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em>Indonesia and its huge market of around 240 million people, half of which are the growing middle class, has become one of the most promising markets for global fast moving consumer goods (FMCG) producers.

FMCG sales have grown steadily in the past few years, already surpassing Rp 100 trillion (US$10.8 billion) per year.  

Driven by optimism for the growth of the Indonesian market, Anglo-Dutch consumer goods giant Unilever has invested more than ¤500 million (US$625.9 million) in Southeast Asia’s largest economy over the past five years.

The Jakarta Post’s Linda Yulisman, along with several other journalists, recently talked to Peter Ter Kulve, Unilever executive vice president for Southeast Asia and Australasia, about the long-term prospects for the consumers goods giant in Indonesia. Below are excerpts of the interview.

Question: How do you see Indonesia’s position for Unilever’s global operations at present?

Answer: As you probably are aware, Unilever Indonesia is a very proud, but also a very important company in Unilever. This one is our largest emerging markets — nowadays called growth market businesses. It is, of course, well established. It has a very strong position in most of the categories we are in, and it is highly successful at profitability levels above Unilever’s average.

Over the last few years, we have invested close to ¤500 million in growing and accelerating the business and this has been a very wise investment.

Indonesia has a couple of trends that make it a very interesting consumer market. In the big cities, consumers are getting richer and they are upgrading their products from basic products to more premium products, and this has big impacts on us.

Obviously, people move from cheap shampoos to more premium shampoos. But it is also that whole new categories are opening up. When people are moving from a simple house to apartment with beautiful bathroom, they need to clean the toilets and they need to clean their floors. So, whole new categories become relevant in the country. So, this upgrade is really important and a fantastic opportunity.

But actually, one of the country’s big drivers is that in the countryside, where due to very high demand and prices for agricultural products, the market is growing at least as fast as in urban areas. So, where in the past this business used to be very Java-based, the outer islands are growing very fast. Sumatra and Sulawesi, for example, are becoming very important consumer markets for us. Where the consumers in big cities are upgrading from more basic to very premium products, countryside consumers are moving from proxies into first FMCG products.

So, both places are very relevant places for us and that’s why over the last couple of years, we have seen very solid growth. We have very good first quarter results and we believe that for a number of years in the foreseeable future, Indonesia will remain a high growth opportunity for Unilever. We’re very bullish on the business prospects.

What factors do you consider most important for your business here?

Innovations are very important, but probably even more so is market development. Our job is not about growing market share, because in most categories we are already the leader. Our job is figuring out how to build consumption, how to make sure that our market growth is good for us, and also for the industry, retailers and our customers.

What are the potential obstacles that could hamper your growth?

One that we really feel is infrastructure. Infrastructure investments don’t hold up with the growth of the economy and the growth of the population. Obviously, it’s the roads in Jakarta and the highways connecting to the city.

We feel at this moment that the big issue is the harbors and the sea connections to the outer islands, because it creates a real problem in efficiently getting products to the outer islands. And with the spectacular growth of the outer islands, this is definitely an issue that needs to be addressed because it will hamper growth.

Infrastructure is a big issue, and then of course, uncertainties like inflation, food prices or oil prices always have an impact on the business in general. It’s not a long-lasting impact, but when consumer prices go to the roof, consumer confidence goes down, and it has some impact on business.

But when you look at the history over the last ten years, it always temporarily blip so we don’t believe it is structural. So, for us, infrastructure, infrastructure, infrastructure is one challenge.

When you have large volume growth, one of the big challenges is how to extend your manufacturing base. I think for us the big challenge will be in how we serve outer islands in a very effective way with a full portfolio, and how we make sure that it’s a large place that we build up an efficient supply network for Indonesia focused increasingly outside Java. We have a big facility in Surabaya, which we will certainly extend over the coming years. We’re also looking at Sumatra, and other parts of the country.

How much is the cost of transportation compared to your total sales and how does it impact sales?

The cost of transportation is around 4 percent of total sales. That includes warehouse and logistics costs. But, apart from the cost, when you send the containers to Sulawesi, it could sit for three weeks in the port. So for overall planning purposes, an efficient and faster supply chain would make the whole system much more responsive.

You have other alternatives like building a factory closer to your consumers…

We do. But, in terms of Indonesian competitiveness, the beauty is that this is a large market. You don’t want to break up a large market into small pieces because otherwise, you become Malaysia, Thailand, and Myanmar. So, the beauty of Indonesia, which your founding fathers understood quite well, is that by creating one language, you create a single source of the rule of law and one huge market. This is the source of your strength. Don’t waste it by cutting it into pieces.

Are you interested in acquiring local firms in order to enlarge your business here?

We have an unbelievably efficient FMCG machine. We’re always interested in good Indonesian companies and brands, but we are aware of the fact that we have a good business and good profitability. We need to find businesses that are accredited too, not only in terms of growth, but also profitability.

How much did Indonesian sales contribute to Unilever’s overall sales?

Unilever Indonesia doubled its size over the last five years and there’s no reason why it could not double again over the coming years. With that said, this is already a large business. But it will become a very, very large business. Last year, our turnover was ¤1.8 billion, while Unilever’s total turnover was ¤46.5 billion. But with the growth rate of Indonesia, which is almost double the growth rate of the total concern, you can see that the relative size of Indonesia in the company will grow very quickly.

On top of that, if you analyze the profitability of Unilever Indonesia, it’s quite a lot higher than the rest of Unilever or the Unilever average. So, also from that perspective, Indonesia is a very important part of the business.

In terms of purchasing power parity, the size of the Indonesian business gets close to the size of the North American business. By looking at volume and units sold, this is already a sizeable business and growing fast. So, this Unilever Indonesia is very important to growth as a percentage and as a driver of growth and profitability.

Are there any plans to launch any new premium products or brands?

We constantly launch new premium brands just like we did with Magnum and you’ll see that in all categories.