditional Pasar* Warungs Minimarkets Hypermarkets / Supermarkets Others** Makassar 29% 43% 42 * Includes Wet Markets and Street Hawkers ** Includes Convenience Store, which is a relatively minor retail outlet in Indonesia and does not exist in all cities. Minimarket is a localised/enlarged variation of Convenience Store. 23

Key retail insights A number of significant insights have been uncovered by the Deloitte Retail Insights screening exercise. Although Warungs have most widespread coverage across Indonesia, for example, the difficulty in obtaining a spot on an outlet s limited shelf space may differ depending on the product in question. But retail is not all just about brick and mortar stores anymore: the e-commerce channel, although still nascent in Indonesia, is increasingly becoming a channel to watch. As this screening exercise highlights, the role of the digital space may differ by location. While it could be a solution for traffic congestion in the metropolitan area of Jakarta, it can also solve the issues of access in other outlying cities. 24

1. Stocking behaviour Size matters While the Warung has the most extensive area penetration and coverage in Indonesia, it is usually an independent, individual outlet that requires individually targeted order-taking and delivery of goods. These outlets are often located within the rural residential areas, making efficient distribution an issue. In addition, given its small store size and space, a Warung is unable to carry a large variety of products or brands and the limited shelf space available is already dominated by leading brands. In order to accommodate the limitations in space, Warung operators prefer to restrict the number of brands within categories that provide low margins, such as certain products in Beverages and Packaged Food, either because of their low absolute prices or because such products tend to require refrigeration. Figure 34: Average number of brands on shelf for selected products by product category Product category Wet Market Warung Minimarket Supermarket / Hypermarket Beverage Fruit or Vegetable Juice 8 5 12 18 Confectionery Chocolate 7 6 13 19 Household Cleaning Dishwashing Laundry Care Package Food Breakfast Cereal Instant Noodle Personal Hygiene Baby Diaper Bath and Shower Hair Care Woman Sanitary 2 10 4 7 3 16 9 3 Tobacco Cigarette 12 12 13 17 2 7 3 5 3 11 8 3 3 9 6 10 4 23 14 4 6 14 9 15 9 33 25 6 25

Figure 35: Availability of different brands of beverages (Fruit or Vegetable Juice) by channel type Fruit or Vegetable Juice brand Warungs Minimarkets Hypermarkets YOU C1000 56% 92% 88% Ale Ale 72% 60% 84% NutriSari 59% 72% 92% Frutang 64% 68% 68% Minute Maid 55% 80% 92% Buavita 45% 96% 52% ABC 21% 84% 96% Floridina 25% 60% 88% Vita Zone 21% 48% 80% Fruitamin 23% 44% 80% The difference in stocking behaviour exhibited by Warung, Minimarket and Supermarket/Hypermarket operators can be illustrated by comparing the average number of brands on their respective shelves for Fruit or Vegetable Juice (Beverage), Woman Sanitary (Personal Care) and Cigarette (Tobacco). For example, an average of only five major Fruit or Vegetable Juice (Beverage) brands are available at Warungs, in contrast to the 12 brands at Minimarkets and 18 brands at Supermarkets/Hypermarkets. In the case of Woman Sanitary (Personal Care) and Cigarette (Tobacco), however, the gap between the different channels is closer. This is because these items tend to have higher prices and/ or smaller packages that is, a higher price per volume and hence are more attractive to stock from the perspective of a Warung operator. Given their popularity amongst low and middle income consumers, Warungs and Minimarkets are key channels that companies should consider leveraging in their distribution structures to tap into the mass market. Each of these channels offers its own set of advantages, but these are often accompanied by unique challenges too. For instance, new entrants may find Minimarkets difficult to penetrate as it requires significant investments to not only ensure that a product is able to secure a spot amongst the limited shelf space, but also to garner visibility from that display position. 26

