Indonesia’s Minimarkets Trump Major Retailers
In Indonesia, the minimarkets are eating the supermarkets’ lunch.
Middle class consumers are choosing the convenience of minimarkets for grocery shopping over their larger rivals. Their decision is reshaping the $42 billion sector and causing some of the losers to eye global partnerships.
“I rarely go to supermarkets or hypermarkets now, perhaps once every few months,” said Vivi Itovia, a 26-year-old front desk clerk at the Kempinski Hotel.
“I get all my needs from minimarkets or 7-Eleven, which has become a must-go place for young people,” she said in a view echoed by other consumers.
The number of supermarkets fell by 17 percent in 2011 to 1,229 stores from 1,477 stores in 2008, according to the Indonesia retail employers association, Aprindo.
By contrast, the number of minimarkets jumped 63 percent to 16,720 last year from 10,289 in 2008, according to Aprindo data.
It wasn’t supposed to be that way.
Annual economic growth above 6 percent since 2010 means Indonesia’s middle class has more money to spend on retail.
Supermarkets, hypermarkets and shopping malls abound, and in Jakarta, there are minimarkets in almost every neighborhood.
Consumer growth has led global retail giants such as France’s Carrefour to compete against local rivals Ramayana Lestari Sentosa and Lippo Group’s Matahari Putra Prima for market share.
But instead of a win-win environment for the sector, a battle with clear winners and losers has emerged.
“Our supermarkets are a money-losing business,” said Setyadi Surya, a director at retailer Ramayana. “Our worst enemy is the minimarket. We are under siege in the Greater Jakarta area and in Surabaya. Some of their products are even cheaper than ours.”
Size and supply chain factors explain the rise of minimarkets. Outlets range from 150 to 400 square meters, smaller and cheaper than supermarkets, which average 1,000 square meters.
Distribution to the archipelago is an expensive part of any business and minimarkets have mastered logistics better than larger stores by supplying small quantities of products to 200-400 outlets from a central warehouse, said Aprindo Vice Chairman Tutum Rahanta.
“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,” he said.
In Jakarta, 7-Eleven stores have also become something of a gathering spot for young people. Companies set to benefit from the trend include Indomaret, Sumber Alfaria Trijaya, which is controlled by entrepreneur Djoko Susanto with the Alfamart brand, and Modern International, which owns the 7-Eleven franchise.
Supermarket players said they were disadvantaged by the change in consumer behavior and struggled to build distribution centers. Several now want global partners, said local investment bankers who advise on retail sector mergers and acquisitions.
“It’s all about timing to find a global partner for our business,” said Benjamin Mailool, CEO of Lippo Group’s Matahari Putra Prima, which owns Hypermart.
Wal-Mart of the United States, France’s Casino and South Korea’s Lotte Shopping have been looking at Hypermart since 2010, but disagreement over the value has slowed a stake sale, sources said.
Former market leader Hero Supermarket has teamed up with Sweden’s IKEA to open a store by 2014 to make up for its own slow ing supermarket growth.