Euro Monitor International - Analysis

Euromonitor International - Analysis
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Retailing in Indonesia
Industry Overview | 07 Feb 2011
EXECUTIVE SUMMARY
Economic recovery lifts spending and relaunches market growth The year 2010 marked the revival of the Indonesian economy. Indonesian retailing showed an upwards trend, posting higher value growth compared with the previous year, performing even better after the global crisis passed. Higher disposable incomes resulted in consumers increasing their spending not only on daily necessities such as food and other grocery products, but also on non-essential items, such as clothing and other non-grocery products. In addition, continuous investment by major retailers during 2009-2010 was a push factor for positive growth. Although value growth and consumer purchasing power did not rebound to pre-crisis level, the growth in retailing in 2010 managed to lift the overall growth in retailing during the review period.
Continued outlet expansion from modern store-based retailers In 2010, modern store-based retailers in Indonesia poured more investment into expanding their presence in untapped areas across Indonesia. Major retailers increased their outlet penetration to reach developing cities outside Java island, such as Makassar and Denpasar. Grocery retailers led in terms of expansion, with convenience stores and hypermarkets driving this growth. Although traditional store-based retailers still dominated the Indonesian retail environment, they continued to experience a further decline in share as a result of the aggressive expansion of modern store-based retailers.
Non-grocery gradually takes grocery retail share As many modern store-based retailers in Indonesia continued to offer the widest possible range of products in order to increase traffic to their outlets and generate higher revenues, non-grocery sales continued to gradually take grocery retail share. The growing urban population in Indonesia led to growing sophistication amongst consumers, and resulted in increasing demand for and spending on non-grocery items, as well as basic grocery products such as food. In 2010, convenience stores such as Alfamart and Indomaret continued to expand their non-grocery product ranges. To support the World Cup in 2010, for instance, Indomaret obtained the license to be the official retailer of World Cup products in Indonesia, and distributed these products in its outlets.
Top retailers retain the lead in a fragmented market Retailing in Indonesia remained highly fragmented in 2010, with numerous traditional independent grocery and non-grocery stores sprawled across the archipelago. In 2010, the top five companies Sumber Alfaria Trijaya, Carrefour Indonesia, Indomarco Prismatama, Matahari Department Store and Hero Supermarket - maintained their leading positions and continued to shape retailing in the country. With the advantage of ample access to financial resources and existing strong networks, these companies (which proved to be less susceptible to the impact of the economic crisis in the economy) strengthened their positions further by conducting a variety of promotional activities and extending their service offerings.
Brighter outlook is expected as the Indonesian economy picks up Increased consumer confidence in 2010 was a positive sign for retailing in Indonesia. Low inflation and better than predicted GDP growth, coupled with increased spending across various product categories during the year, are expected to be carried forward into the forecast five years. It is expected that multinational and domestic retailers alike will continue their pursuit to develop the potential of retailing in Indonesia and will widen their scope to include expansion into other prospective areas outside Java, considering its large population and proportionately low retail penetration. Last but not least, the Indonesian governments apparent commitment to encourage competition in the market and to improve the infrastructure in the country also lends support to this expectation.
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KEY TRENDS AND DEVELOPMENTS

Economic conditions The Indonesian economy showed recovery, with 6% GDP growth in 2010. Due to its large domestic market and relatively modest dependence on exports, the country survived the global recession better than many large Asian countries, and continued on its growth track. Indonesias strong household consumption sustained economic growth when exports and investment slowed in 2009. In 2010, stronger prices for commodity exports and the gradual recovery of the global economy provided an additional boost to the Indonesian economy. Good harvests boosted farming income, whilst commodity exporters benefited from the surge in Chinas infrastructure investment. A lower than expected unemployment rate of 8% in 2010 signified the economic expansion taking place in the country during the year. Indonesia also saw a 1% decline in the poverty rate compared with the previous year. During 2010, the Indonesian government reduced its corporate tax rate from 28% to 25%. The government also allocated US$3.5 billion stimulus spending for infrastructure and tax breaks in 2010. The implementation of infrastructure spending, however, has been delayed, and the effect so far is marginal. Strong growth in foreign direct investment due to notable investment by foreign investors took place in 2010. Thanks to Indonesias solid economic performance, rating agencies improved the countrys ratings, and this increased investors confidence in Indonesia. The year 2010 also marked the Indonesian implementation of ACFTA (ASEAN-China Free Trade Agreement). The effect of this free trade agreement between Indonesian and China on the economy, nevertheless, was not significant at the time of writing this report. Current impact As the economy came back on track, Indonesian consumers increased their spending across product categories. Lower unemployment meant increased consumer purchasing power. Low- and middle-income consumers, who were most affected by the crisis, enjoyed a higher level of disposable income, and this boosted the performance of retail channels, as these consumers increased their purchases at stores. The conducive economic environment for foreign direct investment, which further drove the sprawling urban areas and the proliferation of modern retail brands across Indonesia during 2010 , resulted in consumers gaining more access to the products they wanted, and satisfied their shopping needs more easily. Similarly, the rapid revival of the Indonesian economy increased Indonesian consumers confidence in the future of the economy. Consumers started to look beyond daily necessities such as food, and increased their spending on other products. As more informed consumers with higher amounts of money to spend, they also began to consider other factors in their purchasing decision, not only focusing on price. Although grocery retailing still accounted for the bulk of retailing in Indonesia, it was apparent that the positive economy boosted the performance of non-grocery retailing. Non-grocery retailing gradually improved its standing in overall retailing, as Indonesian consumers had more than enough income to fulfil their grocery needs and increase their consumption of non-grocery products. Both domestic and foreign companies made their best efforts to capitalise on the Indonesian economic situation by continuing their outlet expansion and implementing various marketing strategies. Encouraged by the potential of major cities outside Java island, major retailers aggressively established a foothold and started to establish their brands. More foreign companies saw Indonesia as a big potential market during a sluggish performance in their home markets, and raced to enter the market by obtaining stakes in local companies. Lotte Group, a large Korean company, for example, acquired Makro Indonesia in the first quarter of 2010. Domestic companies, on the other hand, continued to improve their products and services to compete in the growing market. Besides outlet expansion, companies also adopted their own various ways to attract consumers. Some updated their image and changed their positioning to increase their competitiveness. Carrefour, for instance, converted some of its supermarkets under the Carrefour Express fascia into Carrefour Market, emphasising its fresh and healthy product offering. Other retailers on the other hand, such as Matahari Department Store, chose to widen their product ranges, in this case by adding a selection of more expensive items in its offering, in order to attract high-income consumers in addition to the existing low- to middle-income consumer base. Many retailers also aspired to take advantage of their existing presence to expand into other channels. Matahari Putra Prima, for example, continued its focus on expanding its Times bookstore fascia under its subsidiary.
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Outlook With the Indonesian central bank raising the countrys economic growth forecast to as much as 7% GDP growth in 2011, the outlook for the economy is positive in the forecast period. Strong household consumption is likely to sustain and underpin the growth of the Indonesian economy overall. An improvement in exports will lead to higher incomes, and consumer confidence will maintain the growth momentum during the forecast period. During the forecast period, due to the development of the private sector, the unemployment rate is also predicted to continue to experience an average 2% decline every year. This will positively affect the macroeconomic situation in the country and support retailing. In order to encourage domestic, and, most importantly, foreign investment in the country, the Indonesian government is expected to maintain its commitment to fiscal stimulus spending on infrastructure and tax breaks. Nevertheless, the governments lack of implementation and transparency will remain a concern for investors. Foreign direct investment in Indonesia, which has lagged behind that in neighbouring countries, is predicted to grow further as foreign investors gain more confidence in Indonesias future potential and healthy economic situation. It is, however, subject to the political situation in Indonesia. The countrys past history of incidents threatening the safety of foreigners in the country, such as bombings in several places in Indonesia, and the reputation of being one of the most corrupt countries, however, might still hinder growth. Moving into the forecast period, it is expected that ACFTA will lead to a more competitive retail environment in Indonesia. Grocery retailing will be less impacted due to the poor reputation of and low consumer confidence in products made in China. Chinese non-grocery products, however, will be more attractive, as they offer a much lower price compared with domestic products. This competition will have a slightly negative effect on the overall value of retailing. Future impact With the expected stronger economy, the forecast period to 2015 looks brighter for Indonesia. The growing economy will fuel the retail market, encouraging further spending and investment in the country. This will, in turn, continue the growth momentum of the overall economy. In the longer-term, Euromonitor International expects steady growth in retailing, in line with the growth in the economy. Retailing will continue to indulge Indonesian consumers growing demand for both grocery and non-grocery products. Retailers will continue to ride on the wave, expanding their territory to untapped areas in Indonesia, as consumers have greater purchasing power. With vast geographic areas and a large domestic market, Indonesia will continue to be an attractive avenue for growth in the eyes of retailers. It is expected, therefore, that major retailers will continue to invest in and grow their retail businesses in the country. Following the significant increase in spending seen since the economy started recovering, Indonesian consumers will continue to increase their spending on retail goods. Indonesian retailing is still heavily dominated by traditional channels, and penetration of modern outlets in rural areas of Indonesia is still relatively low. Investment by retailers in these areas will lead to an increase in consumer spending during the forecast period. The strong economy and the Indonesian governments determination to support both domestic and foreign investment will increase retailers confidence in pouring more investment into Indonesia. During the forecast period, it is expected that, in addition to prominent retailers which sustained their investment during 2008-2009, more companies will start to invest in growing their businesses in Indonesia. As first-mover advantage is deemed important in capturing new markets, retailers will tailor their strategies to ensure their market shares. With a good economic outlook ahead, and the penetration of modern retail outlets to rural areas outside Java, modern channels will continue to gain share from traditional channels. Within grocery retailers, for instance, convenience stores and hypermarkets will gain favour from consumers, at the expense of other grocery retail channels, namely warungs (traditional food kiosks) and wet markets. Supermarkets, on the other hand, will lose share to hypermarkets, as the latter is perceived to be a more interesting one-stop-shopping experience, as people treat shopping as a family pastime. Within non-grocery retailers, chained specialist retailers, benefiting from their stronger brand names, will attract middle-income consumers. During the forecast period, grocery retailers are expected to continue expanding the range of goods offered. This will affect non-grocery retailers, taking some of its share. Retailers targeting lower-income consumers will be most affected by the low-priced items at grocery retail stores. Retailers with a high price-positioning will not be affected by this trend, due to the gap in product quality and value-added offerings, such as brand names and upscale store settings. Mid-priced retailers, on the other hand, will be cautious, and treat this as a motivation to improve their products and services, giving consumers more for their money.
