The Indonesian soft drinks market, which has already increased volume sales more than three times in the last decade, will maintain its outstanding performance during the current year, according to a new report.

In an annual survey of the market, beverage industry analysts Canadean attribute this dramatic expansion to rapid economic growth and increasing disposable incomes, combined with aggressive penetration into broader sections of the population by manufacturers.

The Indonesian thirst for quality drinking water is one of the main drivers of growth with consumers pursuing a rapid exodus from boiled water and brewed tea to high quality, low cost alternatives. Main beneficiaries at national level are Danone's PT Aqua Golden Mississippi and Coca-Cola's PTA des Alfindo, although numerous smaller players also operate locally.

A weak currency and high dependence on imported packaging and raw materials renders many soft drinks prohibitively expensive. However, packaged water has prospered since the area's volcanic geology and tropical climate yields cheap and abundant sources of spring water, while large scale PET production keeps packaging costs to a minimum.

Although iced rtd/tea is the second largest sector, it is showing only modest growth due to having almost reached its saturation point. It is nonetheless still able to offer heavy competition to the third highest sector, carbonates, whose sales have decreased as a result of consumers now being exposed to a wider range of alternatives.

The highest growth rates of the last decade, which are expected to continue into 2003 as competition intensifies, have been enjoyed by fruit powders closely followed by energy drinks, Canadean says. The former have a considerable price advantage over still drinks due to low packaging and transport costs while the latter have benefited from Indonesian society's long tradition of health and vitality drinks which was reinforced by heavy promotion during the 2002 World Cup.

Still drinks are also tipped to continue growing their sales during 2003, although on the basis of smaller volumes than most other sectors. Having increased per capita consumption by almost a quarter in the last four years, driven principally by the promotion of Frutang which has found new consumers at street level, the sector could take off as other players become increasingly interested in budget products. However, Canadean warns that profits may be eaten into by price-cutting, even with massive volume increases.

Looking to the future the report predicts that the current year will provide volume growth of just under 20% in soft drinks sales, led mainly by the ongoing demand for good quality drinking water. The imminent inauguration of the ASEAN free trade area is also seen as likely to open the market to new external investors and increase the scope for joint ventures. In addition Indonesia has a large, young population receptive to product innovation, while mushrooming hypermarket and mini market outlets will continue to introduce customers to new products.