Retailers face Indonesia challenge

03 July 2012

JAKARTA: Retailers and brands hoping to make progress in Indonesia's grocery sector will have to adapt their strategies, as supermarkets fall behind minimarkets in the country.

According to Aprindo, the retail employers association, the amount of supermarkets trading in the burgeoning economy declined from 1,477 in 2008 to 1,229 in 2011.

However, minimarket numbers leapt from 10,289 to 16,720 during the same period, thus assuming the lead in the grocery category, valued at $42bn a year.

These latter stores vary in size from 150-400 square metres, making them more compact than is the case for supermarkets, generally coming in at roughly 1,000 square metres overall.

Indomaret is the largest minimarket operator at present, ahead of PT Sumber Alfaria Trijaya and 7-Eleven, for which PT Modern International holds the franchise.

Tutum Rahanta, Aprindo's vice chairman, argued the fact Indonesia is an archipelago proves advantageous to minimarkets, as it is simpler to deliver lower quantities of goods in such an environment.

"The future for Indonesian retailers is the minimarket because we live in an island nation. It's a story of how the small slowly eat up the big players' cake because they rapidly grow in local communities," Rahanta told Reuters.

Indeed, Ramayana Lestari Sentosa TBK - which boasted 97 supermarkets as of December 2011 - has faced sizeable challenges even though Indonesia's economy is expanding at around 6% per year.

"Our supermarkets are a money-losing business," Setyadi Surya, a director at Ramayana, "Our worst enemy is the minimarket. We are under siege in the greater Jakarta area as well as in Surabaya. Some of their products are even cheaper than ours."

PT Hero Supermarket, formerly the number one player in the grocery sector, has recently diversified its strategy, taking on the local franchise for Ikea, the Swedish furniture retailer.

For its part, Matahari Putra Prima, a unit of Lippo Group, is also considering working with an overseas ally, with Walmart, Casino and Lotte among the firms previously said to have weighed up this kind of arrangement.

"It's all about timing to find a global partner for our hypermarket business," Benjamin Mailool, CEO of Matahari Putra Prima, the parent of Hypermart, the country's second-biggest hypermarket chain, said.

Data sourced from Reuters; additional content by Warc staff