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Internet retailing Internet retailing in Indonesia started to gain significance from 2007, although sales remained negligible within overall retailing. Internet security has been a major problem in the country, with frequent online credit card fraud. Both consumers and retailers alike are cautious about credit card online payments, and still avoid them whenever possible. In Indonesia, credit card ownership is also still limited to higher-income consumers. In 2008, there were 10 million credit cards in circulation in the country; a very modest number compared with the total population of 230 million people. The most common online transactions are still through bank account transfers, followed by cash on delivery. Because transfers take more time, and are not as convenient as payment by credit card, internet retailing in Indonesia, despite its rapid growth, has a hard time reaching its potential size. In 2010, many major store-based retailers utilised their online presence to simply communicate with consumers, providing information regarding their brands and retail stores. Others used it as a virtual catalogue, and only accepted orders over the telephone. In 2010, internet retailing finally made its mark; albeit covering limited target consumers and specific product types. Although concerns about security remained, more and more consumers, mostly people with little time or little access to physical stores, started to consider online stores to shop for various products. Bank transfer transactions were still most prevalent, although a few prominent retailers pushed the secure transaction systems on their e-commerce sites. The reputation for online fraud was still deep in society, and people still avoided online purchases if they had better options. High involvement and information products dominated internet retailing. Airline tickets and media products were the most developed during the review period. The internet penetration rate is also low in Indonesia; approximately 13% of the population at the end of 2009. Internet subscription, similarly, is minimal, with about seven million subscribers compared with a population of 230 million. Although volume sales of computers increased by 22% in 2010 compared with the previous year, driven by sales of laptops and netbooks, access to the internet is still mainly driven by the use of public Wi-Fi and warnets (internet kiosks) around the country. Despite the Indonesian governments efforts to promote the use of online services, consumers have not responded positively to the various internet services offered, and instead have focused more on mobile services. Current impact Indonesian consumers are starting to embrace internet retailing, as it offers practicality and easier access to products which are not available through store-based retailers. A growing number of consumers with little time to shop, as well as consumers with limited access to bricks-and-mortar stores, use online stores to satisfy their shopping needs. Although internet retailing in Indonesia still bears its reputation as insecure and unreliable, more consumers are willing to give it a chance due to the convenience of getting the goods they want. The fact that internet retailers have tried to improve their product offerings and services encouraged customers to repeat their visits to and purchases through online stores. Urbanisation in Indonesia has created more demand from consumers, and growth is even faster than the pace at which store-based retailers are expanding their outlets. Penetration of modern store-based retailers is still low outside of the five major cities in Indonesia, Jakarta, Surabaya, Bandung, Semarang and Medan. Internet shops offer consumers outside these areas convenience to get the products they need. The increased product offerings and regular promotions by established internet retailers also encouraged busy consumers to make more purchases online. In 2010, grocery products did not exist in internet retailing. Within non-grocery internet retailing, only media products internet retailing (books and audio-visual products) stand out. Other internet retailing, such as consumer electronics and beauty and personal care, exists, but sales are negligible. Traditional grocery retailers such as other grocery retailers and independent stores, namely warungs (food kiosks) and toko kelontong, as well as fresh markets, are present in every corner of Indonesia, and consumers can easily get supplies close to where they live. This eliminates the necessity for online grocery shopping. The fact that many wealthy households have housekeepers at home also makes shopping easier for consumers with busy lifestyles. In recent years, due to the development of modern retail stores around major cities, especially in big shopping malls, shopping has turned into a favourite pastime. Families enjoy grocery shopping and shopping for treats at hypermarkets, for instance, as family recreation. Internet shopping serves only to meet needs which are not met by store-based retailers. Media products internet retailing has developed well in Indonesia due to the lack of bookstores in small cities across Indonesia. Online portals providing product price comparisons between internet retailers do not yet exist in Indonesia. Most consumers rely on search engines and word-of-mouth from friends and relatives. Social media has been increasingly popular in the country lately, and is also used as a marketing tool by some companies. The growth in internet retailing has started to attract some companies to invest more in their online businesses. Gramedia, the leading bookseller, for example, has announced the grand launch of its new online store address to increase consumer
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awareness and encourage more visits to its online store. Despite the narrower product range than its bricks-and-mortar stores, there is an apparent effort by the retailer to maintain a constant update of product selections and competitive prices. Internet retailing in Indonesia is dominated by store-based retailers internet sites, and not by pure e-commerce companies. A well-established brand name is critical to succeeding in internet retailing in the country, as early adopter consumers need assurance of the reliability and security of purchasing products online. Internet retailers with a physical presence of chained stores have a significant advantage over pure e-commerce companies. Unlike the pure e-commerce companies, these internet retailers also benefit from their strong supply chains and distribution networks. These enable them to provide a superior service to their customers. Products offered through online stores are generally priced lower than products sold through retail stores. However, since the price difference is not significant, and internet retailing only contributes modestly to the overall retail market, it has not yet had any effect on overall pricing in retailing. Most internet retailers still place more emphasis on their distinguished product offering, and cater their products to consumers with limited access to physical retail stores. Internet retailing still has plenty of room for growth and expansion in Indonesia. With growing demand for convenience amongst Indonesian consumers, it is expected that more people will consider purchasing products online. The biggest archipelago with the fourth biggest population in the world, Indonesia is a strong potential market for internet retailing. Poor infrastructure and a lack of government control in terms of internet regulation, however, will be a challenge to achieving the potential of internet retailing. Naramitha Tarra, for example, has taken the advantage of the internet to meet demand for audio-visual products amongst consumers living a distance from its Disc Tarra outlets across Indonesia. Accounting for 10% of its total retail sales, internet sales have become an important part of the retailers business. Internet retailing is one way for companies in Indonesia to grow their businesses faster than they could by opening physical retail stores, which takes a much longer time and major capital investment. Outlook Internet retailing is expected to continue its rapid growth, albeit maintaining its small share within retailing due to various challenges in Indonesia. Unfulfilled product needs and untapped areas within Indonesia are opportunities for internet retailing. Whilst retail stores will continue to penetrate further into Indonesias second- and third-tier cities, internet retailers will continue to expand their consumer base by providing a wider product range and offering better prices compared with store-based retailers. Moving into the forecast period, internet penetration rates are expected to increase. Euromonitor International predicts a strong increase in computer ownership, as computers is expected to enjoy a 20% value CAGR in the next five years. Sales of netbooks are expected to surge, with a 39% value constant CAGR. Internet subscription and broadband penetration in Indonesia, however, are expected to be modest due to relatively high subscription fees for the majority of Indonesian consumers, who are in the low- to middle-income bracket. Internet access through public Wi-Fi in foodservice areas and warnets (internet kiosks) will continue to be more popular. Future impact The rapid growth of internet retailing will push the development of overall retailing in Indonesia. The availability of various products online will intensify the competition within retailing over the next five years to 2015. Store-based retailers will not only compete with other store-based retailers, but also with internet retailers. Internet retailing has no boundaries, and allows for lower operating costs, as well as easy set-up. This will make it easier for internet retailers to maintain a healthy profit margin, whilst offering a better price. As a result, store-based retailers will also be pressed to accelerate their outlet expansion in the country. The development of internet retailing in Indonesia will not result in consumers shunning store-based retailing. Although it is expected to grow much faster than store-based retailing, internet retailing will still cater to specific groups of consumers those with low access to physical stores, or those with limited time to shop or specific types of products, such as unique products or better prices. Moreover, due to the sociable nature of Indonesians, retail stores will still frequently be visited, as they serve not only as places to shop, but also to meet people and be seen. Bargaining for the best price is part of Indonesian culture. The majority of Indonesian consumers will still find shopping at stores more satisfying than simply purchasing products online. Over the forecast period it is not predicted that internet retailing will cause store-based retailers to close or reduce the number of stores to save money. Although internet retailing is expected to maintain a high growth rate during the forecast period, the scale of the business is too small to impact store-based retailers in general. Internet retailing is still at an early stage in Indonesia, and many consumers are still sceptical about its reliability and security. It will also take time for
