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SUPERMARKETS BLOCKED BY MINIMARKETS AND HYPERMARKETS.

The shift in the people's lifestyle due to the social mobility increasing with the financially able and prestige-minded middle class has resulted in modern markets in Indonesia, especially in Jakarta and other major cities, growing rapidly in terms of the number of outlets, the range of goods offered, and the shopping space. By type, modern markets can be classified into supermarkets, department stores, convenience stores or minimarkets, superstores, and hypermarkets. These modern markets have continued to mushroom with the rapid development of modern shopping centers such as malls and plazas in various major cities.

Nowadays, supermarket and department store owners have shown the tendency to merge the two as has been conducted by Matahari and Ramayana. In contrast, Hero --which initially was a supermarket-- has joined the fashion business by establishing a department store. At present, supermarkets have to deal with competition not only from other supermarkets but also from minimarkets, which have been mushrooming rapidly with the franchise system. These minimarkets are found at locations which provide consumers living in residential areas with direct access to them. On the other hand, supermarkets have been expanding only as far as locations where residential areas border with one another.

In addition to minimarkets, supermarkets' share of the middle-upper income market segment is also being undermined by hypermarkets, which have intensified their expansion efforts since the signing on 15 January, 1998 of the letter of intent with the IMF. This LOI requires, among others, that Indonesia open up its retail business sector for foreign investors as well. This opportunity has been made use of by foreign retailers with international reputation such as Continent and Carrefour. The expansion efforts by these foreign retailers once sent local retailers reeling because, due to the national economic downturn and to the looting and torching in May 1998 of local retail outlets, the retail sector in Indonesia was in a state of stagnancy.

The strategy to win the competition is now nearly the same among retailers: to offer the lowest possible prices. The concept of service, comfort, and convenience seems to have been overshadowed with that of price competition. Retailers' promotional campaigns in electronic media and primed media as well as at POPs (point of purchase) all offer low prices. It is even reported that a foreign hypermarket once sold its items at loss prices in a bid to lure new customers and, at the same time, to beat the other retailers found in the vicinity of its outlets.

Despite being blocked by minimarkets and hypermarkets, quite a number of local supermarkets recently renovated their outlets, especially Hero and Matahari, resulting the total supermarket space in Jakarta increasing by 19.3% from 237,505 square meters to 283,272 square meters in 1999, in contrast to what happened in 1998, when it dropped by 2.7%. The fact that supermarkets have continued to be expansive amidst the economic crisis and amidst the increasingly tough retail competition is interesting to discuss.

Supermarkets

The concept of supermarkets was first introduced into Indonesia early in the 1970s with the commencement of operations of a number of large-scale retailers. As a retailer, the supermarket serves end-customers by fulfilling their household needs using the self-service method. The commodities offered by the supermarket are generally staple items (such as vegetables, fruit, and spices/condiments), soft drinks, and processed food products in various types of packaging. In addition, the supermarket also sells kitchen utensils, glassware, cleaning tools, and other appliances. In selling vegetables, fruit, meat, and fish, the supermarket usually displays them inside a cooling storage to keep them fresh. This provides the supermarket with one advantage over the traditional market.

To provide customers with comfort as well as to lure them, the supermarket is usually designed in such a way that the layout and display of goods look attractive, that the whole space is cool, and that the customers can move about and choose items without hassles. In addition, the supermarket makes sure that the attendants-are neatly dressed and kind and that security is maintained. The quality of goods at the supermarket is usually reliable. The supermarket offers fixed prices, and these prices are clearly shown on the tag of every good being displayed so as to make it easy for customers to find them out. The supermarkets in DKI Jakarta open from 09:00 at the earliest to 21:00.

In running its business, the supermarket is strongly supported by promotional campaigns through printed and electronic media. In addition to such campaigns, the supermarket also adopts other ways of luring customers such as providing discounts, lotteries with prizes, and direct gifts (for customers whose purchase reaches a certain value).

How much space a supermarket should have is not very clearly defined. In certain countries, the space of an average supermarket is around 1,200 square meters. In Indonesia, however, such a definition does not apply consistently. Some of the Hero outlets, for example, have a space of less than 1,200 square meters each. According to the classification made by the Department of Trade, the minimum space of a supermarket is 600.2 square meters and that of a minimarket or a convenience store 140 square meters. There is also what is called a hypermarket, whose space is much bigger than that of a supermarket.

Some supermarkets are owned by individuals and some by business graups. A supermarket which is owned by a business group is usually part of a chainstore. A chainstore is generally a widespread network of outlets and has a much bigger scale of business. Some minimarkets, however, have a considerable network, and one of them is Indomaret, which operates under the franchise system. Another one is Pasar Prima, which operates in housing complexes. Prior to the emergence of these minimarkets, a similar market known by the name of Circle K had come into existence and it operates around-the-clock. As for hypermarkets, whose space averages over 5,000 square meters, the first to operate in Indonesia is Makro. The number of hypermarkets in operations has continued to grow, and so has the number of their outlets, undermining the share of the supermarkets in the middle-upper class market segments.

Foreign retailers have been setting their foothold in Indonesia especially since the signing of Letter of Intent with the IMF on 15 January 1998, of which one of the points says that the Indonesian Government agrees to lift the ban on foreign investors doing business in wholesale and retail trading. Nowadays, the requirements concerning the licensing of foreign retailers are the same as those in the case of local large-scale retailers and modern markets as can be seen from Presidential Decree No. 99 of 1998.
Table -- 1
Classification of major retailers in Jakarta

Type of retail Average space Location
 per outlet (m2)

Minimarket 100-300 Residential areas, apartement blocks,
Supermarket 600-1,500 office buildings, malls
Hypermarket 5,000-10,000 Malls/own buildings, suburban areas,
 close to toll roads, building

Source:Data Consult



Minimarkets mushroom

The existence of minimarket or convenience store networks in Indonesia was pioneered by Circle K, whose brand name owner is from the United States. Circle K, which operates in settlement areas for 24 hours a day, opened its first outlet in Indonesia on Jalan Panglima Polim, Jakarta, and it operates under the franchise system. Following this, another minimarket from another franchiser was also opened in Jakarta, namely 7 Eleven.

