Shrinking middle class pushes Indonesian brands to adapt

Kopi Kenangan is bracing for its biggest-ever expansion. Set to take off next year, the plan includes more than doubling the number of the Indonesian chain’s overseas cafes, says CEO Edward Tirtanata. 

However, it’s a contrast to things at home.

Sales at Satu Kenangan, the company’s new sub-brand targeted at budget-conscious consumers, have been “soft,” he tells Tech in Asia. “There’s a liquidity crunch among the consumers that are hit the hardest.”

Kopi Kenangan read-to-drink coffee product / Photo credit: Kopi Kenanagan

As Southeast Asia’s biggest economy slows amid job losses, tax hikes, and rising prices at home, Kopi Kenangan and its fellow consumer brands are increasingly looking elsewhere. They’re either expanding overseas, giving out discounts to keep the momentum going, or targeting more monied clientele.

But that’s easier said than done. With the tech winter persisting, brands have had to invest their own cash into expansions rather than rely on venture funding at unappealing rates.

Meanwhile, selling through marketplaces like TikTok Shop or Shopee has gotten increasingly tough, with rising competition and platform take rates eating into profit margins.

Shrinking middle class

Earlier this year, the price of rice rose by 20% compared to the same period a year earlier. It climbed to a record of a little more than 18,000 rupiah (US$1.12) per kilogram – higher than the government’s price ceiling.

Fuel prices and taxes on cigarettes are also on the march. Layoffs then spiked during the second half of the year, as per government data.

All of that is weighing on Indonesia’s once-vaunted middle class. The cohort has shrunk by 10 million people, the World Bank reported earlier this year.

At cosmetics brand Somethinc, which is also backed by Peak XV Partners, that dwindling buying power has customers scaling back purchases.

During the same period in 2023, customers spent an average of 150,000 rupiah (US$9.31) per transaction. Now, that has declined by 20% to 120,000 rupiah (US$7.44), says Benny Yahya, co-founder of Somethinc. 

Its prime consumer base earns between 3.5 million rupiah (US$217.12) and 8 million rupiah (US$496.29) a month. 

“Open-minded”