2. e-commerce More than just retail s new storefront In addition to brick and mortar channels, e-commerce has also emerged as an alternative buying channel. According to the survey, about 35% of respondents have made an online purchase at least once, with consumers from the middle and higher income segments having higher likelihoods of making online purchases due to better Internet access and greater demands for convenience (see Figures 36 and 37). The younger demographic, consisting of 15-34 year-olds, are also more likely to make online purchases (see Figure 29). Figure 36: Prior experience with online purchases by monthly household income level Monthly household income, IDR million 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 2% 7% 17% 29% 43% 61% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 98% 93% 83% 71% 57% 39% Yes No Weightage Figure 37: Reasons for online purchases by monthly household income level Monthly household income, IDR million 1-2 2-3 3-5 5-7.5 7.5-10 More than 10 39% 44% 40% 44% 42% 49% 15% 21% 23% 15% 18% 47% 16% 9% 16% 21% 0% 5% 10% 15% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 19% 12% 16% 9% 18% 7% 5% 7% 5% 4% 2% 3% Practical Price Product Range Promotion Reliable Review Others Weightage Price remains as a significant consideration for online shopping, but it is not the top reason. Instead, the Practical attributes of e-commerce has been cited by respondents as its key driver. This could be attributed to traffic congestion issues in major metropolitan areas, especially in Jakarta, which makes moving between different shopping locations time-consuming and inconvenient. In contrast, online shopping enables easy comparisons between different merchant offers from the comfort of consumers own homes. But interestingly, it is the cities outside Jakarta which have seen stronger e-commerce growth as online retail allows consumers in these areas to purchase products from their favourite brands, usually in the Clothing and Footwear category, without having to wait for the brands to be available in their neighbourhood stores, and at more competitive prices. 27

Figure 38: Growth of online transactions in Indonesia (2013) Kalimantan and Sumatera Others 370% 300% Jan Jul Jan Jul Sumatera Kalimantan 70% Jakarta Jakarta Java 370% Java excluding Jakarta Jan Jul Jan Jul Source: Sales Data of Top Online Retailer Fashion Category in Indonesia 2013 This trend has prompted many well-established companies and start-ups, including Lazada Indonesia and Lippo Group, to launch online platforms for their e-commerce operations. Other innovative applications are also being introduced to leverage technology to serve the needs of local consumers. For example, Go-Jek utilises a mobile application platform, Global Positioning Systems, and motorcycle taxis to provide quick delivery services to consumers who purchase items from e-commerce sites as well as transportation services for commuters trying to circumvent Jakarta s heavy traffic congestion. Going places with Go-Jek Go-Jek is a start-up based in Jakarta that utilises ojek, or motorcycle taxis, to transport people and goods. Ojek is a unique method of transportation often seen in Indonesia as a solution to traffic congestion and as a means to access areas which are inaccessible on four-wheeled vehicles. Go-Jek differentiates itself with its transparent pricing and driver tracking systems, which assure customers of its security and reliability. Go-Jek offers the following services through its mobile app: Instant courier: Delivery of goods within 90 minutes to anywhere in the city Transport: Move customers from one place to another on a motorcycle taxi Shopping: Shop for and deliver food, tickets, medicines or anything under IDR 1 million and consumers pay with cash on delivery Over 50 companies in Jakarta currently use Go-Jek s services to deliver their products, documents and even their employees. For consumer business companies, this service can help bypass indirect distributors and reach customers in remote areas, including Warungs, as well as better understand customer buying patterns, exercise better control on the delivery cycle and cut costs. 28

Looking ahead Many of the key trends revealed in the previous edition of the report remain valid if not magnified in this edition. The middle income consumer segment continues to grow in sophistication as their purchase considerations increasingly extend beyond merely price and basic functionality, and consumer business companies will need to find ways to provide segmented offerings and a variety of value propositions to cater to these needs. At the same time, they will need to develop a balanced channel and distribution strategy that effectively utilises both modern and traditional trade outlets, especially Minimarkets and Warungs, which remain key inroads to the masses. Engaging different consumer segments will also require different sets of tactics; for example, targeting the low income segments via traditional trade channels will require small packaging formats to ensure affordability and to accommodate the limited shelf space. This edition of the report reveals three key insights. Firstly, there is a strong potential for growth in the four product categories of Confectionery, Household Cleaning, Packaged Food, and Tobacco. As their income levels increase and they gradually move into the middle income segment, many of the low income consumers have expressed their intention to increase spending in these product categories. Investments in building trust and the overall quality of the products will become critical to securing these consumers confidence as they become more affluent and price decreases in importance as a consideration when making the purchase decision. Secondly, consumer business companies should capitalise on digital media and e-commerce to build balanced consumer engagement portfolios and to tap into a market that is ripe for expansion. Indonesia has some of the world s most frequent and committed users of social media: it is the fourth largest market for Facebook with its 65 million registered users 6 and the fifth most active market for Twitter. While TV and Word of Mouth remain the key channels for consumers seeking information on products, the real potential of digital media lies in the use of the platform for consumers to share their reviews and experiences with products or brands with one another. With the increasing Internet penetration rates, alternative means of consumer engagement and route-to-market channels have already been introduced and embraced in the major cities. 6 Jakarta Post: Facebook opens office in Jakarta 29