Local supermarket Hero has also been developing its small outlets called Star Mart. The Salim Group through its rebate warehouse Indomarco has been expanding its minimarket network called Indomaret. Other minimarket networks have also emerged such as Pasar Prima and Warung Goro. Of late, a new minimarket network called JK 100% has been opened by Koperasi Jembatan Kesejahteraan. Apart from these networks, there also operate a considerable number of individual minimarket outlets whose names have been freely chosen by their owners such as Toyyibah, Pelangi, La Roiba, Hijrah, Toko 88, and Golden.

Minimarket networks have been growing quite rapidly over the last few years especially because of the franchise system offered by the owner of the brand name. Another reason for the growth of such networks is the fact that many individual financiers have been interested in entering this retail business as an alternative, given that many lines of business in the economic sector have sunk during the crisis.

The owners of successful minimarkets have been trying to expand their networks by opening new outlets. As a result, minimarkets have continued to mushroom, setting their foothold in various settlement areas. With comfortable shopping space, a complete range of goods, competitive prices, and easy accessibility to the residents of the settlement area, minimarkets have been gaining popularity and, as a result, the minimarket business in settlement areas has continued to grow. As an illustration, no less than three Indomaret outlets are now found on the same street in Tambun, Bekasi, in addition to other individual minimarkets in the same settlement area. Similarly, no less than four minimarket outlets are found in the Pulo Gebang Permai housing estate in Cakung, East Jakarta, and they are Pasar Prima, Golden, and two Indomaret outlets.

The average minimarket outlet has the following specifications: it has a shopping space of 30-500 square meters; it sells 1,000-5,000 different items/commodities; and it has 3-15 employees. The daily sales turnover varies according to the shopping space and to the range of items offered, with Rp 20 million at the maximum.

With relatively small investment, i.e. from Rp 100 million to Rp 150 million per outlet, the minimarket business is attractive to small-scale investors. Even Koperasi Jembatan Kesejahteraan (JK) offers an opportunity for investors to open JK100% outlets with smaller investment, i.e. Rp 65 million. This figure comprises Rp 50 million for minimum investment and Rp 15 million for the franchise fees for five years. Following its commencement of operations, a JK 100% outlet is only obliged to set aside a royalty fee of 1% and a promotion fee of 0.75% of the monthly sales turnover.

As per the end of 2000, Koperasi JK had 7 modern minimarket outlets. With a franchise system and with minimum investment of Rp 65 million per outlet, Koperasi JK has projected to have 1,000 JK100% modern minimarket outlets by 2001. This figure is part of the 6,000 kiosks/shops which Koperasi JK currently have under its supervision and which it will develop into modern minimarket outlets in view of the continued growth in their sales turnover.

One advantage of the minimarket business over the supermarket or hypermarket business is that a minimarket occupies a much smaller building which can be leased for a smaller sum and, hence, has higher flexibility to relocate to an area with more residents. Another advantage is that a minimarket can improve efficiency and economize on operating costs in areas where a supermarket or hypermarket cannot such as electricity, air conditioning, and promotional activities.

A minimarket will always seek to increase the number of its outlets or to expand its business by means of the franchise system. This is so because the more outlets it has, the better bargaining position it will have to increase its gross margin. With a high number of outlets, a minimarket network will be able to increase the volume of its purchases and, hence, to push its prices down to a level more competitive than those offered by the supermarket, more so because a minimarket not only gains some profit margin but also is more efficient in operations than a supermarket. In addition, consumers will feel advantaged by such a minimarket because they can purchase items from it at lower prices than from a supermarket or, let alone, from a traditional shop.

As the pioneer of the minimarket franchise system, Indomaret initially offered the opportunity to develop its network only to its own employees, who were allowed to become shareholders in new outlets but not to manage them. The management of the new outlets was fully handled by Indomaret. Subsequently, Indomaret offered the opportunity to develop the network by means of the franchise system to anyone who had money and who was evaluated as eligible. Under the franchise system, the Indomaret network grew very rapidly. As per the end of 2000, it had as many as 463 outlets in the area of Jabotabek (Jakarta-Bogor-Tangerang-Bekasi), Bandung, and Surabaya.

With each outlet offering 300 different items, of which the products produced by its parent company (Indofood) are only part, Indomaret has succeeded in securing considerable numbers of customers in various residential areas. With all the advantages that it had, Indomaret once made a plan to conduct an initial public offering (IPO) late in 2000. In view of the bright prospects that the Indomaret had, PT HM Sampoerna was interested in buying 100% of the shares offered by Indomaret at a price above the first-day bidding price level as part of its strategic attempt at expanding the network of PT Alfa Retailindo, a retail company of which Sampoerna owned 60%.

BPPN and the Holdiko Perkasa Group (Holdiko) finally decided to call off PT Indomarco Prismatama's (Indomaret's) IPO plan. Subsequently, BPPN made a plan to conduct a strategic offering of 51% of Holdiko's shares by way of a competitive tender system. Holdiko itself was established as part of the Salim Group's attempt at settling the obligations that it had to BPPN as a result of the credit which PT Bank Central Asia' (BCA) had extended to the group's affiliates. Currently, the Indomaret network is 49% owned by PT Indomarco Perdana and 51% by Holdiko.

PT Matahari Putra Prima (Matahari) signed a letter of intent to join BPPN's tender for Indomaret's shares and, as such, Matahari became one of the 36 bidders in the tender. Also included in the 36 bidders were retailer PT Hero Supermarket and distribution company PT Tigaraksa Satria. Matahari itself was seeking to take over Indomaret in a bid to strengthen its own retail network, which currently has 77 outlets in 35 cities.

