Competent retailers expected to beat the odds

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.