Market Report, "Indonesia Retail Report Q3 2014", published

Indonesia's enormous and expanding population (the world's fourth largest, after China, India and the US), rising per capita incomes and the continued development of organised retail infrastructure are all expected to result in a strong rise in household spending across all retail subsectors over the next few years. We are particularly positive about the future growth prospects for communications and personal care; however, we expect by far the highest proportion of the household budget to be spent on food and drink throughout our forecast period.

The Indonesia retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment forecasts, demographic forecasts and a detailed breakdown of household and per capita spending across a large number of retail areas including food & drink, clothing & footwear, household goods and a number of other subsectors.

Full Report Details at
- http://www.fastmr.com/prod/807713_indonesia_retail_report_q3_2014.aspx?afid=301

Although the majority of Indonesians, especially those living in rural areas, still shop at traditional retail outlets such as street markets and kiosks (BMI estimates that traditional retail still accounts for 78% of total grocery sales in Indonesia, with this figure far higher in lower-income rural areas and far lower in the major urban centres), the modern retail sector continues to erode the market share of traditional retail as Indonesia's consumer base becomes more affluent. By 2018, the traditional retail sector is likely to contribute only 57% to the country's overall grocery retail sales.

We see long-term potential in the Indonesian consumer market, particularly for non-essential items and aspirational purchasing by a growing, affluent middle class. We forecast the average net household income will be USD7,938 in 2014, with the majority (55.4%) of households falling into the bottom wage bracket of USD5,000+. However, by 2018, 33% of households are expected to fall into the USD10,000+ income bracket, which represents the key demographic for increased household spending on luxury items beyond necessities such as food, utilities and transport. We expect this number to grow, resulting in a corresponding increase in household spending on retail subsectors such as communications and personal care. Meanwhile, expenditure on areas such as furnishing & home and clothing & footwear will also continue to rise as consumers with rising levels of disposable income choose to spend more of it on household luxuries and fashion.

However, we note downside risks to our forecasts from tighter credit conditions, as well as policies such as the petrol fuel price hikes, which have yet to fully permeate through the economy. Furthermore, consumers' purchasing power is likely to be eroded as inflation remains fairly elevated.

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