Competent retailers expected to beat the odds
By K. Basrie
JAKARTA (JP): As the economic catastrophe continues savaging Indonesia, a war is raging in the retail business between long- established local supermarket chains and new foreign franchised retailers.
Local supermarkets, many of which enjoyed their heyday during the Soeharto regime, hope to see the closure of their foreign franchised competitors.
They have accused the foreign newcomers, particularly Continent and Carrefour, of dumping practices that have resulted in a drop in local supermarkets' turnovers.
To get to the root of the problem and to find out how the fierce competition will be managed, The Jakarta Post interviewed marketing expert Hermawan Kartajaya, an executive of MarkPlus Strategy Consulting.
Hermawan, who is also president of Asia Pacific Marketing Federation (from 1998 to 2000) and president of the Indonesian Marketing Association (1996-1999), says that local retailers have alleged that Carrefour and Continent practice dumping tactics by selling their goods at unreasonably cheap prices to lure customers.
He believes that local retailers need not give up but should fight back. But, he insists, the government should not repeat the old mistake of protecting locals.
The following is an excerpt of the interview.
Question: What is really happening in Indonesia's retail business?
Answer: Retailing is seen as a key in the distribution of goods because the business has a direct and closer relationship with customers, as the end users. First, retailers know exactly what customers really need: what they like and what they don't like.
Second, they know what kind of goods to market. Third, the retail business will not collapse as easily as the businesses of agents (suppliers) or middlemen, in the event of production costs increasing while people's buying power declines.
Q: Why?
A: Because there has to be someone to serve the end users. Thus, if the distribution chain gets shorter, retailers won't be the casualties. So their presence has a significant role, particularly during this time of crisis when people prioritize convenience in shopping.
They just want a retailer that they can trust, and if possible they want to shop where they can find all their daily needs under one roof. It's like one-stop shopping. Customers also want a guarantee on quality and so on. We, of course, can't rely on just any retailer.
Q: How is this relevant to the presence of foreign supermarkets and hypermarket here?
A: Such demands offer a great opportunity to, say, Carrefour and Continent to run their businesses in Indonesia because they have a global brand, right? As a result, more and more small-scale retailers will eventually be pushed into the rural areas. In short, ordinary retailers will be unable to compete in terms of size.
Q: Do you mean that small-scale retailers should close their businesses?
A: Not necessarily. Hero and Matahari, for instance, need not surrender because they both have their own brands.
Q: Then what exactly is going on?
A: The current problem is the "pocket". Those coming here such as Carrefour and Continent are prepared to lose money for several years.
Q: Really?
A: Yes. Their losses here mean nothing in terms of U.S. dollars. For them, it's peanuts. But local businesspeople couldn't survive if they suffered similar losses. Worst, most local businesses probably have debts in U.S. dollars. On the other hand, foreign investors have discovered that doing business here is quite cheap.
Q: What about existing regulations (on foreign retailers and restrictions on wholesalers acting as retailers)?
A: Forget it. All of them should be abolished. They're all nonsense, with their rules about retailers not permitted do this and that while we're working hard to attract foreign investors, and we desperately need money.
We'd be happy if there was someone from overseas who wanted to invest here. But these guys won't spend their money here if there are too many rules. Foreigners are kings here at the moment. The government can do nothing but meet their needs. They just say, "If you don't give me this and that, I'll just leave."
Q: Then what use are the regulations?
A: The regulations have yet to be revoked, but what should they be replaced with when looting still goes on here? Where are the laws? There's no law and order in Indonesia.
Q: What exactly do you want to say?
A: In my opinion, let's all pretend, keep quiet, close our eyes (to any infraction by foreigners or whomever) because we desperately need money, particularly U.S. dollars. Due to the current situation, I often tell people that Indonesia does not need to wait for the ASEAN Free Trade Area anymore as everything has already been opened up. So whoever rules this country after the (June) general election, will accommodate the wishes of investors.
Q: Does that mean we're several steps ahead compared to other countries participating in the Free Trade Area?
A: Yes, because we've been forced to do it.
But won't it affect existing local retailers?
I wish we had been ready years ago. Now, we have no choice but to fight. For years I've told local businesspeople that they should not rely totally on government regulations if their strengths are mere "connections" and power because anything could happen. It would be different if they were used to competing fairly in business.
Q: Then what will be the impact on customers?
A: Positive. Just see how many people queue up at Carrefour and Continent. It's amazing.
Q: So you think it's a good idea to let local retailers, like Golden Truly and Hero, just die?
A: I don't mean that. But that's the way competition should work. The strongest wins. But if there are (government) restrictions introduced in the name of "people's economy", it would just create a problem. What is people's economy really? It sounds like it means something else and could even make foreign investors afraid to come.
Q: What are your suggestions, or maybe hopes from the current and next government regarding this business?"
A: Unfortunately, I don't have any hopes from the government as it is powerless to do anything about it. My only hope is that our national retailers, particularly Matahari and Hero, our heroes in this business, can continuously improve themselves. They both already have their own brands. They should not give up. They should fight and do something, such as formulate new private label products and refine their brand equity.
Q: Could they also exercise dumping practices?
A: Wow, it would make everybody in the business crazy.
Q: But according to Steve Sondakh, chairman of the Association of Indonesian Retailers, many local retailers will close down if new foreign supermarket chains continue selling goods here below market price.
A: I just want to underline that those who used to rely on connections in business are not competent and would eventually die off anyway. Only the capable ones will survive.
Q: Do you have any idea why foreign investors such as Carrefour and Continent decided to spend their money here in the midst of political uncertainty, the possibility of fresh riots and the significant decline in people's buying power due to the crippling crisis?
A: It's a great moment for them to start long-term planning. Should the crisis and political uncertainties end, they would have already built trust among locals.
Q: What else?
A: For me, it's a strong indication that foreign investors still believe in Indonesia. Therefore, it's important for us not to disturb them. Otherwise, they could be scared off even after stepping into the ring.