Katadata Insight Center and Evermos report has found that Offline channels are crucial for business success for local Indonesian brands, and 67 percent of Indonesia’s population is not active e-commerce users.

The duo said in a statement on Monday 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, is identifying consumer patterns and behaviors in order to provide insights for the growth of local brands 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 Ghufron Mustaqim, Co-Founder and Chief Executive Officer, Evermos.

He said the firm has 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.

According to the statement, despite the e-commerce boom, micro, small and medium enterprises (MSMEs) continue to face numerous challenges in their business growth.

MSMEs make up 99 percent of businesses in Indonesia and contribute 61.9 percent to Indonesia’s total gross domestic product (GDP) as of 2022, but many businesses struggle to compete with larger players as a result of factors that include limited innovation, constrained market access, and difficulties in scaling up operations.

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 percent 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.

According to him, nationally recognized leading brands realize 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, he said rising brands should not ignore the benefit that offline channels can bring to business performance, due to the market dynamics in Indonesia.

The report doubly serves as a guide for other aspiring and emerging local businesses to understand proven methods that can be implemented throughout their growth process, by identifying the local brands that have successfully evolved into national brands and analyzing the similarities and differences of rising local brands and national brands.

This study has resulted in five key takeaways:

1. 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.

2. Consumers generally favor offline channels over online ones, primarily due to trust, despite online channels offering better pricing options, thus disincentivizing 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 percent were worried that the goods will not arrive in good condition; and 79 percent were worried about fraud in online transactions.

3. Leading brands, especially those with annual sales exceeding IDR 500 billion ($32.21 million), 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.

4. Offline channels serve as more than just distribution channels, as they are proven to enhance brand awareness and consumer loyalty, with all ten 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.

5. 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 ten national brands interviewed agreed that innovation comes first, only 16 percent 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,” he said.

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