[b]Hypermarket proliferation

Hypermarket proliferation
should be regulated properly

Fajar Hidayat
Jakarta

The hypermarket concept, which combines a supermarket and a
department store in a gigantic retail facility with a wide range
of products under one roof, including full lines of fresh
groceries, apparel and appliances, was pioneered by the French
retail group Carrefour.

This group opened its first hypermarket in 1962 in Sainte-
Genevihve-des-Bois near Paris. In the nineties, the group started
to expand its business to Asia, including Indonesia, where
Carrefour, in 1998, opened its first outlet in Jakarta.

Currently, Carrefour has eleven outlets in Greater Jakarta and
another four in Bandung, Surabaya, Medan and Palembang. They will
open twenty-five new stores this year. Hero supermarket, which is
in partnership with Malaysia-based Dairy Farm, has followed in
Carrefour's footsteps and now they have ten Giant hypermarket
stores. Domestic retailer Matahari has also jumped on the
bandwagon with its Hypermart -- the brand name of its four
hypermarkets.

The proliferation of these large, convenient and relatively
inexpensive stores, certainly has greatly worried traditional
market retailers. According to The Indonesian Traditional Market
Retailer Association (APPSI), over the last five years, around
400 traditional market kiosks in Jakarta have closed down. This
figure did not include kiosks in the seven traditional markets
that were closed by the Jakarta administration for various
reasons.

The APPSI has responded by urging the Jakarta administration
to stop issuing new licenses for hypermarkets in the city center.

The government seems responsive to the traditional market
retailers' demands, as evidenced by Minister of Trade Mari E.
Pangestu's remarks that the government was studying the problems
to seek an appropriate solution.

The government is preparing better regulations to enable
hypermarkets and traditional markets to complement each other in
sound market competition.

However, the government rulings on traditional markets and
hypermarkets should only be guidelines for regional
administrations. In the proposed presidential decree, to be
issued later this year, regional administrations will have more
power to issue permits for hypermarkets based on the region's
development planning.

Hypermarket proliferation, particularly in big cities,
reflects a significant change in shoppers' behavior, life-style
and needs. Because of their hectic daily activities, upper-middle
income shoppers prefer efficiency and convenience in shopping by
satisfying all of their routine needs with one-stop shopping.
They favor the shopping atmosphere in nice, clean locations,
offering a wide range of products with competitive prices -- all
the while providing modern and convenient facilities.

Hypermarkets can accommodate these shoppers' needs. The
hypermarkets have lured the shoppers by stressing variety and
quality as much as price, with upscale touches such as in-store
butchers and a vast array of groceries and other items.

As a result, more shoppers have been turning their backs on
traditional markets, because these markets cannot provide a
competitive shopping atmosphere. In traditional markets,
consumers usually have to haggle with dozens of retailers in
different kiosks just to buy one shirt or one kilogram of rice,
and some of the service is sub-standard. The uncomfortable
condition of the traditional markets is a factor too; most are
dirty, unventilated, crowded and not always safe.

Traditional markets are facing tough competition, not only
from hypermarkets, but also from smaller types of modern market
retailers, i.e. standard-size supermarkets and minimarkets. There
is a trend whereby upper-middle income shoppers in big cities
prefer hypermarkets for their monthly shopping, supermarkets for
weekly shopping and minimarkets for daily shopping.

Traditional market retailers are facing a "double squeeze"
situation, i.e. lack of efficiency, and innovation in their
market niche, along with competition pressure from modern
retailers.

Subsequently, a loss of market share is a logical consequence
that has to be understood and dealt with by traditional markets.
A survey by AC Nielsen revealed that the market share at
traditional markets in Indonesia was 69.6 percent in 2004, down
from 78.1 percent in 2000. Meanwhile, the share of modern markets
reached 30.4 percent, up from 21.8 percent in 2000.

This development reflects the consequence of the market
economy mechanism in Indonesia's retail sector. The mechanism
rests upon the fundamental principle of consumers' freedom to
choose among competing products and services, and the freedom of
producers and traders to start or expand a business.

However, by allowing the traditional market retailers to go
out of business could have a damaging impact because they create
many job opportunities and stimulate small-scale entrepreneurship
in society. For those reasons, the government should protect
traditional market retailers.

However, the government policy should not only be "protection-
driven", which could make the traditional market retailers
spoiled by the protection and unenthusiastic to improve their
services or quality. The policy should also be "market-driven",
to force traditional market retailers such as business units to
survive in a competitive environment. The combination of a
protection-driven and market-driven policy will produce
appropriate government regulations able to control hypermarkets'
expansion and simultaneously empower traditional markets.

Banning hypermarkets from operating outside provincial
capitals, as proposed in one of the stipulations in the
government draft presidential decree, is not wise. Several cities
that are not capitals have significant numbers of upper-middle
income residents, like Tangerang, Bekasi, Bogor, Depok,
Surakarta, Malang, Balikpapan, etc. And the fact is, hypermarkets
are now thriving in most of those cities.

When hypermarkets are allowed to exist in a city, other
regulations could be imposed. For example, a hypermarket must be
located at least two kilometers away from traditional markets,
have a maximum area of 5,000 to 8,000 square meters, and the
service coverage ratio should be restricted to one hypermarket
for, say, every 250,000 people.

The writer is a senior researcher on economic policies and
business at The Indonesian Institute -- Center for Public Policy
Research.