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3. Mini-market predicted to continue flourishing despite new regulation.

The number of mini-market outlets are expected to grow fast in 2005. Business in mini-market has small profit margin, therefore, the operators tend to open many outlets to offset the small margin. The quantity of outlets is an important factor to cover the operating cost. Therefore, it is expected that the number will continue to increase in the coming years. By September, 2004 the numbers of the outlets of mini-market and convenience store totaled 1,745 units, up from 1.130 units in 2002 or an increase of 615 outlets in less than two years. The biggest player and the pioneer in mini-market business is PT Indomarco Pristama with outlets named Indomaret. The operator of the chain stores of the Salim Group is now 51% controlled by Bhakti Investama. The second largest is PT Sumber Alfaria Trijaya with outlets named Alfamart. Indomarco targeted to have 1,001 outlets in 2004. By September it already has 854 outlets. Meanwhile, Alfamart targeted to have 950 outlets and by September it had 743 outlets and in November, 2004 it already had 950 units.

Indomaret and Almart outlets have been opened in various residential areas. The business has thrived marked by the fast growing number of outlets from year to year. They provide convenience for shoppers. Early, 2005, four outlets of Indomaret were opened in the Tambun highway in Bekasi. Alfamart also has three outlets in the same highway. There are more outlets of Indomaret and Alfamart in housing complexes in Tambun. Earlier, network of mini-market and convenience stores have been introduced in the country in the form of franchise by Circle K from the United States. The first Circle K outlet was opened at Jalan Panglima Polim, Jakarta. Later there were mini-market franchise of 7 eleven, Pasar Prima and Warung Goro, followed by Koperasi Jembatan Kesejahteraan (JK 100%). Hero, which is known for its supermarket has also opened mini-market called Star Mart. There are also individually run mini-market outlets such as Toyyibah, Pelangi, La Roiba, Hijrah, Toko 88 and Golden. Unlike Indomaret and Alfamart, the Star Mart of the Hero Group targets the middle to high class market segments. Therefore, Star Mart outlets are not found in all housing complexes as Indomaret and Alfamart. Star Mart outlets are found mainly in apartment houses or office complexes. Star Mart outlets serve more like convenience stores.

Currently Star Mart has 40 outlets in the Greater Jakarta area such as in Bidakara, Wisma BNI 1946, Lippo Building Sudirman, Apartment Four Season, Apartment Semanggi, Apartment Semanggi, Apartment Sahid and Lippo Karawaci. The entire outlets are wholly owned by Hero. The types of goods sold at Star Mart are not as varying as in other mini-markets. Their goods are mainly snacks, softdrinks, cigarettes, etc.. This type of retail business has attracted the Muhammadiyah Foundation, which has opened outlets under PT Solar Sentra Distribusi, with outlets called "Markaz". The first outlet was opened on April 28 in 2001 in Yogyakarta. Now there are 17 Markaz outlets in Jakarta, Bandung, Surabaya and Yogyakarta. Only four of the outlets are wholly owned by the foundation. The rest operate as franchise. This year the number of outlets is to be increased to 30 units.

Franchise system

Franchise mini-market outlets are required to meet certain standards. An outlet must have space ranging from 30 sq.m. to 500 sq.m. having from 1,000 to 5,000 types of merchandise and employ three to 15 workers each. Each outlet has a turnover of up to Rp 30 million per day depending on the size of the outlet. An outlet will need an investment of around Rp 200 million-Rp 400 million. This business has attracted many people. There are four ways of opening Indomaret outlet under franchise system offered by PT Indomarco Prismatama. First the investor has own location. Second, Indomaret chooses the location. Third, the investor acquire a store already in operation from Indomaret. Fourth, the a store owner change his store into Indomaret. When the investor has been ready with the location., he will need Rp300 million for investment to open an outlet. The cost of takeover of an Indomaret outlet is more orless the same as opening a new outlet plus a goodwill depending on the performance of the outlet. PT Indomarco Prismatama said there is strong interest in opening franchise outlets. There is a long waiting list of prospective franchise holders. Normally a break even point will be reached after 40 months of operation.