It turned out that the highest bid (Rp 162 billion) came from the last incoming bidder, i.e. Bhakti Asset Management (Bhakti Investama). As a result, PT Holdiko Perkasa sold the Salim Group's retail network to Bhakti Investama, which then became entitled to 51% of the shares in PT Indomarco Prismatama (Indomaret). Initially, Holdiko had received eight bids and selected four for due diligence processes. Subsequently, Holdiko received two other bids from local investors, and these two bids were higher than the minimum price that had been set by the company. Of these two bids, the one from Bhakti Investama was higher.
Table -- 2
Minimarket networks, 2000

Name of retailer Group Number of
 outlets

Indomaret Indomarco/Salim 463
Star Mart Hero 33
Alfa Mitramart Alfa Retailindo/Sampoerna 34
ACI PT Multi Daya Retalindo 11
Warung Goro Goro/Inkud --
Pasar Prima -- --
JK 100% Koperasi Jembatan Kasih --

Source: Data Consult



Hypermarkets controlled by foreign investors

Since it entered Indonesia late in 1998, Carrefour has managed to open four outlets. Initially, it opened two outlets, one on the Akhmad Yani Bypass Road (in Central Jakarta) and the other at the Duta Merlin Shopping Center (also in Central Jakarta). The former has a space of 7,500 square meters, and the latter 6,000 square meters. Subsequently, Carrefour opened another two outlets, one of which is located on Jalan Cempaka Putih (Central Jakarta). The second hypermarket to operate in Indonesia is Continent. These two hypermarkets have been highly expansive and aggressive in developing their business in Indonesia, creating worries among local retailers, which are faced with a slack business atmosphere due to the crisis.

In Indonesia, Carrefour is managed by PT Cartisa Properti Indonesia, a company jointly owned by Carrefour Nederland B.V. of the Netherlands (70%) and its local partner PT Tigaraksa (30%), which is an affiliate of the Tira Group. On the other hand, Continent --a large-scale retailer affiliated to a French business group called Promodes-- is managed by PT Contimas Utama Indonesia, a company which was initially owned together by Continent and the Sinar Mas Group. In November 1999, however, the Sinar Mas Group sold all its shares in the company to the Promodes Group and, as a result, the latter became the majority shareholder in Continent Hypermarket, controlling 83% of it.

Internationally, Continent's reputation is no less than Carrefour's. Over a nearly equal span of time as in the case of Carrefour, Continent has managed to open four outlets, all of which are located in Jakarta. Initially, it opened three outlets, one at Pasar Festival (5,000 square meters), one at Megamal Pluit (12,000 square meters), and the other one at Cempaka Mas (10,000 square meters). The three together have a space of 27,500 square meters. The fourth outlet was opened at Ratu Plaza late in 2000.

As a hypermarket, Continent stresses the importance of selling a complete range of products at a competitive price level. This strategy is seen as suitable for countries that are being pervaded by an economic crisis because, in such countries, consumers tend to be circumspect about spending their money and to choose products of the same quality that are cheaper. Continent manages to sell products at very competitive prices because the hypermarket sets its margin at a very low level. Another reason is that in its attempt at becoming a leading hypermarket, Continent does not rely on having just one outlet. This is so because, in order to be able to receive lower prices from suppliers, a hypermarket has to have a number of outlets instead of just one. It is for this reason that Continent has also opened another outlet at Mega Mal Pluit and another one at Cempaka Mas.

Since the establishment of a hypermarket outlet requires certain facilities that are available only in the central part of a city or in a heavily populated suburban area, Convenient thinks that the best way to expand its business to suburban residential areas or to various regions is by setting up convenience stores. If its hypermarket business proves to be successful, Continent will adopt the franchise system to carry out its convenience store (or minimarket) development plan.

In the minimarket business, the franchise system was first developed by Indomaret (of the Salim Group) and Warung Goro. Like the cooperation pattern adopted by these two minimarket franchisers, the one which Continent will use will also see to it that in addition to receiving guaranteed supplies from Continent, the convenience stores which it will develop in Indonesia will also receive such supplies at competitive prices. Promodes itself is the world's 22nd largest retailer and, in its capacity as the French-based parent company of Continent hypermarkets, has succeeded in developing minimarkets in cooperation with the already existing retailers. As per the end of 1997, there were a total of 1,491 minimarket/convenience store outlets under the flagship of Promodes throughout the world, and they came in different names such as Shopi, 8 a Huit, and Codec. These outlets operate under the franchise system.

Early in 2000, the parent companies of the two giant retailers (i.e. Continent and Carrefour) conducted a merger in their home country, France. The merger of these two companies was registered with the European Commission in January, 2000, and it was immediately followed by the management merger of all their outlets (9,000 of them) in 26 countries, including Indonesia. Following the management merger, Jean Luc Montembault of Continent became the country manager of the survivor company for Indonesia. In coincidence with this, the 3 Continent outlets in Indonesia changed their name into Carrefour and modified their design to suit the Carrefour standards. As a result, there are currently 7 Carrefour outlets in Indonesia with a combined space of around 80,000 square meters.

Meanwhile, the existence of a Carrefour outlet in the Cempaka Putih area has caused Makro to put up a billboard only a few meters away from it. The billboard shows a catchy promotional line that is apparently set to undermine the new hypermarket outlet, and it reads "Makro Is Still Far, Far Cheaper." Up to now, Makro --which is managed by PT Karabha Unggul-- has remained the wholesale center with the most outlets in Indonesia, i.e. nine of them (four in Jakarta, one in Tangerang, one in Bekasi, one in Surabaya, and one in Bandung).

Makro came earlier than its predecessors and it has managed to establish close relationship with thousands of its customers, most of whom are members. The number of Makro's members will certainly increase in the near future now that the Citibank Makro card has been launched of late, a card which is expected to net Citibank card holders into becoming Makro's members. Earlier, in cooperation with BCA, Makro had made it easier for ATM BCA card holders to become its members.

Due to the people's sentiments against the ownership of the Goro wholesale center, which they associated with Hutomo Mandala Putera alias Tommy, the Goro outlets in Pasar Minggu and Pekayon were looted and torched by people during the social riots in May 1998, resulting in some Rp 81.2 billion in total losses for the company with the following breakdown: Rp 57 billion in losses from the Goro outlet in Pasar Minggu, which was burned to ashes; Rp 7.5 billion in losses from the Goro outlet in Pekayon, which was partly torched; and Rp 16.7 billion in other potential losses.

Originally, PT Goro Batara Sakti --the company which manages the Goro network-- was jointly owned by PT Humpuss (80%) and Ricardo Gelael (20%). PT Goro Batara Sakti itself is the parent company of PT Goro Yudhistira Utama, which is 65% owned by the cooperative movement (of which 25% is owned by Inkud) and 35% owned by Tommy and Ricardo. A few days ahead of the May 1998 social dots, the youngest son of former President Soeharto (i.e. Tommy) and the son of the owner of the Gelael chainstore (i.e. Ricardo Gelael) sold their shares in PT Goro Batara Sakti (35% worth Rp 140 billion) to Inkud.