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internet retailing to reach lower-income consumers (the bulk of Indonesian consumers), who have limited access to private internet access in their homes, and rely instead on warnets or internet kiosks. As internet retailing becomes more visible, it is expected that more retailers will start to incorporate it into their business strategies. For large retailers with an expansion strategy to penetrate untapped areas of Indonesia, they will continue to concentrate more on building their retail stores, whilst gradually extending their internet retail arms. In the next five years, internet retailing will affect growth in specific channels within non-grocery retailing to some extent. Internet retailing will thrive in product types with low penetration in the country. Besides media products, home and garden, as well as electronics and appliance products, for instance, will show faster growth within internet retailing compared with other products. Due to a lack of demand for grocery products online, grocery retailers are not expected to see growth in grocery internet sales over the forecast period. Grocery retailers will continue to improve their products and services, whilst focusing on extending their consumer base through outlet expansion. With internet retailing starting to show some significance in 2010, it is predicted that the years to 2015 will mark the continuous growth of internet retailing in the country. Internet providers might be able to offer better rates to gain more subscribers, resulting in a higher internet penetration rate. With some improvement in online security and infrastructure, internet retailing will continue to expand its consumer base and grow its small base within Indonesian retailing. Retailers with an online presence in 2010 will strengthen their positions and establish trust amongst consumers. In order to maintain positive momentum and achieve an optimum sales performance, it will be beneficial for retailers to start early and continue to nurture the development of internet retailing, updating their offering to suit consumers needs. Government regulation Government intervention plays an important role in shaping the retail environment in Indonesia. Following the issuance of several regulations to ease the entry of foreign firms and capital into Indonesia, foreign retailers have taken the country by storm. This has been seen through the establishment of local subsidiaries, such as Carrefour Indonesia, as well as the increasing share ownership in local retail companies, exemplified by the increasing stake of Dairy Farm International Holdings in local company Hero Supermarket. The rapidly strengthening role of foreign retailers in the country towards the end of the review period required the government to take stringent measures. The Indonesian government has launched specific regulations regarding retailing in the country. Following protests from traditional retailers, who felt disadvantaged by the entry of numerous modern retailers, the government enacted a number of policies and regulations concerning the establishment of modern retail outlets. Nonetheless, adherence to these regulations remained low at the end of the review period, as the implementation and supervision of these regulations was not strong enough. Understandably, government regulations are in many ways failing to control the existence of modern retailers, and small traditional retailers are becoming vulnerable to substantial competition. Carrefour Indonesias takeover of the local company Alfa Retailindo in 2009 has invited a great deal of controversy in the retail market, and tested the Indonesian governments stand on encouraging foreign investment whilst protecting domestic companies. In 2010, as it was deemed a monopoly, the Indonesian Business Competition Supervisory Commission (KPPU) took the case to the Supreme Court. Carrefour won the appeal, but this was followed by KPPUs re-appeal of the result, reinstating its order for Carrefour to sell its stake in Alfa Retailindo. In April 2010, finally the case was dropped, after a local conglomerate, Para Group, took 40% ownership of Carrefours share in Alfa Retailindo. In 2010, the Indonesian government still ruled policy on foreign direct investment, excluding investment in grocery retail outlets with an area of less than 1,200 sq m. This prevented foreign entry into the growing area of convenience stores and small supermarkets. The government also prohibited the opening of 24-hour convenience stores as a protective measure against the declining share of traditional grocery retailers, namely other grocery stores (warungs/kiosks) and independent stores. Considered beneficial in terms of developing entrepreneurship within society, franchises and direct selling are strongly encouraged by the government. In 2010, the government transferred the authority to issue the approval of new direct selling company registrations to the head of BPKM (Investment Coordination Body) to ensure a more efficient and faster process. Current impact Government policy to regulate retailing in Indonesia has proven to be effective in controlling the level of foreign ownership in Indonesian retailing, whilst at the same time still providing a good return on investment. In 2010, foreign companies such as Carrefour, Dairy Farm International and Delhaize derived a significant part of their total company sales from Indonesia through their local subsidiaries.
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The limitation on foreign companies operating retail outlets with an area of less than 1,200 sq m has left domestic companies dominating small grocery retailing. The fastest growing fascias in convenience stores, Alfamart and Indomaret, are locally-owned, fuelled by franchising systems. In 2010, foreign companies focused their attention on hypermarkets and supermarkets within grocery retailing, and other formats within non-grocery retailing. Concern has been expressed by traditional wet market sellers that the proliferation of modern grocery retail stores all over Indonesia has negatively affected their shares, as the distance between their stores and convenience stores, in many cases, is very small. However, the Indonesian government has not attempted to issue any other regulations, other than encouraging such sellers to increase their competitiveness, for instance through renovation of their stalls. Some district officials have stopped issuing permits allowing the opening of new convenience stores in their regions, but the central government has not shown the same level of support up to now. Indonesian consumers benefit from the current government regulation in the country. Healthy competition amongst retailers results in better products and services for consumers. Growing foreign investment will help to develop Indonesian retailing. The support lent by the Indonesian government to growing modern trade channels drove higher value sales in retailing. Traditional grocery retailers reacted by extending their product offering, and some upgraded the faades of their kiosks or stalls, as well as maintaining lower prices. Currently still accounting for the bulk of Indonesian retailing, many traditional grocery retailers will still have the opportunity to sustain themselves in the midst of the expansion of modern grocery retailing, and its increasing trend across Indonesia. Outlook In the coming years, the Indonesian government will continue to encourage foreign investment in the country in order to support the countrys stronger economy. It is predicted that the regulations related to retailing will be in favour of, and not against foreign companies. Similar to what they did by increasing the maximum foreign ownership of direct selling companies, the government, in the near future, is expected to further relax certain regulations and make it easier for foreign companies to enter the Indonesian market. In order to protect traditional retailers from the rapid growth of modern retailers in the country, and to respond to concerns from the Indonesian Traditional Market Association (APPSI), the Indonesian government will also continue to extend its support in the form of financing and guidance to companies in improving their businesses. For instance, it will continue to help sellers which are revamping or rebuilding traditional markets. The government might also continue to further limit the development of modern grocery retail stores to areas without a prominent traditional market presence, such as maintaining the policy to prohibit modern retailers from operating 24-hours. Following ACFTA implementation, it is also expected that the government will continue to adjust its policy, including the taxation on various industries, according to its future bilateral agreements with China. Future impact Due to changing government regulation, Indonesian retailing will become more dynamic and competitive in nature. The increasing presence of foreign companies in Indonesian retailing, thanks to more flexible regulation, will stimulate domestic companies to further improve their product and service offering. With much more experience in developed markets overseas, foreign retailers will bring value in terms of enriching the Indonesian retail market. Competition between traditional and modern retailers, especially in grocery retailing, will in fact help to shape the Indonesian retail market to gradually reflect a good balance between traditional and modern retailing. With less involvement of the government in restricting growth in modern retailers, the retail market will move along with economic development to reflect a more sophisticated country. It is expected that the number of traditional grocery retailers will continue to decline, as they close outlets due to the competition from modern grocery retailers, with their aggressive expansion across Indonesia. As the Indonesian government has eased its regulation on foreign direct investment, Euromonitor International expects a gradual increase in the number of foreign companies entering retailing between 2011 and 2015. Indonesias standing as having the fourth biggest population in the world, with very low penetration of modern retail stores, will make it look very attractive to foreign investors. It is expected that with the Indonesian government proving its commitment to support foreign direct investment through its policies, retailers will gain more confidence and increase their stakes in their Indonesian operations. Private label During the review period, more private label products were introduced by retailers, and have since gained significance in terms of sales. The economic crisis encouraged consumers to be more careful in their spending, and increase the take-up
