In view of rising personal incomes and urbanizing population, demand of cosmetics including make-up and skin-care products in Indonesia has witnessed rapid and consistent growth. Hailed as one of the bright spots in the consumer packaged goods (CPG) industry, the cosmetics market in the archipelago is estimated worth over USD1.5 billion. The strong growth is supported by an expanding middle class in this country of 250-million population, where median female age is 30.2 years, as per 2015 CIA estimates. Not only women, men are also joining the bandwagon and spending greater on personal grooming and care products.
According to data from Ministry of Industry, domestic sales of cosmetics products totalled IDR9.76 trillion in 2012, up 15% from 2011. Two of the fastest growing product categories include make-up and skincare, as more and more Indonesian women, generally known to be beauty-conscious and aspirational for flawless, fair complexions, are able to afford these items.
While personal care brands from global giants such as Unilever and P&G are quite popular and widely available at warungs (traditional mom and pop stores), drugstores, convenience store chains, mini markets and hypermarkets, a variety of imported cosmetics brands are gaining stronger foothold as urban-dwelling, working class women are keen to spend more on premium, up-market products.
Imports from Southeast Asian neighbours are growing in the wake of free-trade agreements under the ASEAN Harmonized Cosmetic Regulatory Scheme, which makes imports mutually recognized by national authorities, as long as they are registered in any of the member states. The imported cosmetics in Indonesia still require approval from BPOM, which can be done by local agents or distributors.
The growing influx of imported cosmetics and herbal medicines has also pushed the Ministry of Trade to urge local manufacturers to step-up exports, especially of herbal medicines and cosmetics using local herbs and ingredients. In 2014, according to ministry data, exports of cosmetics and herbal medicines totalled around USD1.04 billion, growing 2.9% compared to 2013 when exports reached USD975 million.
Halal – the brand positioning that works!
As the largest Muslim population, it is no surprise that halal cosmetics have caught on in Indonesia. While adherence to halal food has been a mainstay for local Muslim population, adoption of halal cosmetics is a relatively newer phenomenon. For a product to be halal, it should not contain alcohol, should not be tested on animals, and should not contain ingredients from animals. There is also an increasing preference for herbal and organic products, as consumers become more health-conscious and opt for safer, chemical-free treatments.
The increasing preference for halal cosmetics is evident from MarkPlus Insight Women Survey 2015 which shows that Wardah – which positions itself as a Muslim-friendly, halal cosmetics brand – was named the most popular cosmetics brand for women. The survey conducted in mid-2015 included 1,183 female respondents across 18 cities in Indonesia, aged between 15 and 59 years. According to the result, 37.8% of the respondents claimed Wardah to be their favourite cosmetics brand, followed by Pixy (10.1) and Sari Ayu (8.7%). Ponds and VIVA were at fourth and fifth spot, with negligible margin. Apart from Wardah, Sari Ayu too is certified halal.
Source: MarkPlus Insight Women Survey 2015
Owing to its strong brand positioning as a halal product, it is also not surprising to see Wardah (8.8%) as apparently less appealing compared to rivals including VIVA (31.6%) and Sari Ayu (17.5%) in Denpasar, a Hindu-majority city to the east of Java. At the other end of spectrum, Wardah’s popularity is significantly higher in Banda Aceh as 55.3% of women respondents call it as their favourite cosmetics brand.
Despite local brand Wardah as a top pick by a large section of women, the survey shows that majority of women seem open to trying new products, as a large repertoire of brands get similar scores. Also, if we compare with the results from previous year (2014), while Wardah has gained score as a favourite brand among women, other brands including Sari Ayu (14.7%), Pixy (12.3%) and VIVA (11.7%) reported a decline in popularity, based on the survey. Ponds (4.1%), on the other hand, went up in popularity. In general, the popularity of brands from MNCs such as Unilever and P&G is sizeable, which enjoy as much as 70% market share in Indonesia’s cosmetics and toiletries market, according to industry estimates. National brands are eyeing a greater share of as much as 50% but suffer from lack of competitiveness due to dependence on imported raw materials, which offsets the cheap labour costs.
Herbal on the rise
Further, there might be another common underlying motivation behind the increasing popularity of both halal and herbal cosmetics, as women pay greater attention towards what goes in their cosmetics. There seems to be a greater awareness towards avoiding ingredients such as alcohol which is not only non-halal but is also considered to be damaging to skin.
The cosmetics industry doesn’t seem to be complaining about the riding herbal wave. According to local manufacturers, substituting expensive imported ingredients for locally-sourced herbs also helps counter the negative impact from rupiah depreciation. The ministry of industry has urged businesses in the cosmetics and herbal medicines industry to invest in use of technology and scale up their R&D to reduce dependence on imported raw materials.
According to the ministry of trade, there are several herbs native to Indonesia which are used in health and wellness products, and the industry lobby has urged government to introduce some fiscal incentives to promote the industry. These include simplifying licensing process as well as addressing logistics-related concerns, which tend to increase production costs.
The halal and herbal trends in cosmetics are growing globally, as a result of which other herbal manufacturers are also eyeing the Indonesian market. Himalaya Herbals, a popular herbal personal care product company from India, has expanded in the Indonesian market with a wide range of cosmetics products. Korean cosmetics brands are increasingly popular in Indonesia, and Talent Cosmetic, an emerging Korean brand recently received Halal certification from Malaysia in an attempt to expand to overseas markets with large Muslim populations, including Indonesia, and India.
Indonesian manufacturers of herbal medicines and cosmetics are also looking to increase exports of their products. Not much is expected to change for the cosmetics industry as ASEAN Economic Community (AEC) kicks in – enabling free movement of goods and services – as competition from regional players is already thriving, in the wake of existing free-trade agreements. However, industry observers are concerned about the competitiveness of Indonesian products in the ASEAN market. Even though some manufacturers have received certifications under the Good Manufacturing Practice (GMP) which makes them able to export their goods, the local brands need to step up their marketing game in order to promote their products in overseas markets.