The takeover process lacked transparency, and it was said that besides paying some Rp 140 billion for the acquisition, Inkud was also required to make available another Rp 140 billion in funds to pay for PT Goro's obligations to its suppliers (Rp 40 billion), to PT Unilever (Rp 20 billion), and to its building and office equipment contractors (Rp 80 billion). The total sum which Inkud paid for the acquisition of Tommy's and Ricardo Gelael's shares in PT Goro, which was Rp 280 billion, was suspected to have been taken from the funds which KUDs (Village Unit Cooperatives) owned and kept at Bank Duta for its participation in the cloves trading system while, in fact, all the members of Puskuds and KUDs wanted the funds to be distributed to all KUDs in Indonesia.
Table -- 3
Hypermarket networks, 2000

 Name of Number of outlets
retailer Company/ Jabotabek Outside of
 business group Jabotabek

Cerrefour Carrefour&Continent 7 --
Mega M Matahari Putra Prima 5 --
Makro SHV Makro 6 3
Indo Grosir Indomarco/Salim 3 3
Goro PT Goro Batara Sakti/ 1 --
 Induk Koperasi
Alfa Gudang Rabat Alfa 3 --

Source: Data Consult



Supermarket business stagnant

As per today, the total number of supermarket outlets operating in Indonesia is estimated at over 345 with a total space of 750,000 square meters. In Jabotabek itself, there are no less than 150 supermarket outlets with a combined space of 376,000 square meters. The rapid growth in the number of supermarket outlets in Jabotabek over the recent years has been caused mainly by the continued expansion of two leading supermarket networks, i.e. Hero and Matahari. The other supermarket networks in operations in Indonesia include the following: Ramayana, which is known for its Ramayana Bazaria supermarket outlets; Super Indo, which has been thriving under the management of the Salim Group; and Delhaize "Le Lion," a foreign retail network from Belgium.

As for Hero, it currently has a total of 71 outlets in 21 cities, making it the largest supermarket network in the country. Some 45 of Hero's outlets operate in Jakarta and they have a combined space of 134,200 square meters (66.4% of the total space of Hero's outlets in Indonesia). Hero also has special retail outlets that come under different names such as Shop In, Mitra Toko Diskon, Guardian, and StanMart, the last being a minimarket. Shop In specializes in selling personal care products such as toiletries and cosmetics. Mitra Toko Diskon provides discounts off the prices of the items it sells. StanMart offers convenience. Guardian sells drugs and other medical equipment.

A newcomer in the supermarket business, Matahari currently has 55 supermarket outlets in 29 cities with a total space of 195,282 square meters. Some 16 of these outlets are found in Jabotabek, and they have a combined space of 54,500 square meters. Although Matahari's supermarket outlets are generally situated at the same buildings as its department store outlets, they are managed separately.

A new retailer, Super Indo has managed to open 15 outlets with a total space of 62,100 square meters in Indonesia. Ten of these outlets are found in Jakarta with a combined space of 41,400 square meters. Some of the Super Indo outlets are found at the same buildings as the Gelael Supermarket outlets, namely at Arion Plaza, Metropolitan Mall, and Gedung PP Plaza.

Due to the crisis, a long-time player in the supermarket business, i.e. Golden Truly, has reduced the number of its outlets from six to two. Similarly, another long-time player, Gelael, has also cut the number of its outlets from 25 to only 13. In Jabotabek alone, the number of the Gelael outlets has dropped from nine to only three.

Besides Hero, another long-time player in the supermarket business which has succeeded in expanding the number of its outlets is Alfa Gudang Rabat. The number of the Alfa Gudang Rabat outlets has recently increased from nine to 20 with a total space of 50,000 square meters. Of these 20, 14 are found in cities, including three in Jabotabek. The three in Jabotabek have a combined space of 7,500 square meters. In terms of space, the Alfa Gudang Rabat outlet in Bekasi can be categorized as a hypermarket.
Table -- 4
Supermarket networks number of outlets and space, 2000

 Name of retailer Name of company Number
 of Outlets

-- Hero PT Hero Supermarket 71
-- Matahari Supermarket PT Matahari Putra Prima 55
-- Alfa Gudang Rabat PT Alfa Retailindo 20
-- Super Indo PT Lion Superindo 15
-- Gelael PT Gelael Supermarket 13
-- Mitra Toko Diskon PT Wiramaju Kharisma Jaya 9
-- Metro Ps Swalayan PT Metro Supermarket Reality 6
-- Golden Truly PT Dwi Golden Graha 2
-- Tomang Tol PT Rifi Sempana 4
-- Hari Hari Ps PT Sinar Sahabat 2
 Swalayan Intimakmur
-- Jayasera PT Marga Jaya 11
 Manggala Pratama
-- R & G PT Utama Agung Bersaudara 3
-- Diamond PT Kage Wijaya 1
-- Muara Pasar Swalayan PT Muara Karang Permai 2
-- Akasia PT Khe Khe Scorpio 1
-- Gloria -- 1
-- Grasera PT Grasera Utama 3
-- Permata PT Alam Semesta 2
 Permata Indah
-- Jameson's Swalayan PT Jameson's jumbo Permai 3
-- Artomoro PT Terminal Prasetya 1
-- Rama PT Rama Supermarket 2
-- Kem Chick's PT Bolla Catur Rata 1
 Supermarket
-- Naga PT CV Naga Pasar Swalayan 2
-- Toserba Sinar Raya PT Sinar Surya Sembada 1
-- Tip Top PT Tip Top 1
-- Ambarukmo -- 1
-- Primadona -- 1
-- Mawar -- 1
-- Sinar Gloria PT Gloria Management 1
-- Melawai Ps PT Melawai Parama 1
 Swalayan Jaya
-- Lain-lain 101
Total 338

 Name of retailer Space Jabotabek
 [(m.sup.2)] Outlets [(m.sup.2)]

-- Hero 202,000 45 134,200
-- Matahari Supermarket 195,285 16 54,500
-- Alfa Gudang Rabat 50,000 3 7,500
-- Super Indo 37,500 10 25,400
-- Gelael 32,500 3 7,500
-- Mitra Toko Diskon 18,900 9 18,900
-- Metro Ps Swalayan 14,300 6 14,300
-- Golden Truly 13,200 2 13,200
-- Tomang Tol 9,700 4 9,700
-- Hari Hari Ps 9,000 2 9,000
 Swalayan
-- Jayasera 8,950 11 8,950