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of private label brands, which generally offer better value for money. In 2010, retailers continued to expand their private label ranges, focusing on the growing categories within their stores. In 2010, private label existed in both grocery and non-grocery retailing. However, it only accounted for a small share of value sales. Generally, it is presented as a simpler version of the leading brands, and is only available in one variant. Most private label brands are positioned as lower-priced, and are offered only by prominent retailers, which outsource production to large manufacturers with extra capacity. Hypermarkets such as Carrefour and Giant led the development of private label within grocery retailing. Emphasising growing categories such as processed food and tissue and hygiene products, they expanded their product offering further in 2010. Because of their strong retail brand names and foreign origin, consumers are confident about Carrefour and Giants private label brands, and take them into consideration when deciding their purchases. By widening their private label product ranges, the two retailers also increased consumers exposure to these brands, thereby increasing their sales. Private label also started to emerge within non-grocery retailing. Focusing on low involvement products, non-grocery retailers offered private label products to increase their profit margins and complement their other offering in stores. Ace Hardwares own private label, for example, covers batteries and standard light bulbs. Non-grocery private label products, nevertheless, are still much smaller in size and underdeveloped compared with grocery private label products. Current impact As private label continues its growth, and such products gain exposure in retail stores, consumers are becoming more aware of their presence. With a wider product range across different categories, they are now considered during the buying process. Priced lower than the leading brands, with hardly any promotions or other marketing activities to support them, private label products are still perceived as lower-priced alternatives to the leading brands. Indonesian consumers still regard private label products as inferior in quality compared with the leading brands in the same category. Private label products distributed by prominent retailers are perceived as offering value for money, and attract mostly lower-income consumers. The majority of Indonesian consumers still put a great deal of emphasis on brand name, especially when it comes to grocery purchases. Non-grocery private label products are perceived in a similar way, although to a lesser degree. In very low involvement products such as cotton balls, for example, private label products excel. The growth in private label resulted in manufacturers maintaining competitive prices for their leading brands, and constantly improving their product quality. Promotions and marketing activities became more important than ever to distinguish their brands in the market. Despite the growing number of private label products introduced in the market, there is still more room for expansion in the Indonesian retail market. Retailers expansion into various untapped cities across Indonesia will create opportunities for private label due to the demand in these markets for value for money products. Through experience, consumers are expected to gain confidence in private label products, and this will continue to build sales of such products. Convenience stores have started to introduce private label products in their outlets, albeit to a limited extent. Focusing on commodities such as sugar and rice, convenience stores use their private label products to generate traffic to their stores and increase their competitiveness against traditional grocery retailers, such as warungs (food kiosks) and wet market sellers. Outlook Private label is expected to experience further growth over the forecast period. As private label products are seen more frequently, Indonesian consumers are expected to become more familiar with them and become more confident in purchasing and consuming such products. The growth of private label is expected to be faster in grocery products. The fact that Indonesian consumers are still relatively more brand-conscious in their purchases of non-grocery products, and have more options which offer a low price compared with retailers private label products, will be challenges which face private label. Private label products will have to maintain their lower price positioning to thrive in the Indonesian retail market. Future impact The growth in private label will, slowly and surely, strengthen retailers position in the market. With higher bargaining power, retailers will be in a better position to deal with manufacturers. It will also allow them to increase their profit margins, as private label continues to generate more sales during the forecast period. Higher demand for private label will be realised once retailers increase their penetration to various untapped cities across Indonesia. By 2015, it is expected that sales from private label brands will account for a significant part of retailers total revenues.
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To ride the growth momentum of private label, retailers will constantly improve the quality of their private label products, and at the same time, provide a wider product range, more shelf-space and lower pricing over the coming five years. Continued urbanisation spurs retail development Indonesia underwent urbanisation throughout the review period. In 2006, the number of urban households overtook the number of rural households, and the gap has since widened. The rate of urbanisation in Indonesia is not expected to decline, and a faster pace is more likely to be seen in the near future. By 2012, it is projected that there will be more than 36 million urban households, while the number of rural households will decline to 28 million. The increasing urbanisation of Indonesia has resulted in many consumers leading busier, faster-paced lifestyles. Current impact Retailing has benefited from the urbanisation which is taking place in the country. As Indonesian consumers are moving from rural areas to cities, they are demanding more products, and increasing their spending on various products which equip them for their lives as city dwellers, and to assist in their busy lifestyles. Retailers have responded by tailoring their products and services to suit these new lifestyles. Grocery retailers, for example, have increased their ranges of ready meals, processed food, and other packaged food products to meet consumers need for convenient products. Retailers also compete with each other to make their stores consumers chosen shopping destinations by placing their retail stores in strategic areas, sometimes next to each other. The development of various cities across the country also triggered major retailers to push aggressive expansion. Convenience stores retailers have gained the most, as they meet consumers demand for easier access to their daily necessities in a cleaner, and more inviting modern retail setting. Outlook With this trend, the development of retail stores is likely to continue. Outlet expansion will continue capitalising on the rising disposable incomes of consumers living in these new untapped urban areas. Retailers are expected to compete to establish their presence in the major cities across Indonesia; no longer limited to Java, but also cities with potential outside Java. Domestic companies targeting middle- to low-income consumers will enjoy the fastest growth due to the opening up of a large potential market. However, international retail brands will also gradually gain more share due to urbanisation in the country. Future impact It is forecast that the urbanisation of Indonesia will continue during the forecast period, with the number of Indonesians living in cities reaching 50 million people by 2015. Gradual development in cities outside Java will take place year-on-year. By the end of the forecast period, in 2015, Indonesian retailing will have grown much bigger in size, with the major retailers establishing a foothold and capturing a share of the market. As middle-income consumers are the majority of new urbanites, grocery retailers and non-grocery retailers which target middle-income consumers will grow the fastest and benefit the most. Retailers are expected to tailor their products and services according to the new demand in order to maintain the growth momentum and protect their shares from new entrants. Near the end of the forecast period, following the proliferation of domestic retailers into cities outside Java, and the growing purchasing power of these city dwellers, foreign retailers will join the foray and introduce their brands in the market. Mergers and acquisitions in retailing During the review period, Indonesian retailing was coloured by many mergers and acquisitions. Both domestic and foreign retailers attempted to increase their shares in the Indonesian retail market, seeing mergers and acquisitions as the fastest and easiest way to further establish their brands and instantly broaden their customer base. In 2010, retailers and companies looking to enter and take advantage of growth in Indonesian retailing continued to seek ways to achieve their goal by merging, or acquiring other companies. Current impact Mergers and acquisitions in Indonesian retailing have made the market more competitive. The consolidation of companies resulted in a few stronger companies competing for share. In 2010, two large acquisitions took place: Trans Corps acquisition of Carrefour Indonesia (majority stake), and CVC Groups acquisition of part of the newly spun-off Matahari Department Stores stake.
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These two acquisitions resulted in the Carrefour and Matahari Department Stores brands becoming stronger in the retail market. Trans Corp, as a large conglomerate in Indonesia, has not only been a strong financial growth engine for Carrefour in Indonesia, but through its other subsidiaries, ranging from banking to entertainment, will manage to infuse many value-added services to its grocery business. Matahari Department Stores, being a separate entity after partly being acquired by CVC, a private equity company, and its own parent company, Matahari Putra Prima, will flourish in non-grocery retailing, as it will have a better management focus, and, more importantly, higher capital to fuel its expansion plans. Outlook Moving into the forecast period, it is expected that more companies will look for consolidation opportunities. Newcomers will seek out potential existing retail brands to quickly enter the market and take advantage of the growing Indonesian retail market, whilst existing retailers, pressed by intensifying competition, will welcome partnerships as a way to strengthen their positions in the market. These mergers and acquisitions will further develop the overall retail market. Over the forecast period, retailers venturing out into different formats will be more common, and more new concepts will be introduced. After the takeover of Alfa Retailindo by Carrefour Indonesia, for instance, some of the Carrefour Express outlets were converted into Carrefour Market outlets in 2010. After the entry of Korean Lotte Group in Indonesian retailing by taking over Makro Indonesia, the biggest cash and carry retailer in Indonesia, the company has stated its plan to establish Lotte hypermarkets in the near future. Future impact As investment is poured into Indonesian retailing, it is expected that during the forecast period it will increase in sophistication year-on-year. Indonesian consumers, especially consumers living outside Java, previously located far from the presence of many major retailers, will not only benefit from easier access to products, but will also enjoy more options in terms of spending their time and money in a variety of retail formats and from a variety of brand choices. Smaller existing regional retailers will see this impacting their sales, and they will be encouraged to compete in order to maintain their long-established brands in their respective regions. Traditional retailers are expected to see their shares gradually decline in the next five years, as consumers are moving towards modern retailers, especially in grocery retailing.
