Spiralling food prices – a strong theme throughout this report last quarter – were expected to make themselves known in the first quarter financial results releases of the country’s leading food and beverage producers; this did not happen. Instead, the food, beverage and retail industry’s leading players have posted strong net profit and revenue growth for Q108.

Nonetheless, as examined in newly published Indonesia Food & Drink Report for Q308, consumer confidence in the country remains shaky, and the prospects for strong full-year growth are still in the balance.

Unilever Indonesia – a subsidiary of the Dutch consumer goods giant – revealed Q108 net profit growth of 31% to US$76mn, while sales rose by 20% to US$407.9mn. For the same period, the country’s leading food manufacturer Indofood Sukses Makmur saw net profit increase by a phenomenal 116% to US$41.2mn, while sales increased by 52% to US$952.4mn. Meanwhile, retailer Matahari Putra Prima announced that its net profit for the first three months of the year had risen by 19% to US$1.94mn, while sales had climbed by 22% to US$263.7mn.

These strong financial releases seem to show that consumer demand in Indonesia is strong enough to support the price increases that manufacturers have resorted to in a bid to protect their profitability during this period of high input prices. The consumption forecasts for the market also support that view.

Indonesia’s ongoing economic recovery and the growing affluence of its emerging middle class is driving a total food consumption growth forecast of 50% to IDR714.7trn in 2012; in per capita dollar terms, the author expects food consumption to increase by 61% to US$359.70 in 2012.

However, while economic growth and consumer demand have proved sufficient to allow price increases to be introduced relatively smoothly, with no major knock-on effect on volume sales or market share, consumer confidence in Indonesia is too volatile for this to remain the case for long. March saw protests in Jakarta as consumers took to the streets to complain about spiralling food prices. Admittedly, these protests mainly involved the country’s lowest income groups who were complaining about the price of basic commodities, as opposed to the rising cost of convenient instant noodles, but nonetheless they reflect growing resentment at inflation.

With forecasting full-year average inflation of 8.7% in Indonesia in 2008, consumer confidence is likely to be shaken further over the remainder of the year. Acknowledging the impact that sustained high prices will have on consumer expenditure levels in the country, Matahari and soft drinks market leader Coca-Cola Amatil tempered their 2008 expansion plans and growth expectations, respectively, with the proviso that they would watch the economic situation closely and downgrade plans and targets in line with changing consumer demand.