-- R & G 6,880 3 6,880
-- Diamond 5,000 1 5,000
-- Muara Pasar Swalayan 3,970 2 3,970
-- Akasia 3,500 1 3,500
-- Gloria 3,427 1 3,427
-- Grasera 3,200 3 3,200
-- Permata 2,200 2 2,200

-- Jameson's Swalayan 3,000 3 3,000
-- Artomoro 3,000 1 3,000
-- Rama 3,000 2 30.00
-- Kem Chick's 2,600 1 2,600
 Supermarket
-- Naga 2,000 2 2,000
-- Toserba Sinar Raya 1,500 1 1,500
-- Tip Top 1,500 1 1,500
-- Ambarukmo 1,500 1 1,500
-- Primadona 1,500 1 1,500
-- Mawar 1,500 1 1,500
-- Sinar Gloria 1,000 1 1,000
-- Melawai Ps 1,000 1 1,000
 Swalayan
-- Lain-lain 67,200 -- --
Total 719,612 140 345,227

Source: Data Consult



Supermarket space in Jakarta

The growth in the supermarket space in Jakarta once stopped as a result of the May 1998 mayhem, which resulted in a considerable number of supermarket outlets being looted, vandalized, and torched. Matahari, for example, saw no less than six of its outlets vandalized, some of which were torched. Similarly, Ramayana saw 14 of its outlets destroyed, some of which were torched. As a result of the May 1998 mayhem, the combined space of supermarket space in Jakarta and its surrounding areas dropped by 3%.

During the May 1998 social riots, Hero --the largest supermarket network in Indonesia-- saw 16 of its 43 outlets vandalized and looted, of which 6 were torched, and suffered Rp 90 billion in financial losses. Another supermarket network financially harmed by the anarchic incidence was Yogya, which lost two outlets in Jakarta (one in Klender, East Jakarta and the other one in West Jakarta). The other supermarkets suffering financial losses from the mayhem were the Sabar Subur Supermarket (in Tangerang), the Tomang Tol Supermarket (in West Jakarta), and Agung Shop (in Bekasi).

Of late, quite a number of supermarkets have conducted some renovation. Hero, for example, has completed the renovation of some of its outlets and re-opened them, e.g. Hero Mall Ambassador and Hero Mall Puri Indah. Since the management of Matahari's supermarket was separated from that of its department store in mid-1999, the Matahari supermarket network has grown rapidly with the opening of a number of new outlets. In Jakarta, Matahari Supermarket only has 7 outlets (at Atrium Senen, Melawai, Proyek Senen, Cipulir Plaza, Pondok Gede, Axion Plaza, and Klender).

Indo Supermarket, a newcomer in the supermarket business which did not exist until 1997, has taken over a number of outlets formerly owned by Gelael, i.e. the ones at Arion Plaza, Gedung PP Plaza, and Metropolitan Mall. Super Indo currently has a total of 15 outlets, of which seven are located in Jakarta and the other eight in Tangerang, Bekasi, Depok, Bandung, Yogyakarta, and Surabaya.
Table -- 5
Estimated supermarket space in Jakarta, 1996-2000

Year Jakarta North West South East Total
 Jakarta Jakarta Jakarta Jakarta

1996 58.200 24.205 50,555 76,050 22,100 231,110
1997 58.200 24.205 53,555 86,050 22,100 244,110
1998 58.200 32.705 50,200 76,500 19,900 237,505
1999 58.200 32.705 69,417 99,550 32,400 283,272
2000 64.200 34.200 67,000 101,050 34,900 301,350

Year Growth
 (%)

1996 --
1997 5.6
1998 -2.7
1999 19.3
2000 6.4

Average growth 7.2

Source: Data Consult



South Jakarta has the most supermarket outlets

With its people having higher economic potentials than those in other Jakarta areas, South Jakarta has the most supermarket outlets. As per the end of 1999, this mayoralty had 36 supermarket outlets with a combined space of 99,500 square meters. North Jakarta only had 11 outlets with a combined space of 32,705 square meters, Central Jakarta 18 outlets (58,300 square meters), West Jakarta 20 outlets (60,417 square meters), and East Jakarta 16 outlets (32,400 square meters).
Table -- 6
Supermarket networks and space in south Jakarta, 1999

 Name of supermarket Number of Space
 outlets [(m.sup.2)]

HERO 18 54,500
Super Indo 2 8,000
Matahari Supermarket 2 7,500
Golden Truly 1 5,700
Gelael 2 5,700
Alfa 1 5,000
Kemchicks 1 2,600
Hari-Hari Ps. Swalayan 1 2,500
Jayasera 2 2,250
Mitra Toko Diskon 2 1,800
Primadona 1 1,500
Metro 1 1,500
Melawai Ps. Swalayan 1 1,000
Permata 1 700
Total 36 99,550

Source: Data Consult



In the area of Botabek (Bogor-Tangerang-Bekasi), which serves as a buffer zone for Jakarta, the supermarket business apparently has been expanding more rapidly to the west of Jakarta (i.e. to Tangerang) than to Bogor (to the south of Jakarta) or to Bekasi (to the east of Jakarta). As per the end of 1999, Tangerang had 14 supermarket outlets with a combined space of 34,800 square meters, Bogor 11 outlets (20,750 square meters), and Bekasi 11 outlets (26,100 square meters). Although Bogor and Bekasi had the same numbers of supermarket outlets, the combined space of those in Bekasi was larger than that in Bogor. One reason for this was that the expansion of residential areas in Bekasi had been very rapid, making it easy for retailers to lease space for their outlets.
Table -- 7
Supermarket networks and space in Botabek, 1999

Name of supermarket Number of Space
 outlets [(m.sup.2)]

Bogor area 11 20,750
Mega M 2 6,000
Alfa 1 3,500
Super Indo 1 2,500
HERO 2 2,200
Matahari Supermarket 1 2,000
Ramanda 1 1,500
Mawar 1 1,500
Mitra Toko Diskon 1 800
Jayasera 2 750
Tanggerang area 14 34,800
Matahari Supermarket 1 8,500
HERO 2 6,500
Super Indo 1 4,000
Tomang Tol 2 3,500
Agung Shop 2 3,500
Metro Supermarket 1 2,500
Ramanda 1 2,500
Jayasera 2 1,500
Subur 1 1,500
Mitra Toko Diskon 1 800
Bekasi area 11 26,100
HERO 2 7,500
Rama 2 4,000
Matahari Supermarket 2 4,000
Mitra Toko Diskon 2 4,000
Superindo 1 3,400
Naga 1 2,000
Jaayasera 1 1,200

