Supermarkets squeezed between hypermarket giants and minimarts. (Trade).
Amid the crisis that served a severe blow to the retail sector in May 1998 riots, the French giant, Carrefour, came with a new concept called hypermarket, which has succeeded in drawing customers at the expense of supermarket and department stores. Hypermarkets, which combine the concepts of supermarket shopping convenience and cheaper goods offered by whole sale companies like Mark and Goro have succeeded in strengthening their foothold in the country especially in Jakarta.
Unlike Makro, whose targets are traders and wholesalers or distributors that serve large purchases in lower prices by retail traders, Carrefour deals directly with retail buyers. Being giant in size, Carrefour has to select the right location by taking into account the size of catchment area. The right location, therefore, is a business district or residential areas for middle to high class communities. It is no wonder that Carrefour selected Kelapa Gading before expanding to other potential business districts including Cawang, Kuningan, and Pasar Baru--all are crowded business areas.
With the size of Carrefour's its outlets, no other hypermarket outlet would be feasible in areas where it has one. The presence of Carrefour outlets in an area not only discourages new comers but also causes problem for old supermarkets. For example, Hero outlet, which is located not far from one of Carrefour outlets in Cempaka Putih, or Hero in Ambassador Mall, which is squeezed in area between two Carrefour outlets in Pasar Festival and ITC Kuningan
Hero with the concept of supermarket has the market target the same as that of Carrefour. The location between two outlets of Carrefour would put Hero in a head on collision with two giants. Carrefour is more competitive as it could offer the same good in lower price
The concept of hypermarket is adopted from that of supermarket in service and choice of goods but hypermarket could offer a lower price. Being much larger in scale hypermarkets could secured goods in lower price from suppliers as it has greater bargaining power facing suppliers. Both hypermarkets and supermarkets select business centers and residential areas in cities for the location of their outlets.
In its country of origin, France, regional administrations generally do not allowed hypermarket to take a location in a city center. Generally hypermarket are located in the outskirts where land is much cheaper. Strangely, Jakarta, which previously had a regulation banning a supermarket to have a location close to traditional market, seems to choose not to be too strict in implementing its regulation. Carrefour seem to have no difficulty in securing a license to operate in the city center regardless of the condition of the positions.
The expansion of hypermarket in the city has given rise to the birth of a new form of retail business namely minimarket. Indomaret with its franchise systems has expanded rapidly, and not minimarket systems grew faster as supermarkets have lost part of their popularity squeezed by hypermarket.
Minimarket could resist the offensive hypermarket as being small could squeezed through the competition. Minimarket could take a location where supermarket let alone hypermarket could not. Minimarket could establish outlet closer to consumers in housing complex even in crowded residential areas. Though small in scale minimarket has large number of chain stores that it could enjoy a strong bargaining position as hypermarket or supermarket do facing suppliers.
The presence of hypermarkets and mini markets, supermarkets gradually lose their footing Facing a hypermarket a super market is less competitive in price and the variety of goods. Facing minimarket a super market is in disadvantage over proximity to consumers. With prices are competitive.
Before hypermarket and minimarket were introduced in the country, supermarkets mushroomed as they had no rival in offering convenience to customers especially among the middle to high income consumers. Hero began to open its outlet n the city center, and soon later it expanded to other parts of the city even to city outskirts. Hero became a threat to traditional markets as they could not match the supermarket n convenience and availability of goods.
Now, however, the condition has changed. The good days have been over for Hero. Hypermarkets have come up offering more than what a super market could offer. Hypermarket offers convenience as good supermarket could offer plus higher variety of goods and cheaper price. Minimarket came up with its ability to get closer to customer. Supermarkets are still safe in cities like Bogor, Sukabumi and other major cities where hypermarkets have made an appearance. Supermarkets are also safe n those city from the threat of minimarkets as Supermarkets could not yet matched by minimarket in the availability fresh products.
Not only Hero but other supermarkets in Jakarta have also suffered with the presence of hypermarket. Some of the supermarket have changed strategy by operating as discount stores giving more emphasis to lowering prices rather than to convenience. For example, Supermarket Tip-top gave more attention to improving competitiveness in prices than in convenience. It meets hypermarket in price competition but it offers less convenience that offered by Hero or Gelael.
Hero's strategies in facing Carrefour
Aware that it is losing ground in almost all front, the management of Hero has taken steps including cooperation with Malaysian hypermarket Giant. As Jakarta has been overcrowded and has fallen under the domination of Carrefour, Hero's Giant chose to set foot first in Surabaya and Tangerang.. Hero also established its minimarket chains through Starmart networks.
Carrefour brings in the European shopping service system with broad shopping alleys allowing the shopping carts to maneuver freely. Durable and fresh goods are placed so that buyers will first buy durable goods before fresh goods such as foods, fruits close to the cashiers. The concept introduced by Carrefour has been well accepted by buyers in Jakarta who are easily carried over by new culture. The concept brought in by Giant has yet to prove itself.
PT Alfa Retailindo Tbk., a publicly listed supermarket, has also followed the strategy adopted by Hero. The strategy adopted by PT Alfa Retailindo Tbk, is one by expanding business operations from distribution to, whole sale, supermarket and minimarket systems. Alfa whole sale attracts buyers with large volume such as market targeted by Makro and Goro. Alfa has also succeeded in developed its own minimarket system.
In smaller cities in Java, supermarkets are still safe from the threat of hypermarket and minimarkets as the market size is not big enough to accommodate larger modern retailers as hypermarket. However, supermarkets are not very safe from the threat of minimarkets. The weakest competitor in the retail market is traditional retailers