MARKET INDICATORS
Table 1 Employment in Retailing 2005-2010 2005 Total employment ('000 people) Employment in retailing ('000 people) Employment in retailing (%) (% of total employment) 94,428.6 10,588.6 11.2 2006 95,093.0 10,969.8 11.5 2007 99,690.8 11,331.8 11.4 2008 102,748.4 11,671.8 11.4 2009 105,165.5 11,963.6 11.4 2010 108,032.0 12,226.8 11.3
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews
MARKET DATA
Table 2 Sales in Retailing by Category: Value 2005-2010 Rp billion Store-based Retailing Non-Store Retailing Retailing 2005 674,546.9 7,815.0 682,361.9 2006 741,123.4 8,650.7 749,774.1 2007 804,271.7 9,770.7 814,042.5 2008 855,158.3 11,154.6 866,313.0 2009 891,935.7 12,368.1 904,303.7 2010 950,886.8 14,120.0 965,006.8
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources
Table 3 Sales in Retailing by Category: % Value Growth 2005-2010
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% current value growth 2009/10 Store-based Retailing Non-Store Retailing Retailing 6.6 14.2 6.7
2005-10 CAGR 7.1 12.6 7.2
2005/10 TOTAL 41.0 80.7 41.4
Table 4 Sales in Retailing by Grocery vs Non-Grocery 2005-2010 % retail value rsp excl sales tax Grocery Non-Grocery Total 2005 66.0 34.0 100.0 2006 66.0 34.0 100.0 2007 66.5 33.5 100.0 2008 66.5 33.5 100.0 2009 66.0 34.0 100.0 2010 65.5 34.5 100.0
Table 5 Sales in Store-Based Retailing by Category: Value 2005-2010 Rp tn Grocery Retailers Non-Grocery Retailers Store-based Retailing 2005 463.5 211.0 674.5 2006 513.8 227.3 741.1 2007 559.1 245.2 804.3 2008 592.9 262.3 855.2 2009 617.4 274.6 891.9 2010 657.4 293.5 950.9
Table 6 Sales in Store-Based Retailing by Category: % Value Growth 2005-2010 % current value growth 2009/10 Grocery Retailers Non-Grocery Retailers Store-based Retailing 6.5 6.9 6.6 2005-10 CAGR 7.2 6.8 7.1 2005/10 TOTAL 41.8 39.1 41.0
Table 7 Sales in Non-Grocery Retailing by Category: Value 2005-2010 Rp tn Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers 2005 67.0 23.7 23.1 13.2 2006 71.0 25.8 25.1 14.2 2007 75.6 28.3 27.5 15.5 2008 79.8 30.7 29.8 16.7 2009 83.0 32.2 31.6 17.6 2010 88.0 34.5 34.5 18.6
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Rp tn Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers
2005 22.3 17.1 44.8 211.0
2006 24.0 19.2 47.9 227.3
2007 26.0 21.3 51.0 245.2
2008 28.1 23.1 54.1 262.3
2009 29.8 24.2 56.2 274.6
2010 32.6 26.6 58.8 293.5
Table 8 Sales in Non-Grocery Retailing by Category: % Value Growth 2005-2010 % current value growth Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers 2009/10 6.0 7.0 9.1 6.0 9.5 10.0 4.5 6.9 2005-10 CAGR 5.6 7.8 8.4 7.2 7.9 9.2 5.6 6.8 2005/10 TOTAL 31.4 45.8 49.6 41.4 46.4 55.0 31.3 39.1
Table 9 Sales in Non-store Retailing by Category: Value 2005-2010 Rp tn Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing 2005 7.8 0.0 0.0 7.8 2006 8.6 0.0 0.0 8.7 2007 9.7 0.0 0.0 9.8 2008 11.1 0.0 0.1 11.2 2009 12.3 0.0 0.1 12.4 2010 14.0 0.0 0.1 14.1
Table 10 Sales in Non-store Retailing by Category: % Value Growth 2005-2010 % current value growth 2009/10 Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing 14.0 16.7 38.8 14.2 2005-10 CAGR 12.4 9.0 76.3 12.6 2005/10 TOTAL 79.6 53.7 1,604.1 80.7
Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews,
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trade sources
Table 11 Retailing Company Shares: % Value 2006-2010 % retail value rsp excl sales tax Sumber Alfaria Trijaya Tbk PT Carrefour Indonesia PT Indomarco Prismatama PT Matahari Department Store Tbk PT Hero Supermarket Tbk PT Matahari Putra Prima Tbk PT Ramayana Lestari Sentosa Tbk PT Mitra Adi Perkasa Tbk PT Gramedia Asri Media PT Lion Superindo - Gelael PT Alfa Retailindo Tbk PT Ace Hardware Indonesia Tbk PT Kimia Farma Apotek PT Citra Nusa Insan Cemerlang PT Akur Pratama PT Graha Sudirman Centre PT Midi Utama Indonesia PT Tupperware Indonesia PT Sumber Alfaria Trijaya PT Others Total 2006 1.0 0.4 0.6 1.1 0.6 0.4 0.2 0.2 0.3 0.1 0.2 0.1 0.1 0.1 0.4 94.2 100.0 2007 1.0 0.5 0.6 1.2 0.6 0.4 0.2 0.2 0.2 0.1 0.1 0.2 0.1 0.1 0.1 0.6 93.7 100.0 2008 0.9 1.2 0.6 0.7 1.3 0.6 0.5 0.3 0.2 0.2 0.1 0.1 0.2 0.1 0.1 0.0 0.1 92.7 100.0 2009 1.1 1.1 0.8 0.7 1.5 0.6 0.5 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 92.1 100.0 2010 1.3 1.1 1.0 0.9 0.8 0.8 0.6 0.6 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 91.1 100.0
Table 12 Retailing Brand Shares: % Value 2007-2010 % retail value rsp excl sales tax Alfamart Carrefour Indomaret Matahari Department Store Giant Hypermart Ramayana Gramedia Sogo Super Indo Ace Hardware Company Sumber Alfaria Trijaya Tbk PT Carrefour Indonesia PT Indomarco Prismatama PT Matahari Department Store Tbk PT Hero Supermarket Tbk PT Matahari Putra Prima Tbk PT Ramayana Lestari Sentosa Tbk PT Gramedia Asri Media PT Mitra Adi Perkasa Tbk PT Lion Superindo - Gelael PT Ace Hardware Indonesia Tbk PT 2007 1.0 0.5 0.5 0.5 0.6 0.2 0.2 0.2 0.1 2008 0.9 1.2 0.6 0.6 0.6 0.6 0.3 0.2 0.2 0.1 2009 1.1 1.1 0.8 0.6 0.6 0.6 0.3 0.2 0.2 0.2 2010 1.3 1.1 1.0 0.9 0.7 0.7 0.6 0.3 0.2 0.2 0.2
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% retail value rsp excl sales tax Carrefour Kimia Farma CNI Toserba Yogya Electronic City Alfa Midi Tupperware Hero Matahari Department Store Others Total
Company Alfa Retailindo Tbk PT Kimia Farma Apotek PT Citra Nusa Insan Cemerlang PT Akur Pratama PT Graha Sudirman Centre PT Midi Utama Indonesia PT Tupperware Indonesia PT Hero Supermarket Tbk PT Matahari Putra Prima Tbk PT Others Total
2007 0.1 0.2 0.1 0.1 0.1 0.1 0.6 94.9 100.0
2008 0.2 0.1 0.2 0.1 0.1 0.0 0.1 0.1 0.7 93.1 100.0
2009 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.8 92.6 100.0
2010 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 91.6 100.0
Table 13 Store-Based Retailing Company Shares: % Value 2006-2010 % retail value rsp excl sales tax Sumber Alfaria Trijaya Tbk PT Carrefour Indonesia PT Indomarco Prismatama PT Matahari Department Store Tbk PT Hero Supermarket Tbk PT Matahari Putra Prima Tbk PT Ramayana Lestari Sentosa Tbk PT Mitra Adi Perkasa Tbk PT Gramedia Asri Media PT Lion Superindo - Gelael PT Alfa Retailindo Tbk PT Ace Hardware Indonesia Tbk PT Kimia Farma Apotek PT Akur Pratama PT Graha Sudirman Centre PT Midi Utama Indonesia PT Sepatu Bata Tbk PT Kawan Lama Sejahtera PT Home Center Indonesia PT Sarinah (Persero) PT Sumber Alfaria Trijaya PT Others Total 2006 1.0 0.4 0.6 1.1 0.6 0.4 0.2 0.2 0.3 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.4 94.3 100.0 2007 1.0 0.5 0.6 1.2 0.6 0.4 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.6 93.7 100.0 2008 0.9 1.2 0.7 0.7 1.3 0.6 0.5 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.0 0.0 92.7 100.0 2009 1.1 1.1 0.8 0.7 1.5 0.6 0.6 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 92.1 100.0 2010 1.4 1.1 1.0 0.9 0.9 0.8 0.6 0.6 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 91.1 100.0
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Table 14 Store-Based Retailing Brand Shares: % Value 2007-2010 % retail value rsp excl sales tax Sumber Alfaria Trijaya Tbk PT Carrefour Indonesia PT Indomarco Prismatama PT Matahari Department Store Tbk PT Hero Supermarket Tbk PT Matahari Putra Prima Tbk PT Ramayana Lestari Sentosa Tbk PT Mitra Adi Perkasa Tbk PT Gramedia Asri Media PT Lion Superindo - Gelael PT Alfa Retailindo Tbk PT Ace Hardware Indonesia Tbk PT Kimia Farma Apotek PT Akur Pratama PT Graha Sudirman Centre PT Midi Utama Indonesia PT Sepatu Bata Tbk PT Kawan Lama Sejahtera PT Home Center Indonesia PT Sarinah (Persero) PT Sumber Alfaria Trijaya PT Others Total 2007 1.0 0.5 0.6 1.2 0.6 0.4 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.6 93.7 100.0 2008 0.9 1.2 0.7 0.7 1.3 0.6 0.5 0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.0 0.0 92.7 100.0 2009 1.1 1.1 0.8 0.7 1.5 0.6 0.6 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 92.1 100.0 2010 1.4 1.1 1.0 0.9 0.9 0.8 0.6 0.6 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.0 0.0 91.1 100.0
