Consumptive nation

Indonesia is a young nation (110mn population are below 40yrs, based on BPS) as well as social media-savvy (the longest time spent on social media at >5hours/day, based on GSMA intelligence). Based on our observations, Indonesians have become more consumptive, driven by the influence of social media, which may partly explain the declining savings rate over the past couple of years. Hence, tracking the flow of aggressive spending from the young generation is crucial to gauge the beneficiaries. One thing we have noticed is their preference for hang-out activities. In our previous Gen-Z report (read: Indonesia’s affluent Gen-Z and future of shopping), we highlight that Gen-Z prefers eating out activities to socialize, despite the abundance of communication channels. This explains the rapid recovery of restaurant and cafe businesses post Covid. Moreover, fear of missing out and peer pressure factors also strengthen the demand for F&B experiences.    

F&B businesses development

Indonesia F&B businesses, including restaurants and cafes, have experienced a strong recovery post Covid. We predict the number of business units to expand further, driven by increasing eating-out habits. This explains why mall operators now offer larger space for F&B tenants. On top of that, during Covid, the fast development of food delivery services has been enjoyed by a large consumer base, thanks to practicality and subsidies offered by tech companies (i.e., GoTo Gojek Tokopedia [GOTO IJ, Buy] and Grab [GRAB US, Non-rated]), not to mention the role of social media to reach customers. We believe the demand from food delivery service will sustain even if the subsidy subsides, given its practicality. Hence, restaurants and cafes now can benefit from both eating-out activity and food-delivery demand at the same time. In addition, the stronger presence of social media nowadays provides easier access to advertisement and promotion, boosting the expansion of not only medium-to-large players, but also small-to-micro F&B businesses as well. Furthermore, social media influence also has homogenised the lifestyle of Indonesians in all levels of cities even rural areas; this has triggered a lot of F&B businesses to emerge in lower-tier cities as well. Geographically, we notice growth in some regions like South Sumatra, Central Sulawesi, and South Kalimantan have helped to stabilize F&B business even during Covid, backed by strong CPO prices and mining development, which is in line with our previous report (read: Regions with faster consumption growth in focus).  

Main beneficiaries

We believe the number of F&B business in Indonesia will potentially grow faster on the back of an increasing eating-out trend as well as stable food delivery demand. This trend should benefit food service business including Mulia Boga Raya (KEJU IJ, Buy),, in our view, as they can supply products to more F&B businesses going forward. KEJU’s business currently is mostly driven by food service (~40% of sales), supplying affordable processed cheese to F&B players (read our initiation report). We note that Diamond Food (DMND IJ, Not rated), and Kurniamitra (KMDS IJ, Not rated) are the other giant distributors players in Indonesia, focusing on cold chain and beverage distribution respectively. Other sectors such as mall operators could benefit as well, assuming more F&B tenants can attract more foot traffic; in this case, we would expect Pakuwon Jati (PWON IJ, Buy) to be the main beneficiary, given its high recurring income. Direct players like restaurants and cafes might not necessarily benefit, as the competitive landscape will definitely get tougher as well.

Fig. 1: Indonesia prepared foods and beverages expenditures/month (IDR)

Fig. 2: Percentage of F&B booked by consumption spot

Fig. 3: Food delivery trend globally

Fig. 4: GOTO on demand services GTV trend (including food delivery)

Fig. 5: Food delivery service provider market share

Fig. 6: Indonesia saving rate

Fig. 8: KEJU sales breakdown, 2023

Fig. 9: KEJU y-y sales growth performance

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

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Sandy Ham (sandy.ham@verdhana.id)

Jody Wijaya (jody.wijaya@verdhana.id)

Samuel Christian (samuel.christian@verdhana.id)