Source: Data Consult



Sales turnover of supermarkets up 19.9%

The total domestic sales turnover of supermarkets was booked at Rp 5.9 trillion for 1999. Over the period of five years (1995-1999), it grew at an average annual rate of 21%, from Rp 2.7 trillion in 1997 to Rp 59 trillion in 1999, with the rate being highest in 1998, namely 30.2% The growth in the sales turnover was the most rapid in 1998 probably because of the monetary crisis, which sent the value of the rupiah declining and the prices of goods sold at supermarkets increasing.
Table -- 8
Estimates sales turnover of supermarkets in Indonesia, 1995-1999

 Indonesia Jabotabek
Year Sales Growth Sales Growth
 (Rp'billion) (%) (Rp'billion) (%)

1995 2,766 -- 1,859 --
1996 3,206 15.9 2,090 12.4
1997 3,629 13.2 2,281 9.1
1998 4,735 30.5 2,969 30.2
1999 5,900 24.6 3,799 27.9
Average growth 19.9

Source: Data Consult



Hero and Matahari, the two largest supermarket networks in the country, together account for 40% of the total domestic sales turnover of supermarkets. For 1999, Hero's sales turnover was around Rp 1.5 trillion or 25% of the total while Matahari Supermarket's was Rp 0.9 trillion (16%).
Table -- 9
Sales turnover of several supermarket, 1999

 Supermarket Sales Share
 (Rp'billion) (%)

HERO 1,492 25.3
Matahri Supermarket 912 15.5
Alfa 789 13.4
Super Indo 360 6.1
Ramayana Bazaria 330 5.6
Gelael 227 3.8
Golden Truly 99 1.7
Lain-lain 1,691 28.7
Total 5,900 100.0

Source: Data Consult



A recent survey by Data Consult into a number of Jakarta supermarkets reveals that meat and fish account for the largest portion of the 1999 total sales turnover, namely 15%. One reason for this may have been the fact that the prices of goods were generally higher than the pre-crisis level while the people's purchasing power was still weakened by the crisis, forcing them to give priority to the purchase of staple items. Consumers chose to shop for staple items at supermarkets because of the guaranteed quality of products, shopping comfort, and good service.
Table -- 10
Estimated sales turnover of supermarkets by type of goods, 1999

Type of goods Sales Share in total
 (Rp'milyar) (%)
Meat, fresh fish 886 15.0
Staple food 625 14.8
Beverages 625 10.6
Vegetables, fresh fruits 614 10.4
Dry food 519 8.8
Cosmetics 443 7.5
Cleaning materials 437 7.4
Milk & processed milk 413 7.0
Electricc appliance 242 4.1
Chocolate & candy 212 3.6
Parfume 171 2.9
Canned food 165 2.8
Cooking spice 100 1.7
Medicines 94 1.6
Paper goods 6 0.1
Writing materials 6 0.1
Others 94 1.6
Total 5,900 100.0

Source: Data Consult



Pattern of geographical distribution of modern retailers

At the initial stage of their growth, supermarkets were found only at certain places, namely at shopping centers or at general trading centers. Generally, these shopping centers were located in the vicinity of public areas, business districts, hotels, and residential areas. In Jakarta, shopping centers have emerged and grown in various areas such as Blok M, Pasar Baru, Segitiga Senen, and Menteng.

With the rapid economic growth in Jakarta, as marked with the expansion of residential areas to its outskirts, more and more supermarkets outlets were established in Jakarta, especially along the lines where the new residential areas border with one another. At the subsequent stage, the supermarket business expanded to the growing suburban areas around Jakarta not only because of the policy on developing residential estates in such areas but also because of the competition pressures among retailers. Due to these competition pressures, every retailer devised its own way of securing a market share. One way was to open outlets as close as possible to where the consumers lived so as to cut their habit of going to shopping centers or business districts in downtown areas for shopping purposes.

The strategy to expand to residential areas by opening outlets whose size is adjusted to the requirements of the local customers has proven to be very effective. Therefore, at the next stage, it is this strategy that has been dominant among retailers, and they carry it out by establishing minimarkets. With a small space, a minimarket can improve efficiency and keep operating costs low in areas where a supermarket cannot such as electricity, air-conditioning equipment, promotional activities, and others. Furthermore, with the application of the franchise system by a number of minimarket networks, the expansion of supermarkets to residential areas is now no longer as intensive as it used to be.

Unlike supermarkets and minimarkets, hypermarkets like Carrefour choose to operate at strategic locations inside the city. Among such strategic locations are those that are close to suburban areas with easy access to the toll road. Operating at such a location, a hypermarket can cut the habit among the local residents of going out of their residential area for shopping purposes. This strategy has been adopted by, among others, Makro, which has opened an outlet at Kampung Rambutan and another one at the East Bekasi toll gate.

Shopping centers attractive

The shopping center (or mall) business is a highly competitive property business. However, shopping centers or malls have remained the most attractive to supermarkets and department stores as can be seen from the fact that many supermarkets and department stores are the anchor tenants at such facilities. A number of famous department stores have expanded their business by opening supermarket outlets at shopping centers and, by so doing, helping develop these facilities into one-stop shopping centers.