Table 15 Non-Grocery Retailers Company Shares: % Value 2006-2010 % retail value rsp excl sales tax Matahari Department Store Tbk PT Ramayana Lestari Sentosa Tbk PT Mitra Adi Perkasa Tbk PT Gramedia Asri Media PT Ace Hardware Indonesia Tbk PT Kimia Farma Apotek PT Akur Pratama PT Graha Sudirman Centre PT Sepatu Bata Tbk PT Metropolitan RetailMart PT 2006 2.0 1.3 0.7 0.4 0.4 0.4 0.2 0.2 2007 2.0 1.3 0.7 0.4 0.5 0.4 0.4 0.2 0.2 2008 2.1 1.5 0.9 0.5 0.5 0.4 0.5 0.2 0.2 2009 2.0 1.7 0.9 0.5 0.5 0.4 0.5 0.2 0.2 2010 2.9 2.1 1.9 1.0 0.6 0.5 0.4 0.4 0.2 0.2
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% retail value rsp excl sales tax Kawan Lama Sejahtera PT Electronic Solution Indonesia PT Felice Jewellery PT Hero Supermarket Tbk PT Naramitha Tarra PT Sumber Kreasi Cipta Logam PT Catur Mitra Sejati Sentosa PT Tozy Sentosa PT K-24 Indonesia PT Optik Melawai Prima PT Ace Indoritel Perkakas PT Others Total
2006 0.2 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.0 0.1 0.3 92.9 100.0
2007 0.2 0.1 0.2 0.1 0.2 0.2 0.1 0.1 0.0 0.1 92.6 100.0
2008 0.2 0.1 0.2 0.1 0.1 0.1 0.2 0.1 0.1 0.1 91.8 100.0
2009 0.2 0.1 0.2 0.1 0.1 0.1 0.2 0.1 0.1 0.1 91.8 100.0
2010 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 88.4 100.0
Table 16 Non-Grocery Retailers Brand Shares: % Value 2007-2010 % retail value rsp excl sales tax Matahari Department Store Ramayana Gramedia Sogo Ace Hardware Kimia Farma Toserba Yogya Electronic City Bata Metro Kawan Lama Electronic Solution Felice Jewellery Guardian Debenhams Sports Station Disc Tarra Julia Jewelry Mitra10 Centro Matahari Department Store Others Total Company Matahari Department Store Tbk PT Ramayana Lestari Sentosa Tbk PT Gramedia Asri Media PT Mitra Adi Perkasa Tbk PT Ace Hardware Indonesia Tbk PT Kimia Farma Apotek PT Akur Pratama PT Graha Sudirman Centre PT Sepatu Bata Tbk PT Metropolitan RetailMart PT Kawan Lama Sejahtera PT Electronic Solution Indonesia PT Felice Jewellery PT Hero Supermarket Tbk PT Mitra Adi Perkasa Tbk PT Mitra Adi Perkasa Tbk PT Naramitha Tarra PT Sumber Kreasi Cipta Logam PT Catur Mitra Sejati Sentosa PT Tozy Sentosa PT Matahari Putra Prima Tbk PT Others Total 2007 2.0 0.7 0.5 0.4 0.5 0.4 0.4 0.2 0.2 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.2 0.1 0.1 2.1 91.3 100.0 2008 2.1 0.9 0.6 0.5 0.5 0.4 0.5 0.2 0.2 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 2.2 90.5 100.0 2009 2.0 0.9 0.6 0.5 0.5 0.4 0.5 0.2 0.2 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 2.5 90.3 100.0 2010 2.9 2.1 1.0 0.7 0.6 0.5 0.4 0.4 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 89.5 100.0
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Table 17 Non-store Retailing Company Shares: % Value 2006-2010 % retail value rsp excl sales tax Citra Nusa Insan Cemerlang PT Tupperware Indonesia PT Sophie Martin Indonesia PT Orindo Alam Ayu PT Amindoway Jaya PT Nusa Selaras Indonesia PT Tahitian Noni International Indonesia PT Luxindo Raya PT Singa Langit Jaya PT Herbalife Indonesia PT Naramitha Tarra PT Gramedia Asri Media PT Sunrider Nusaperdana PT Paramitra Media Perkasa PT Nugra Aloeverindo PT Unicity Network PT Nadja Sukses Utama PT Avon Indonesia PT Others Total 2006 15.0 5.1 4.0 5.0 1.1 0.6 2.6 1.6 0.5 0.1 0.3 0.1 0.2 0.1 6.2 0.8 56.6 100.0 2007 13.4 5.7 4.8 5.2 0.9 0.6 1.5 1.0 0.5 0.2 0.1 0.3 0.1 0.1 0.1 6.2 59.4 100.0 2008 11.8 6.0 5.9 5.7 4.5 0.7 0.6 1.1 1.4 0.4 0.2 0.2 0.3 0.1 0.1 0.1 60.7 100.0 2009 10.7 6.6 6.2 5.4 4.4 0.8 0.7 0.7 1.0 0.5 0.3 0.2 0.3 0.1 0.1 0.1 62.1 100.0 2010 9.4 7.5 6.2 5.6 4.4 0.9 0.7 0.7 0.5 0.5 0.3 0.3 0.2 0.1 0.1 62.5 100.0
Table 18 Non-store Retailing Brand Shares: % Value 2007-2010 % retail value rsp excl sales tax CNI Tupperware Sophie Paris Oriflame Amway Nu Skin Tahitian Noni Lux Tianshi Herbalife Disc Tarra Company Citra Nusa Insan Cemerlang PT Tupperware Indonesia PT Sophie Martin Indonesia PT Orindo Alam Ayu PT Amindoway Jaya PT Nusa Selaras Indonesia PT Tahitian Noni International Indonesia PT Luxindo Raya PT Singa Langit Jaya PT Herbalife Indonesia PT Naramitha Tarra PT 2007 13.4 5.7 4.8 5.2 0.9 0.6 1.5 1.0 0.5 0.2 2008 11.8 6.0 5.9 5.7 4.5 0.7 0.6 1.1 1.4 0.4 0.2 2009 10.7 6.6 6.2 5.4 4.4 0.8 0.7 0.7 1.0 0.5 0.3 2010 9.4 7.5 6.2 5.6 4.4 0.9 0.7 0.7 0.5 0.5 0.3
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% retail value rsp excl sales tax Gramedia Sunrider FastWorld Forever Living Unicity Sophie Martin Avon DRTV Innovation Others Total
Company Gramedia Asri Media PT Sunrider Nusaperdana PT Paramitra Media Perkasa PT Nugra Aloeverindo PT Unicity Network PT Nadja Sukses Utama PT Avon Indonesia PT Paramitra Media Perkasa PT Others Total
2007 0.1 0.3 0.1 0.1 0.1 6.2 59.4 100.0
2008 0.2 0.3 0.1 0.1 0.1 60.7 100.0
2009 0.2 0.3 0.1 0.1 0.1 62.1 100.0
2010 0.3 0.2 0.1 0.1 62.5 100.0
Table 19 Forecast Sales in Retailing by Category: Value 2010-2015 Rp tn Store-based Retailing Non-Store Retailing Retailing 2010 950.9 14.1 965.0 2011 955.4 15.0 970.4 2012 962.5 16.0 978.5 2013 970.4 17.0 987.4 2014 978.8 18.0 996.7 2015 988.2 19.0 1,007.1
Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources
Table 20 Forecast Sales in Retailing by Category: % Value Growth 2010-2015 % constant value growth 2010-15 CAGR Store-based Retailing Non-Store Retailing Retailing 0.8 6.1 0.9 2010/15 TOTAL 3.9 34.3 4.4
Table 21 Forecast Sales in Store-Based Retailing by Category: Value 2010-2015 Rp tn Grocery Retailers Non-Grocery Retailers Store-based Retailing 2010 657.4 293.5 950.9 2011 661.0 294.4 955.4 2012 666.9 295.6 962.5 2013 673.2 297.3 970.4 2014 679.3 299.4 978.8 2015 686.2 302.0 988.2
Table 22 Forecast Sales in Store-Based Retailing by Category: % Value Growth 2010-2015
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% constant value growth 2010-15 CAGR Grocery Retailers Non-Grocery Retailers Store-based Retailing 0.9 0.6 0.8
2010/15 TOTAL 4.4 2.9 3.9
Table 23 Forecast Sales in Non-Grocery Retailing by Category: Value 2010-2015 Rp tn Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers 2010 88.0 34.5 34.5 18.6 32.6 26.6 58.8 293.5 2011 87.4 34.7 35.0 18.6 33.9 26.7 58.2 294.4 2012 86.8 34.9 35.5 18.7 35.0 26.9 57.7 295.6 2013 86.4 35.3 35.9 18.9 36.2 27.2 57.4 297.3 2014 86.0 35.7 36.4 19.1 37.3 27.5 57.3 299.4 2015 85.8 36.3 36.8 19.3 38.5 27.9 57.4 302.0
Table 24 Forecast Sales in Non-Grocery Retailing by Category: % Value Growth 2010-2015 % constant value growth Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers 2010-15 CAGR -0.5 1.0 1.3 0.7 3.4 1.0 -0.5 0.6 2010/15 TOTAL -2.5 5.2 6.7 3.7 18.1 5.1 -2.4 2.9
Table 25 Forecast Sales in Non-store Retailing by Category: Value 2010-2015 Rp tn Direct Selling Homeshopping Internet Retailing Vending 2010 14.0 0.0 0.1 2011 14.9 0.0 0.1 2012 15.8 0.0 0.1 2013 16.8 0.0 0.2 2014 17.7 0.0 0.2 2015 18.7 0.0 0.3 -
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Rp tn Non-Store Retailing
2010 14.1
2011 15.0
2012 16.0
2013 17.0
2014 2015 18.0 19.0
Table 26 Forecast Sales in Non-store Retailing by Category: % Value Growth 2010-2015 % constant value growth 2010-15 CAGR Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing 5.9 2.5 22.0 6.1 2010/15 TOTAL 33.4 13.1 170.2 34.3
APPENDIX
