Ahmad Zamroni / Forbes Indonesia
Alcohol is a very attractive business in Indonesia, yet challenging as well. In fast-growing Southeast Asia, alcohol consumption is low compared to the developed world. Indonesia happens to have the lowest alcohol consumption in the region, coupled with a young population and emerging middle class. The country is certainly a promising market for beer, which is the most affordable type of alcohol. Data compiled by Japan based consulting firm Corporate Directions showed that beer sales by volume in Indonesia is growing at around 6% annually, second to Vietnam. There are only a handful of players in the industry as well, with listed Multi Bintang Indonesia and Delta Djakarta as the market leaders with around 60% and 20% market share. The margin of the industry is also quite promising, ranging at about 25% of revenue.
The consumer products group Orang Tua hopes to tap this potential after launching beer firm PT Beverindo Indah Abadi in 2012 in Semarang. Orang Tua’s roots are actually in alcohol—it started as herbal wine producer back in 1948 in Semarang, which it still produces today. Orang Tua’s beer factory is located right behind the wine factory, built with an investment of $50 million and a production capacity of 373,000 hectoliters. The factory began producing beer last August—Prost for the mass market and König Ludwig for the premium market. It started sales the following month, only to face a challenge. Alcohol is a highly regulated business everywhere, and that’s especially true in the largest Muslim-majority country in the world. Early last year, the government issued a new regulation that banned alcohol sales in minimarkets, shutting off one of the major retail outlets for beer.
“The new regulation was unexpected and the market dropped. However, we see the demand is still there, consumers have other ways to enjoy beer, as beer gardens are opening up. So now we see a recovery and this year we expect 8% to 10% growth,” says Thomas Dosy, chief executive of PT Beverindo Indah Abadi.
Beer producers aren’t allowed to advertise their products, so they must do other marketing efforts, such as sample tastings. Thus, the company wants to develop word of mouth to gain share. Thomas says Orang Tua did much research before deciding to enter the market, including going to Germany to meet Prince Luitpold of the House of Wittelsbach, the great-grandson of the last King of Bavaria, Ludwig III. The family’s König Ludwig beer has roots going back to 1260, when the family first started to make beer.