Modern versus traditional: A rapid proliferation of new outlets is reshaping local retail

Modern retail seems to be an obvious development in Indonesia with the quick proliferation of minimarkets, convenience stores and hypermarkets. The country is crowded, so it makes sense to have numerous small, highly efficient shops nearby so driving is not necessary. It has a large, relatively poor population, so big, efficient retailers providing goods at low cost or in bulk are beneficial. And Indonesians are quickly becoming richer, demanding outlets that are fast and convenient.

Indeed, modern retailing is growing fast. While figures differ depending definitions used for the latest industry trends, it is clear that the number of modern outlets is growing substantially, and that the modern-to-total ratio will continue to climb as it closes in on the 100% mark, as it has done in the more advanced Asian markets. Still, the rise of modern trade has been resisted for years, and while the sector has expanded recently, it is possible that resistance could again increase. Concerns about the dangers of modern retailing to traditional retailing and to the social fabric in general could result in further restrictions.

KEEPING DISTANCE: A 2002 regional regulation said that a minimart, defined as being less than 200 sq metres in size, had to be at least 500 metres from a traditional market. A larger store (between 200 sq metres and 1000 sq metres) had to be more than a kilometre from a traditional market, while supermarkets and hypermarkets had to be 2.5 km away. Then, in 2006, the governor of Jakarta banned minimarkets altogether. That was followed two years later by a Ministry of Trade decree that superseded the local ban and allowed convenience stores to operate in the country.

TRICKS OF THE TRADE: According to the Indonesian Retailers Association (Aprindo), the number of minimarkets jumped 63% between 2008 and 2011 to 16,720. Most were opened without proper permission (using forged permits), too close to traditional markets, or both. In 2011 it was estimated that 85% of convenience stores in Jakarta were illegal, with an estimate that only 15 of the 57 7-Elevens in Jakarta in 2012 were legal.

It would appear that 7-Eleven has found that the cafeteria set-up is quite lucrative, and may have stumbled on a good model. The franchise has become a popular spot to hang out in Jakarta, especially among twenty-somethings seeking a place to meet friends, eat inexpensive food and use Wi-Fi, fulfilling the need for more gathering places in a crowded city. It has also received the support of Aprindo, which argues that the laws should be more flexible to accommodate these retailers. Indonesia Franchising and Licensing Society has chimed in, too. It claims that $1.25bn of investment funds from eight foreign retail groups is sitting on the sidelines waiting for the government to work out its convenience store regulations and related franchise law before moving in. Brands operating in the country include Alfaexpress, Alfamart, Alfamidi, Circle K, Indomart, Lawsons, Lotusmart, Minimart and 7-Eleven.

TRADITIONAL VENDING: While many Jakarta residents would like to see more convenience stores, traditional trade still has many supporters. People like the personal service and variety offered in the wet markets and may be concerned about international brands taking over the country’s retail channels. While people are not vocally nationalistic when it comes to retail, all else being equal, there is a sense that it is better to buy local. While modern food trade has grown as a percentage of the total, traditional trade is still rising in absolute terms. According to the US Department of Agriculture, in 1999 $29.91bn of food was sold through traditional outlets, but by 2009, that number was up to $46.7bn.

At the same time, a convergence of forces may in fact make the rise of modern trade in Indonesia inevitable. The government knows that such retailing will help the local economy, and that the foreign firms have the capital to invest and the money to spend on the promising Indonesian market. However, above all, people are changing and will start demanding more from their stores, regardless of what the government believes they should have. “People want a better experience,” Yunanto said. “The government cannot stop that.”