Operating environment Foreign direct investment in retail Foreign direct investment (FDI) in the country started to make progress in the 1970s, and saw rapid growth until the monetary crisis of the late 1990s. This rapid growth was underpinned by the significant expansion of the international economy, as well as trade and domestic investment. As the FDI flow to Indonesia declined significantly up to the early 2000s, the government declared Investment Year 2003, in order to increase FDI flow and collect development funds at the end of the working contract with the International Monetary Fund (IMF). Under the leadership of President Soeharto, up to 1998 the presence of foreign retailers in Indonesia was minimal, as they found it difficult to enter the market; this situation obviously favoured local retailers. In 1998, however, the Indonesian government issued several new regulations, including Presidential Decree number 99/1998, to ease the entry of foreign retailers into the country. This meant that local retailers had to compete openly with foreign players, and were no longer protected by regulations. In 1998, the government also signed a letter of intent with the IMF in relation to Indonesias economic restructuring policy. The agreement stated that the government must fully support the liberalisation of the retail environment. As a result, it became increasingly easy for foreign retailers with large capital to expand their networks and acquire local companies. Responding to rising concern that the Presidential Decree on Modern Markets, which was issued in December 2007 by President Yudhoyono, would restrict the operation of foreign retail chains in the country, the government assured foreign retailers that the regulation was aimed at creating harmonious competition between the modern and traditional retail environments, and will not restrict foreign ownership in retail businesses in the country. Despite fully supporting the entry of foreign retailers in the country, investors in Indonesia still have to adhere to several existing regulations, such as the Ministry of Trade Decree on Franchising number 12 2006, which requires that international franchises use local partners when expanding their operations in Indonesia. Informal retailing At the end of the review period, there was no published data regarding the informal retail environment in Indonesia. The latest data obtained from the Indonesian National Statistics Office, BPS, indicated that in 2004 there were 10,485,974 informal establishments in wholesale, retail, restaurant and accommodation services, employing a total of 17,797,199 people. The number of businesses and value sales in the informal retail environment in Indonesia reached an all-time high during the monetary crisis of the late 1990s. The closure of many manufacturing and service companies resulted in many people losing their jobs in the formal environment, and thus they tried to create their own jobs in the informal sector in order to survive. Given the governments limited efforts to reduce the number of informal retail players over the review period, the
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value of informal retailing continued to grow in 2010, providing a threat to the formal retail environment. Product areas particularly affected by the informal retail environment include alcoholic drinks, cigarettes, OTC healthcare products, books, audio-visual goods and electronic products. Grocery retailers are most affected by informal retailing, since there are a considerable number of street vendors (known as pedagang asongan in Indonesia) who roam the streets, especially in cities, with a limited range of grocery products. Informal retailing also threatens formal non-grocery retailers such as drugstores, booksellers, audio-visual stores, clothing and footwear retailers and electronics and appliance specialist retailers. Driven by urbanisation and consumerism amongst urban dwellers, the majority of informal retailing businesses are located in urban areas, especially in major cities such as Jakarta. These businesses typically operate on streets and in other public locations, causing conflict between the urban authorities, which are trying to maintain their cities cleanliness, and informal urban retailers, which need space for their activities in order to survive. Informal retailing in Indonesia largely targets lower-income consumers. As they do not pay tax to the government, informal retailers are able to offer lower prices. Nonetheless, a number still sell their products at prices comparable to those of formal retailers, in order to achieve greater profit margins. In September 2007, Jakarta City Council endorsed a new bylaw or public order, stating that no individual may become a street vendor, and no individual may trade with street vendors. The bylaw imposed punishments of a maximum of 180 days of imprisonment and a maximum of Rp50 million in fines for offenders. This may threaten the existence of the informal retail environment in Jakarta, although the implementation of the law is still questionable, given the low level of law enforcement in the country, and the fact that the bylaw will affect the lives of many people making a living as street vendors. Apart from this, there were no other regulations targeting informal retailing in Indonesia in 2010. Opening hours The majority of retail stores in Indonesia follow common opening hours, from 10.00hrs to 22.00hrs, with outlets located in shopping malls usually following the opening hours of the malls. In Jakarta, opening hours for retail outlets are regulated by city bylaw No 2/2002, which states that operating hours for non-government markets run from 10.00hrs to 22.00hrs. During the review period, one modern retailer which opened its outlet beyond 22.00hrs was forced to return to normal operating hours due to protests by the City Council regarding violation of the bylaw. 24-hour retailing exists in Indonesia, especially in chemists/pharmacies, including the brands Kimia Farma and K-24. Jakarta city bylaw No 2/2002 states that stores wishing to open outside the required hours must obtain special permission from the Governor of Jakarta. Meanwhile, a special regulation applies to forecourt retailers, which have to open 24 hours a day, 365 days a year. During holiday periods such as Hari Raya Idul Fitri or Christmas, opening hours may be extended to cater for holiday shopping, with several hypermarkets opening 24 hours a day. For independent players such as traditional kiosks, opening hours are generally more flexible, and it is not uncommon for stores to open only at 11.00hrs or midday, particularly if the stores are not located in a main street area. In addition, stores located in smaller cities or rural areas typically open until 20.00hrs or 21.00hrs instead of 22.00hrs, as consumers in these areas normally do not stay out of their homes late, and the surrounding areas are less crowded at night compared with the larger cities. Presidential Decree No 112 Year 2007 Article 7 regulates that the business hours of hypermarkets, department stores and supermarkets are from 10.00hrs to 22.00hrs (Monday to Friday) and from 10.00hrs to 23.00hrs (Saturday and Sunday). It also mentions that the mayors or governors of particular regions may determine the opening hours for modern retail outlets beyond 22.00hrs on public holidays or on other specific days. Since 2008, the Indonesian government has planned to come up with a new regulation to limit the operational hours of shopping malls and other places, such as offices and hotels, up to 01.00hrs in order to reduce the use of electricity. In 2010, to show its support for traditional retailers, the government also emphasised that modern retail stores are not allowed to operate 24-hours. Retail landscape Over the review period, retailing in Indonesia remained largely concentrated in high streets rather than outside towns, because of the higher traffic generated in the former areas compared with the latter. However, there was an observable increase in interest in out-of-town areas, mostly because high streets were becoming saturated. In order to attract more consumers and increase their appeal, it has become common in out-of-town areas for several retailers (particularly smaller ones or shopping centre developers) to congregate in one area to create a shopping hub.
