A new report released by Katadata Insight Center and social commerce platform Evermos found that offline channels continue to have a more positive perception among consumers compared to online channels, despite the substantial impact that e-commerce has made in the past decade.
The report, titled “Beyond the Digital Frontier: How Offline Channels Propel Local Brands to New Heights,” identifies consumer patterns and behavior to provide insights into the growth of local brands in Indonesia.
According to Ghufron Mustaqim, Co-Founder and CEO, Evermos, e-commerce still has ground to make up in its pursuit of traditional retail in Indonesia.
“The e-commerce sector in Indonesia has seen a decade of growth accentuated by the pandemic, but as this report shows, e-commerce has not yet outpaced traditional retail, with just one in three Indonesians actively using e-commerce,” said Mustaqim.
“We have partnered Katadata Insight Centre to identify strategies used by local brands that successfully evolved into national brands, in hopes of helping rising brands achieve success in an increasingly saturated playing field,” he added.
According to the report, despite the e-commerce boom, MSMEs (micro, small, and medium enterprises) continue to face numerous challenges in their business growth. MSMEs make up 99% of businesses in Indonesia and contribute 61.9% to Indonesia’s total GDP as of 2022. The report notes that “many struggle to compete with larger players as a result of factors that include limited innovation, constrained market access, and difficulties in scaling up operations”
The report added that while MSMEs have embraced digital transformation efforts and online distribution channels, the difficulties they face when expanding into Indonesia’s lower-tier cities—where approximately 87% of the population live—remain unaddressed.
“The report shows a consistent pattern among national champion brands: the bigger a brand grows, the larger the contribution from offline channels. While online channels are important for growth in the digital era, industry leaders are brands that have strong roots in offline channels,” said Gundy Cahyadi, Research Director of Katadata Insight Centre.
“Nationally recognised leading brands realise the importance of having a connected commerce strategy, making it easier for consumers to move between online and offline channels in an integrated manner. Therefore, rising brands should not ignore the benefit that offline channels can bring to business performance, due to the market dynamics in Indonesia.”
Five key takeaways
Katadata Insight Center and Evermos provided the following highlights from the report:
- E-commerce, though impactful and the focus of attention in the past decade, still constitutes a relatively small part of the Indonesian economy, with two out of three Indonesians not being active users of e-commerce.
- Consumers generally favor offline channels over online ones, primarily due to trust, despite online channels offering better pricing options, thus disincentivising non-users from shopping online. Among non-users of e-commerce, 85% were reluctant to shop online over concerns about the quality of products sold online; 79% were worried that the goods will not arrive in good condition; and 79% were worried about fraud in online transactions.
- Leading brands, especially those with annual sales exceeding IDR 500 billion, have established a robust presence in offline channels, consistently outperforming their online counterparts. While all leading brands agreed that a multichannel strategy is crucial for brand presence and that both online and offline channels are equally crucial, leading national brands have maintained a strong offline presence to capture national demand, especially in lower-tier cities.
- Offline channels serve as more than just distribution channels, as they are proven to enhance brand awareness and consumer loyalty, with all 10 national brands interviewed having agreed that offline channels are more effective in creating a brand presence. Brands eager to retain their online channels can harness connected commerce to allow consumers to move between offline and online channels.
- Innovation is essential for maintaining a brand’s unique selling point and creating a lasting impact in consumers’ minds, in terms of both product innovation and marketing strategy. While all 10 national brands interviewed agreed that innovation comes first, only 16% of rising brands surveyed indicate innovation as the preferred approach to growth.
“Indonesia’s MSMEs have long been the backbone of our economy, contributing significantly to GDP and employment, and it is our top priority to realize the full potential of MSMEs and ensure their sustainability,” said Teten Masduki, Minister of Cooperatives and Small and Medium Enterprises, Republic of Indonesia.
“The government has placed a strong emphasis on initiatives to uplift MSMEs by offering them resources and opportunities for growth. The journey from a small enterprise to a thriving national brand is multifaceted, and this report is a good step towards triggering discussions and the exchange of ideas necessary for MSMEs to grow.”
The whitepaper, “Beyond the Digital Frontier: How Offline Channels Propel Local Brands to New Heights,” is available for download here.