Tapping Indonesia’s online potential: D2C ‘best strategy’ but firms must clear tricky hurdles

Indonesia boasts the largest population in the South East Asian region with over 268m people, making it also the fourth-largest population in the world.

While the size of the market can be daunting, cross-border shipping has lowered the barriers to entry for cosmetics companies.

“The best strategy to penetrate the huge Indonesia market is going [direct-to-consumer]. Unlike markets like Thailand where you have to register your health and beauty products, as long as it’s for personal consumption, there’s no headache with regards to product registration,” ​said Syed Ali Ridha Madihid, co-founder and COO of Singapore-based logistics provider Janio.

Speaking during Chemlinked​ webinar, Madihid also highlighted that Indonesia does come with its own set of unique challenges that can stymie cosmetic brands big and small.

The size of Indonesia’s land and the thousands of islands that make up the country can pose a huge logistical hurdle and can require companies to work with multiple partners to cover the whole market.

“With 17,000 islands, nobody can say that they can offer complete coverage,”​ said Madihid.

In order to reach the whole country, Madihid explained that Janio has to work with “local heroes”.​

“We aggregate and work together with local logistic providers. Because we are working with the local guys in all the cities, towns and villages, we are able to ensure 100% coverage with full transparency to our customers.”​

Another hurdle companies might face in Indonesia is the lack of cashless payment adoption, which can lead to difficulties in cash collection.

“In this part of the world, 60% of overall transactions is still relies heavily on cash-on-delivery. There’s still a lot of citizens without banks [or credit cards]. There's also a certain amount of distrust still about buying online,” ​said Madihid.

Key beauty opportunities

Despite these challenges, the opportunities in the e-commerce space are immense with the total gross merchandise value (GMV) of personal care in e-commerce is expected to grow to USD4.9bn by 2024.

Madihid estimated that the Greater Jakarta region alone accounted for around 50% of all e-commerce orders in Indonesia and is continuing to grow rapidly.

“In view of the recent economic reforms… we have seen a rising middle class with a high disposable income. It’s important to highlight that for every two men, there are five women in Indonesia. More and more of these women are going into the workforce. They have high disposable income and they are spending a lot online,” ​said Madihid.

He added that Indonesian women were willing to “dig deep”​ and spend on premium products as there is a perception that beauty is key to success in both personal and professional success.

“They are willing to explore and try products from overseas brands as long as they are convinced that it will help them. Beauty is an investment and they are willing to invest.”​

The company has observed a rising demand for foreign brands, which Madihid attributes to social media influence.

“The population in Indonesia has leapfrogged past laptops and gone straight to mobile phones. Pretty much anyone and everyone has a mobile phone and Internet penetration is high at around 56% -- more importantly, social media penetration is high,” ​said Madihid.

With platforms such as Facebook, Instagram and Tiktok, Indonesian consumers are strongly influenced by the western trends in beauty.

“In 2018, the biggest beauty product was Lipkit by Kylie Jenner. People were importing it like crazy purely because they were heavily influenced by [the brand's] Instagram marketing,” ​said Madihid.

The western influence has also created a huge demand for natural and eco-friendly beauty products, especially among millennial consumers.

Additionally, like other countries in Asia, the Korean wave has swept over fashion, food, entertainment as well as beauty.

“Some Indonesian consumers are heavily influenced by K-Pop culture and they are looking to Korea especially when it comes to beauty,” ​said Madihid.

However, not all trends are influenced by external influence. For instance, the large Muslim population in Indonesia offers huge potential for halal beauty products.

Madihid points out that having a halal positioning is becoming increasingly crucial for beauty products as the halal certificate is seen as an assurance of quality and safety for Muslims and even non-Muslims.

“I won’t say it is a must, but its an added advantage. With the world’s largest Muslim population in the world, having the halal mark makes a huge difference. Halal positioning to the Indonesian consumer is very important.”​