Indonesia’s youth turn frugal – are D2C startups at risk?

Indonesian youth are increasingly adopting more frugal lifestyles. According to a recent report by the IDN Research Institute, 49% of millennials (those aged between 28 and 43) and 56% of Gen Z (those aged between 12 and 27) in the country have become more cost-conscious.

Startups relying on direct-to-consumer business models could face challenges, as they often target millennials and Gen Z due to their market size. Together, these demographics make up around half of Indonesia’s population.

What can D2C startups do to retain these customers? 

Growing economic pressures 

Many millennial and Gen Z consumers cite the struggle to achieve financial stability as their primary motivation to become more frugal. This has been exacerbated by increasing product prices in recent years.

Data from Statistics Indonesia shows that the country’s inflation rate spiked to over 5% on an annualized basis from late 2022 to early 2023, although it has been trending downward since.

Izzudin Al Farras, a researcher at the Institute for Development of Economics and Finance (INDEF), notes that the economic burden on Indonesians has worsened in recent years. For example, value-added tax (VAT) rose from 10% to 11% in 2022.

The government plans to further raise the VAT rate to 12% in 2025, which would make it among the highest in Southeast Asia.

See also: Indonesia’s looming VAT hike causes uproar amid sluggish demand

Young people often struggle to meet their needs because their incomes fail to match the increasing cost of essentials.

Photo credit: farzand01 / Shutterstock

Impact on D2C startups

Beyond the usual discounts