Despite the sharp depreciation of the rupiah against the US dollar during the current crisis, shopping centers have not applied the current rupiah-US dollar exchange rate to their space lease fee very rigidly. On the other hand, they have generally applied a reduced exchange rate. For space lease fees and service charges, the reduced exchange rate averages Rp 4,000 to the US dollar. This strategy is part of their attempt at keeping their anchor tenants from leaving them or from cutting down on the space they lease.
Table -- 11
Shopping centers in Jakarta, 1999

 Name of Location Commencement Space
 shopping center of operation (m2)

North Jakarta:
Pasar Pagi Mangga Dua Mangga Dua Raya 1989 42.000
Kelapa Gading Plaza Kelapa Gading 1990 25.000
ITC Mangga Dua Mangga Dua Raya 1993 29.000
Sunter Mall Danau Sunter 1994 25.000
Mega Mall Pluit Pluit Indah 1996 120.000
Mal Mangga Dua Mangga Dua Raya 1995 45.000
Plaza Koja

West Jakarta:
Hayam Wuruk Plaza Hayam Wumk 1980 23.580
Glodok Plaza Pinangsia 1987 42.000
Jayakarta Plaza Hayam wuruk 1987 35.000
Lokasari Harmoni 1988 14.000
Slipi Plaza Slipi 1990 12.000
Mal Ciputra Jakarta S. Parman 1993 49.000
Mal Puri Indah Puri Indah 1998 72.000

Center Jakarta:
Sarinah MH Thamrin 1965 11.000
Sarinah MH Thamrin 1972 10.000
Proyek Senen Senen Raya 1972 10.000
Duta Merlin Gajah Mada 1982 38.000
Golden Truly MH Thamrin 1984 3.500
Golden Truly Harmoni Suryopranoto 1985 6.000
Metro Pasar Baru Pasar Baru 1985 16.000
Harco Pasar Baru Pasar Baru 1986 20.000
Keris Gallery Rasuna Said 1987 10.000
Kings Plaza Pasar Baru 1988 20.000
Istana Pasar Baru Pasar Baru 1990 20.000
Plaza Indonesia MH. Thamrin 1990 60.000
Metro Atom Pasar Baru Pasarbaru 1991 20.000
Golden Trully Gunung Sahari 1991 20.000
Atrium Senen Senen Raya 1992 32.250
Galeria Matahari Pasar Baru 1993 10.000
ITC Roxy Mas Hasyim Ashari 1995 30.000
Plaza Senayan Asia Afrika 1995 60.000

South Jakarta:
Pasaraya Y&T Sultan Agung 1991 27.000
Pasaraya B&B Iskandarsyah II 1989 42.000
Ratu Plaza Sudirman 1980 --
Aldiron Plaza Melawai 1989 --
Golden Trully Dw
-- Mampang Kapten Tendean 1989 6.000
-- Fatmawati Fatmawati 1989 12.000
-- Blok M Blok M 1986 5.700
Melawai Plaza Melawai 1984 10.000
Blok M Mall Hasanudin 1993 18.000
Plaza Cipulir Cileduk Raya 1993 18.000
Kalibata Mall Pasar Minggu 1991 --
Pondok Indah Mall Pondok Indah 1991 40.000
Blok M Plaza Panglima Polim 1991 30.000
Bintaro Plaza Bintaro 1993 25.000
Super Ekonomi Grosir Tole Iskandar 1995 --
Plaza Kebayoran Kyai Maja 1992 15.000
Mega Pasara (Seibu) Iskandarsyah II 1995 25.000
Mal Ambasador Setiabudi 1998 92.000

East Jakarta:
Kramat Jati Indah Raya Bogor -- 21.000
Arion Plaza Pemuda 1990 12.000
Pondok Gede Plaza Pondok Gede 1994 30.000
Jatinegara Plaza Jatinegara 1995 20.900
Panjaitan Plaza DI Panjaitan 1995 17.000

 Name of
 shopping center

North Jakarta: Business
Pasar Pagi Mangga Dua group
Kelapa Gading Plaza
ITC Mangga Dua
Sunter Mall Napan
Mega Mall Pluit Summarecon Agung
Mal Mangga Dua Sinar Mas
Plaza Koja Gajah Tunggal
 Indoglobal Land
West Jakarta: Sinar Mas
Hayam Wuruk Plaza
Glodok Plaza
Jayakarta Plaza
Lokasari Gunung Sewu
Slipi Plaza Intra Maju Jaya
Mal Ciputra Jakarta Pudjiadi & Sons
Mal Puri Indah Bimantara
 Pembangunan Jaya
Center Jakarta: Ciputra
Sarinah Metropolitan
Sarinah
Proyek Senen
Duta Merlin BUMN
Golden Truly BUMN
Golden Truly Harmoni Pembangunan Jaya
Metro Pasar Baru Harapan Sentosa
Harco Pasar Baru Golden Truly
Keris Gallery Golden Truli
Kings Plaza Yakin
Istana Pasar Baru n.a
Plaza Indonesia Batik Keris
 n.a
 Metropolitan
 -- Gajah Tunggal
 -- Sinar Mas
 -- Bimantara
 -- Rajawali
 -- Ometraco
 -- Dwi Golden G.
Metro Atom Pasar Baru Yakin
Golden Trully Dwi Golden Graha
Atrium Senen Ongko
Galeria Matahari Matahari
ITC Roxy Mas Sinar Mas
Plaza Senayan Era Persada

South Jakarta:
Pasaraya Y&T ALatif Corp.
Pasaraya B&B ALatif Corp.
Ratu Plaza Ratu Sayang
Aldiron Plaza Aldiron Hero
Golden Trully Golden Graha
-- Mampang
-- Fatmawati
-- Blok M
Melawai Plaza n.a
Blok M Mall PT Bangunmustika I.
Plaza Cipulir PT Bangunmustika I.
Kalibata Mall n.a
Pondok Indah Mall Ciputra
Blok M Plaza Pakuwon Jati
Bintaro Plaza Pembangunan Jaya
Super Ekonomi Grosir Matahari
Plaza Kebayoran Hero Group
Mega Pasara (Seibu) ALatif Corp.
Mal Ambasador Sinar Mas Group

East Jakarta:
Kramat Jati Indah Bimantara
Arion Plaza Arion Paramita
Pondok Gede Plaza Inkopau
Jatinegara Plaza Gunung Sewu
Panjaitan Plaza Gunung Sewu

Source: Data Consult



A line of business now open to foreign investment

For a long time, the Government protected the retail business sector from the entry of foreign investors, first with Government Regulation No. 19 of 1988, which expressly stated that foreign investors were banned from doing business in this sector, and subsequently with Presidential Decree No. 31 of 1995, which consistently closed the retail business sector for foreign investment. Under these pieces of legislation, foreign investors were allowed to do business in Indonesia's retail business sector only as franchisers or as technical assistance providers.