Meanwhile, Alfamart offer a type of cooperation called Operator Mandiri. Under this system, a partner is required to provide strategic location and Alfamart will provide investment, equipment and renovations if needed. The trader partner will serve as an operator. Investment recovery is estimated to take 60 months and in the 61st month, the outlet will be fully owned by the operator and the outlet could operate as a franchise without paying franchise fee. During the 60 months, the operator receives salary from Alfamart around Rp5 million to Rp6 million a month. The operator will pay his workers. There are three types of cooperation offered by Alfamart under its Operator Mandiri. First, franchise with a fee of Rp 45 million in five years. In addition a royalty fee of 2%-3% of the total turnover, collected progressively. No royalty is collected for a turnover of zero to Rp 70 million per month. A 2.5% royalty is collected on the excess from a turnover of Rp 75 million to Rp 100 million. For example, a royalty of 2.5% of Rp 25 million will be collected from a turnover of Rp 100 million a month.

Second, the prospective operator is required only to provide a strategic location either by leasing or his own. The area must not be less than 60 m2. Alfamart will provide the investment. Third, the prospective operator takes over an outlet already in operation of Alfamart.

Less flourishing in small town

The retail business is confronted with many hurdles this year including a presidential decree to be issued by the government. The decree will regulate retail outlets. Currently a draft trade law is being debated on retail trade. The new regulation could be in favor or disfavor for modern retail business. President of Indomarco Pristama Sinarman Jonatan said he is not worried too much with the regulations. He said he is confident that the regulation will not restrict the expansion of retail business. Sinarman said despite the expansion of supermarkets and hypermarkets like those of Matahari, Giant Makro and Carrefour, mini-market expansion will not be seriously affected as the market segments are not the same. Unlike in big cities like the Greater Jakarta areas, in smaller cities having hypermarkets and supermarket, expansion of mini-market business will be slowed with the growing popularity of supermarket and hypermarket selling goods in cheaper prices.

One of the characteristics of supermarkets is that they offer convenience for the people especially in urban areas where people demand fast service and convenience. In small cities where residential areas are not far from the city center and there are less traffic jams like in Jakarta and other big cities supermarkets serves all the needs of most of the people. In Jakarta and other big cities, however, going to supermarket is a big problem with heavy traffic jams, therefore, mini-market will serve better for most people. Therefore, mini-market outlets grow fats in number in Jakarta and its satellite cities--Bogor, Tangerang, Bekasi and Depok. It is proven by the fact that the mini-market outlets of Indomaret and Alfamart have expanded fast in the Greater Jakarta and Surabaya, but not so in Bandung, Yogyakarta, Semarang and Cirebon and other smaller cities. Mini-market operators in Bandung complained about the expansion of supermarkets and the opening of Carrefour hypermarket in that city to be followed by Giant hyperlnarket. The opening if hypermarkets in cities other than Jakarta and Surabaya is a threat to the survival of supermarkets and mini-markets. Hypermarket is growing in popularity as it offers one-stop shopping service better and goods in cheaper prices.
Table - 1
Exwansion of mini-markets, 2002 - 2004

Companies Name of outlets

- Circle K
PT Indomarco Prismatama Trijaya Indomaret
PT Sumber Alfaria Trijaya Alfamart
PT Hero Supermarket Stanmart
Koperasi Jalan Kesejahteraan Warung JK
PT Waserda Jaya Waserda Jaya
PT Solar Sentra Distribusi Markaz

Companies 2002

- 50
PT Indomarco Prismatama Trijaya 673
PT Sumber Alfaria Trijaya 350
PT Hero Supermarket 30
Koperasi Jalan Kesejahteraan n.a
PT Waserda Jaya n.a
PT Solar Sentra Distribusi
- 27

Companies September 2004

- 76
PT Indomarco Prismatama Trijaya 854
PT Sumber Alfaria Trijaya 743
PT Hero Supermarket 48
Koperasi Jalan Kesejahteraan 40*)
PT Waserda Jaya 9*)
PT Solar Sentra Distribusi ...*)
- 24

Note : *) by 2003; Source: Data Consult

Table - 2 Prospects of mini-market business

Description Value

Investment Rp 200,000 000 - R 400,000,000
Monthly turnover Rp 75,000,000 - R 250,000,000
Margin 7%-15%

Source: Data Consult
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Title Annotation:Trade
Comment:3. Mini-market predicted to continue flourishing despite new regulation.(Trade)
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Jan 11, 2005
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