Figure 39: Number of broadband, Internet and mobile phone users in Indonesia (2013-2018f) Million 440 420 400 380 360 340 80 60 40 20 0 434 416 397 378 357 324 81 73 66 60 53 46 9 4 4 5 6 8 2013 2014 2015f 2016f 2017f 2018f Internet users Mobile phone subscription Broadband subscription Source: Economist Intelligence Unit Finally, consumer business companies need to look beyond the major metropolitan area of Jakarta and towards other fast-growing cities with higher historical growth rates, such as Pekanbaru, Samarinda and Makassar. Optimistic about the future economic outlook, consumers in cities like Bandung and Makassar have also expressed high interest in increasing their expenditures. Nevertheless, given the differing levels of urbanisation across Indonesia, the propensity to spend will vary between consumers from the different regions. Companies looking at extending their presences into these areas must first understand the geographical nuances and tailor their strategies accordingly, at least in a tactical sense, in order to reap the rewards. Figure 40: Top 10 fastest-growing cities in Indonesia GRDP CAGR (2009-2013) 21.8% Sumatra (24%) 14.3% 14.2% Pekanbaru Bandar Palembang Lampung Percentage of 0.9% 0.4% 1.0% Indonesia s GDP Kalimantan (9%) 18.5% GRDP CAGR (2009-2013) Samarinda Percentage of 0.5% Indonesia s GDP Sulawesi (5%) 17.1% GRDP CAGR (2009-2013) Makassar Percentage of 0.8% Indonesia s GDP Other island (4%) GRDP CAGR (2009-2013) 16.7% Java (58%) 16.4% 13.8% 13.4% 13.3% Bandung Surabaya South Depok Jakarta Tanggerang Percentage of Indonesia s GDP 1.7% 4.0% 0.2% 0.3% 16.5% Source: Indonesia Bureau of Statistics 30

Capturing Indonesia s latent markets Indonesia remains one of the most attractive emerging markets for consumer business companies in the region with its large population, rapidly growing middle class, and increasing urbanisation. But winning in this market will be not be easy, mainly because of the vast diversity of the markets, heterogeneous mix of modern and traditional trade outlets and challenging distribution channels. For consumer business companies, Indonesia possesses three promising, latent markets: the increasingly sophisticated middle class that is growing in size, digital consumers, as well as consumers in cities outside the metropolitan area of Jakarta. Capturing each of these different markets will require a unique set of tailored strategies. It will be crucial for consumer business companies who wish to capitalise on the changing spending patterns to capture the burgeoning and newly minted middle income segment while, at the same time, maintaining a stronghold amongst the low income consumers who still account for the majority of Indonesia s population. This will require a carefully calibrated set of modern and traditional trade channels, with the former targeted at the middle to high income consumers, and the latter at the mass market. Companies would also do well to focus on improving the overall quality of their products and other intangibles such as brand and trust, in order to capture the mindshare of consumers as they become less price-sensitive and more sophisticated in their purchasing decisions. With the rise of the digital consumer, consumer business companies need to explore the possibilities that digital media and other new technologies offer. For some, this could mean setting up online storefronts to offer consumers a set of value propositions that were previously unavailable to them, such as early access to the latest season s fashion in remote areas. Others may prefer to leverage technology in their operations as a solution to logistical challenges, such as congestion. While Jakarta continues to be Indonesia s largest metropolitan area, many of its other cities are now ripe for growth. Exhibiting higher growth rates and consumer optimism, these regions present consumer business companies with the opportunity for accelerated growth, and, perhaps more importantly, the potential to obtain a firstmover advantage that is, if they act fast, and act now. 31