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Shopping centres and malls are increasingly favoured hotspots for consumers of all ages in the country, mainly because of the wide range of retailers they accommodate. The rising trend of shopping in malls was also caused by the rapid influx of shopping centres. By the end of the review period, several areas in larger cities were reaching saturation or oversupply in terms of shopping and trade centres, including the Mangga Dua and Kelapa Gading areas in North Jakarta. Shopping centres in Indonesia have increasingly been recognised as convenient one-stop-shopping locations, as most shopping malls house a hypermarket or supermarket, pharmacies, fast food outlets, restaurants and cafs and specialist stores. Some centres have both hypermarkets and department stores, and most shopping centres also house a bank, or ATMs. Consequently, shopping centres have become the ultimate place to shop for consumers, particularly working consumers with limited time to shop for the family. Cash and carry In 2010, value sales of cash and carry in Indonesia remained small, registering less than 1% of total value sales of grocery retailers, at around Rp4 trillion. By the end of the review period, there were only a few cash and carry brands in Indonesia, including Makro, Goro and Indogrosir. Facing significant competition from hypermarkets, cash and carry registered a poor performance in the latter part of the review period. Sales showed slight growth, due largely to the better performance of Lotte Shopping Indonesia. In Indonesia, consumers consider cash and carry to be similar to hypermarkets, with the only significant difference being the requirement for membership. This is mainly because most hypermarkets offer prices which almost match the low prices of cash and carry, due to their significant economies of scale. Furthermore, the sales area of cash and carry is generally similar to that of hypermarkets, with a total sales area of around 6,000 sq m or more, and both formats regularly hold promotional periods. Hypermarkets, however, is generally perceived as the more comfortable of the two formats. The majority of cash and carry customers are small and mid-sized retailers which resell their purchases through independent stores or kiosks. This group forms the main source of income for cash and carry, as these customers shop either weekly or monthly at cash and carry outlets in order to stock up. Other key groups of customers for cash and carry are caterers, restaurants and bakers, because of the outlets low price position. Along with small retailers and foodservice operators, households represents another target group for cash and carry. Some households prefer to shop at a cash and carry for their monthly groceries. Although consumers have to spend a large amount per trip, as they are purchasing in bulk they save money, as unit prices tend to be lower than in other retailers. Therefore, householders typically stock up on high usage commodities such as laundry care products, instant noodles, tissue and hygiene products and cooking oil. The requirement for membership makes cash and carry less accessible to consumers than hypermarkets. As a result, players continued to ease the membership requirements for customers over the review period. In response to the increasing competition, the largest cash and carry operator in the country, Makro, lifted its membership fee of Rp50,000 per year altogether in 2005, both for new and existing members. Up to 2010, Makro remained the leading cash and carry operator in the country. It had a chain of 19 outlets by the end of the review period, located in various major cities, such as Jakarta, Yogyakarta, Balikpapan, Banjarmasin, Palembang, Pekanbaru and Makassar. Although customers must be members, and the products are sold in bulk, the company managed to resist the competition from other retailers, and achieved steady growth over the review period. The majority of householders who shop at Makro are searching for value for money, and are willing to spend more per trip on bulk-buying. Other customers include small independent retailers and horeca operators. These smaller retailers prefer to shop at Makro rather than through large distributors, as they want to avoid bureaucracy and can find more options at Makro. In mid-2006, Makro began restructuring in order to increase its sales, which were poor in the first half of the year. One part of this involved establishing a marketing division to boost its marketing activities, such as aggressive communication via print media, especially newspapers. In early 2007, Makro started to hold a monthly event called Horeka Days to attract horeca players (hotels, restaurants and cafs), with various activities, such as cooking demonstrations, in-store kitchens, and inviting chefs to share their knowledge. In 2008, the majority shareholder of Makro Indonesia, SHV Holdings of the Netherlands, decided to sell its stake in the company, as it aimed to focus on other countries, such as Thailand. In October 2008, Lotte Group of South Korea acquired SHV Holdings. In January 2009, Makro Indonesia officially changed its name to Lotte Shopping Indonesia. Although the new company plans to change the name from Makro to Lotte Mart, this plan had not been realised at the time of writing. In the short-term, Lotte Shopping Indonesia has plans to venture into the hypermarkets format, whilst sustaining the cash and carry format. In 2011, the company plans to start with five hypermarkets in various major cities around the country. This is likely to pose a threat to existing hypermarket brands such as Carrefour and Giant in the forecast period.
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Table 27 Cash and Carry: Sales Value 2006-2010 Sales value Rp million, current prices Cash and carry % growth 2006 5,015 6.9 2007 4,911 -2.1 2008 4,267 -13.1 2009 4,097 -4.0 2010 4,191 2.3
Source: Official statistics (Badan Pusat Statistik (Central Statistics Office), trade press (including Kompas, Marketing, Media Indonesia, MIX, SWA), company research, trade interviews, Euromonitor International estimates Note: Sales value excludes VAT, sales tax
Table 28 Cash and Carry: Sales by National Brand Owner: Sales Value 2007-2010 Rp million, current prices Company (NBO) Brand(s) 2007 2008 2009 2010
Makro Indonesia PT Lotte Shopping Indonesia PT Alfa Retailindo Tbk PT Goro Batara Sakti PT Inti Cakrawala Sakti PT
Makro
2,287
2,424
Makro Super Alfa Goro Indogrosir
1,243 118 1,263
373 119 1,352
2,545 119 1,433
2799 120 1272
Source: Trade press (including Kompas, Marketing, Media Indonesia, MIX, SWA), company research, trade interviews, Euromonitor International estimates Note: Sales value excludes VAT, sales tax
Table 29 Cash and Carry: Number of Outlets by National Brand Owner: 2007-2010 Outlets Company (NBO) Brand(s) 2007 2008 2009 2010
Makro Indonesia PT Lotte Shopping Indonesia PT Alfa Retailindo Tbk PT Goro Batara Sakti PT Inti Cakrawala Sakti PT
Makro
19
19
Makro Super Alfa Goro Indogrosir
8 1 6
3 1 6
19 1 6
19 1 5
Source: Trade press (including Kompas, Marketing, Media Indonesia, MIX, SWA), company research, trade interviews, Euromonitor International estimates
DEFINITIONS
This report analyses the market for retailing in Indonesia. For the purposes of the study, the market has been defined as
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follows: Store-based retailing Grocery retailers Hypermarkets Supermarkets Discounters Small grocery retailers Convenience stores Forecourt retailers Chained forecourt retailers Independent forecourt retailers Independent small grocers Food/drink/tobacco specialists Other grocery retailers Non-grocery retailers Mixed retailers Department stores Variety stores Mass merchandisers Warehouse clubs Health and beauty specialist retailers Chemists/pharmacies Parapharmacies/drugstores Beauty specialist retailers Other healthcare specialist retailers Clothing and footwear specialist retailers Home and garden specialist retailers Furniture and furnishings stores DIY, home improvement and garden centres Electronics and appliance specialist retailers Leisure and personal goods specialist retailers Booksellers and stationers Audio-visual stores
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Toys and games stores Sports goods stores Pet shops and superstores Other leisure and personal goods specialist retailers Other non-grocery retailers Non-store retailing Vending Homeshopping Internet retailing Direct selling Other terminology: GBO refers to Global Brand Owner, which is the ultimate owner of a brand. NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company. Share tables at both GBO and at NBO level are provided in the report. Reference to shares in the report analysis is at NBO level. Explanations of words and/or terminology used in this report are as follows: AFTA: ASEAN Free Trade Area: trade pact between ASEAN (Association of Southeast Asian Nations) countries on the elimination of tariffs on various goods imported from other ASEAN countries, which took effect in 2003. ACFTA: ASEAN China Free Trade Agreement: trade pact between ASEAN (Association of Southeast Asian Nations) countries with China on the elimination of tariffs on various goods imported from China, and vice versa, which took effect in 2010. BPS: Badan Pusat Statistik, or National Statistics Office of Indonesia. Hari Raya Idul Fitri: an Indonesian holiday celebration to mark the end of Ramadan, the fasting month for Muslims. This is the largest festive period in Indonesia, and is also called Lebaran, a less formal term. Jabodetabek: the term given to the metropolitan area surrounding Jakarta, which consists of Jakarta, Bogor, Depok, Tangerang and Bekasi. It is the largest metropolitan area in Indonesia. KPPU: stands for Komisi Pengawas Persaingan Usaha, or Business Competition Monitoring Commission. A government body in charge of competition between companies in various markets in Indonesia. Mini-mart: introduced in 1998, mini-marts are a modern version of traditional provisions shops. Air conditioned and with a shop size of a minimum of 60 sq m, mini-marts such as Indomaret offer around 2,000 product lines. Pyramid selling: a discredited type of direct selling. It requires the participant to make a payment prior to joining the scheme, and the only way to get back the initial fee is the recruitment of more members, rather than the sale of goods and services. Thousands of members lose money under such schemes. Toko kelontong: an independent family-owned retail outlet, which is normally located in a neighbourhood residential area. These outlets are permanent, and are normally located in front of the store owners house. These outlets carry more grocery than non-grocery products. That said, these are normally larger, and carry more non-grocery items than warungs. Warnet: Warung internet, an Indonesian acronym for internet shops, where Indonesians go to use the internet. Charges are by the hour. Warung: small, typically family-owned business. In retailing, these are usually not permanent establishments. Warungs are included under other grocery retailers. The outlets carry more grocery than non-grocery products Sources used during research include the following:
Summary 1 Research Sources
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Official Sources
Badan Pengembangan Ekspor Nasional (National Agency for Export Development) Biro Pusat Statistik (Statistics Indonesia) Department of Trade USDA Foreign Agricultural Service
Trade Associations
APLI (Asosiasi Penjualan Langsung Indonesia) BPS (Biro Pusat Statistik)
Trade Press
Asia Times Online Bisnis Kita Magazine BisnisJakarta.com Indonesian Business On Web Investor.co.id Marketing Magazine MIX Magazine Prospektif Magazine Republika Newspaper Sinar Harapan Suara Merdeka Newspaper SWA Magazine The Jakarta Post Warta Ekonomi
Source: Euromonitor International
2011 Euromonitor International
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