Although retailers are rapidly expanding, consumers are still becoming increasingly price sensitive.
Indonesia offers a very attractive long-term investment market for mass grocery retailers, but they may have to manage expansion plans in line with a consumer under pressure over the medium term, according to Fitch Solutions.
With a slowdown in household income growth due to higher unemployment, consumers are expected to start becoming increasingly price sensitive, leading them to reign in their expenses. As such, household spending are expected to slow to 3.3% YoY over the medium term, compared to the 5% growth over the 2015-2019 period.
"Companies operating in Indonesia will therefore have to navigate the challenges of investment sentiment having been dampened and consumer appetite having weakened," the report stated.
However, the mass grocery retail sector is expected to have a strong navigation tool at its disposal, with the tighter household spending and weaker economic ability a driver for demand in discount and wholesale retail.
While retailers are rapidly expanding in a rapidly formalising market, the report noted that they still need to consider the growing price-sensitivity amongst consumers. Those that do have a better chance of gaining market share over the medium term, Fitch said.
"Retailers can gain market share over the medium term by offering consumers competitive prices in the short term," the report added.
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