The fact that Indonesian economy sank due to the crisis has forced the Government to submit to the IMF's wish that the retail business sector be fully opened to foreign investors. As a result of the signing on 15 January, 1998 of the Letter of Intent with the IMF, of which one of the points says that the Indonesian Government agrees to lift the ban on foreign investors doing business in wholesale and retail trading, the requirements concerning the licensing of foreign retailers are now the same as those in the case of local large-scale retailers and modern markets as can be seen from Presidential Decree No. 99 of 1998.

It is this opportunity that has been made the best use of by foreign retailers, both those with established international reputation and medium-scale retailers from neighboring countries. As for large-scale international retailers, at least three of them have started their operations in Indonesia. Some others are still exploring the possibility of doing business here, but three of them have stated that they are prepared to commence operations in Indonesia as soon as the economic, social, political, and security situation in the country has started to improve. The three foreign retailers that are ready to commence operations in Indonesia are Giant of the United States, Casino of France, and Tesco of England. The three of them are leading retailers in their respective home countries, and they operate supermarket outlets.

As for medium-scale foreign retailers, the Investment Coordinating Board (BKPM) has issued licenses for at least two of them, namely PT Great Australia Bites and PT Point Break Indonesia. PT Great Australia Bites will invest some US$ 200 thousand in establishing a supermarket in Denpasar (Bali) with a projected annual sales turnover of US$ 750 thousand. The other one will invest US$ 250 thousand in setting up a department store in Jakarta with a projected annual sales turnover of US$ 750 thousand.

The latest legislation issued by the Government concerning the retail business opens up opportunities for foreign minimarkets to operate in Indonesia as can be seen from, among others, the provision which says that a foreign retailer wishing to do business in Indonesia should invest at least US$ 100,000. However, the provision stops short of stipulating the maximum or minimum number of outlets a foreign retailer can have with such investment. This means that a foreign retailer, by investing US$ 100,000, has an opportunity to establish, say, 10 outlets worth US$ 10,000 each.

To protect foreign retailers, the Department of Industry and Trade has issued a regulation which says that an outlet owned by a foreign retailer should have a minimum space of 10,000 square meters. The opportunity to have an outlet with a space of less than 10,000 square meters is still closed for foreign retailers because, otherwise, medium- and small-scale local retailers would be disadvantaged. However, such protection will likely lose its significance following the commencement of the AFTA free trade era in the year 2003.

Goods Procurement Systems

In the retail business, the widely applicable distribution pattern is one in which goods move from producers to large-scale distributors to small-scale distributors (wholesalers) to retailers. However, in the case of supermarkets, goods do not always come through distributors. Some supermarkets receive goods directly from producers, especially in the case where the producer and the supermarket belong to the same business group or in the case where the producer is a small-scale company (i.e. a home industry). As an illustration, PT Suba Indah, a producer of syrup products which belongs to the same business group as Hero, supplies its output directly to Hero supermarkets.

Supermarkets receive some goods on a cash basis and some others on a consignment basis. As regards the cash system, supermarkets generally pay for the goods at most one month following the date of receipt of the goods in the case of small-scale suppliers or cooperatives. In the case of large-scale suppliers, the payment generally takes place between two weeks and two months following the date of receipt of the goods.

Nowadays, supermarkets, minimarkets, and hypermarkets tend to offer low prices. The concept of service, comfort, and convenience now seems to be overshadowed by that of competitive prices. To be able to offer competitive prices, a retailer should cut the distribution channel. Unsurprisingly, therefore, some minimarket networks are able to offer efficient prices because they receive goods from producers or distributors that belong to the same business groups. Similarly, a retailer with a wide network can have a huge sales volume and, as such, it can have a strong bargaining position because it can deal directly with producers.

Prospects and conclusions

The rapid growth of the supermarket business in Jakarta for some years prior to the outbreak in mid-1997 of the monetary crisis was partly spurred by the mushrooming of modern shopping Centers such as plazas and malls, of which many supermarkets became the anchor tenants. However, the increasingly tight competition among Jakarta's retailers subsequently forced supermarkets to expand their business by establishing outlets in Botabek (Bogor-Tangerang-Bekasi), an region which serves as the buffer zone for Jakarta. Of late, the supermarkets in Botabek have started to face tough competition from minimarkets, which have continued to emerge one after another in every residential area. In Jakarta itself, the influx of foreign hypermarkets has increasingly undermined the already existing supermarkets' shares of the middle-upper market segments.

The competition among supermarkets and between supermarkets and other types of retailers has been leading to the adoption of a price competition strategy because the quality of service, comfort, and convenience are already nearly standardized. Famous supermarket networks generally choose to set the lowest possible prices in a bid to prevent their customers from switching to hypermarkets as well as to deny their competitors an opportunity to enjoy a normal profit margin in the short term. This strategy has enabled Super Indo, a supermarket network owned by the Salim Group, to expand rapidly by taking over other supermarkets. Super Indo has been able to sell the products produced by the companies owned by the Salim Group at minimum prices. The same is also true for Indomaret, a minimarket network owned by the Salim Group until very recently, which has been able to continue expanding under the franchise system. Recently, as has been mentioned earlier, the Indomaret minimarket network has been taken over by Bhakti Investama.

In such a tightly competitive situation, the supermarket business still has some prospects for growth because they are located at modern shopping centers, which are widely frequented by middle-upper level consumers. Besides, Data Consult predicts that Jabotabek's GDP will grow at an annual rate of 5.5% for the next five years, with the assumption that the social and political situation improves. The growth of Jabotabek's GDP will drive up the volume of purchases at modern retail outlets, more so with the ongoing shift in the people's lifestyle towards modern and efficient practices. In view of the above, the market size of supermarkets in Jabotabek can be projected at Rp 9.8 trillion for 2005. It is this potential that has encouraged foreign retailers to make preparations to develop Indonesia's retail business.
Table -- 12
Projected market size of suprmarket in Jabotabek
2001-2005

Year Market Size Growth
 (Rp'billion) (%)

2001 5,350 --
2002 6,324 18.2
2003 7,390 16.9
2004 8,552 15.7
2005 9,835 15.0

Source: Data Consult

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Comment:SUPERMARKETS BLOCKED BY MINIMARKETS AND HYPERMARKETS.
Publication:Indonesian Commercial Newsletter
Article Type:Statistical Data Included
Geographic Code:9INDO
Date:Apr 24, 2001
Words:8771
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