Appendix Figure 1: GDP of Southeast Asia Countries Indonesia has the largest economy in SEA, contributing to 37% of SEA GDP. USD billion 2,500 2,136 2,264 2,337 2,000 1,500 1,000 500 0 1,846 39% 37% 40% 1,489 1,395 38% 38% 37% 17% 16% 17% 17% 16% 18% 19% 18% 18% 2008 2009 2010 2011 2012 2013 Indonesia Malaysia Singapore Thailand Cambodia, Lao PDR, Philippines and Vietnam Source: The Economist, World Bank, Badan Pusat Statistik Indonesia Figure 2: Forecasted GDP of Indonesia Indonesia is forecasted to experience significant growth with its GDP doubling to USD 1.7 trillion in 6 years time in 2020. USD billion 1,800 1,700 1,600 1,400 1,200 1,172 +100.9% 1,000 846 800 600 +229.2% 539 400 200 257 0 2004 2009 2014 2017f 2020f Source: The Economist, World Bank, Badan Pusat Statistik Indonesia 32

Figure 3: Percentage of Indonesian urban population by province Urbanisation is taking place across Indonesia. Percentage point change (2010-2015) Population (Million) DKI Jakarta 100% - 10.2 East Java 51% 49% +3.5 38.8 Descending island GDRP Others Sulawesi Kalimantan Sumatra Java West Java Central Java Banten DI Yogyakarta Riau North Sumatra South Sumatra Lampung West Sumatra Aceh Riau Islands Jambi Bangka Belitung Islands Bengkulu East Kalimantan West Kalimantan South Kalimantan Central Kalimantan South Sulawesi Central Sulawesi North Sulawesi Southeast Sulawesi West Sulawesi Gorontalo Bali Papua West Nusa Tenggara West Papua East Nusa Tenggara Maluku North Maluku 32% 32% 48% 40% 53% 37% 28% 44% 31% 53% 73% 68% 71% 66% 83% 52% 60% 47% 64% 72% 56% 70% 68% 68% 48% 32% 30% 34% 33% 67% 45% 55% 37% 63% 41% 59% 27% 73% 50% 50% 31% 69% 23% 77% 39% 61% 66% 35% 28% 72% 45% 55% 32% 68% 22% 78% 38% 62% 28% 72% 27% 17% +7.2 +2.7 +0.7 +4.1 +0.4 +3.4 +0.7 +2.6 +5.5 +2.4 +0.2 +1.3 +3.3 +0.7 +2.8 +2.9 +3.0 +3.1 +3.9 +2.9 +4.6 +3.8 - +5.0 +5.3 +2.4 +3.7 +2.4 +2.3 +0.9 +0.7 46.7 33.8 12.0 3.7 6.3 13.9 8.1 8.1 5.2 5.0 2.0 3.4 1.4 1.9 4.1 4.8 4.0 2.5 8.5 2.9 2.4 2.5 1.3 1.1 4.2 3.1 4.8 0.9 5.1 1.7 1.2 Urban Rural Note: Provinces in bold have higher than average urbanisation growth Source: Badan Pusat Statistik Indonesia 33

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Southeast Asia Consumer Business Practice Southeast Asia and Singapore Industry Leader Eugene Ho Executive Director +65 9670 2040 eugeneho@deloitte.com Guam Mike Johnson Partner +1 671 646 3884 mikjohnson@deloitte.com Indonesia Jose Sabater Partner +62 21 2992 3100 ext.33591 josabater@deloitte.com Malaysia Jeffrey Soo Partner +60 376 108 856 jefsoo@deloitte.com Philippines Bonifacio Lumacang Partner +63 2581 9067 blumacang@deloitte.com Thailand Manoon Manusook Partner +66 2 676 5700 ext. 5101 mmanusook@deloitte.com Audit Tenly Widjaja Partner +62 21 2992 3100 ext.31893 twidjaja@deloitte.com Consulting Eugene Ho Executive Director +65 9670 2040 eugeneho@deloitte.com Enterprise Risk Services Jose Sabater Partner +62 21 2992 3100 ext.33591 josabater@deloitte.com Financial Advisory Ng Jiak See Executive Director +65 6531 5088 jsng@deloitte.com Tax Robert Tsang Partner +65 6530 5523 robtsang@deloitte.com Vietnam Nguyen Vu Duc Partner +84 462 883 568 nguyenvu@deloitte.com 35

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