Foreign franchises another blow for local supermarkets

Foreign franchises another blow for local supermarkets

By Sylvia Gratia M.N., Emmy Fitri and A'an Suryana

JAKARTA (JP): Amid the severe effects of the prolonged
economic crisis in which many people are slashing their spending
or taking their money to cheaper stores and traditional markets,
local supermarkets are suffering from plunging sales.

Local supermarket chains suffered badly in last May's massive
riots, when many of their outlets were burned and damaged,
causing them huge losses. And now the plunge in sales has
burdened them even more.

Before the wounds of last year had healed, new foreign
franchised supermarkets marched in, forcing local retailers to
face even tighter competition.

The chairman of the Association of Indonesian Retailers
(Aprindo), Steve Sondakh, says many local supermarket chains will
start doubting their chances of survival next year if the
government does not restrict the presence of foreign franchised
supermarkets here.

"We consider them a threat to our lives because foreign
supermarkets are more competitive due to their huge capital,"
Steve told The Jakarta Post.

Steve, who is also a director of Hero supermarket chain, said
foreign franchised supermarkets, especially those claiming to be
hypermarkets, were more competitive because they had more capital
at their disposal and had wider distribution networks, which
enable them to sell their products at cheaper prices.

"They provide more goods at lower prices. Consumers will
surely shop at them."

Steve said many local supermarkets would be forced to close
some of their outlets if foreign franchised supermarkets
continued to expand here.

"For big retail businesses like us, the impact has not been
seen yet, except in declining sales in several outlets where
there are foreign supermarkets nearby. But I have received
reports that many small supermarkets located near the foreign
supermarkets have shut down because they can no longer compete
with the foreign supermarkets," he said.

He said that French hypermarket Continent planned to open
three more outlets in Indonesia this year, while Carrefour
planned to open one more.

"During the economic hardship, it would be easier for them to
open outlets in strategic locations by acquiring places from
local retailers who have not survived the economic crisis."

Steve said foreign supermarkets had been given the same
treatment as big local chains, but they were exempt from several
obligations imposed by the government on big local chains.

"For example, foreign supermarkets are exempt from so-called
education and training fees, which are imposed on big local
retail chains," he said, adding that the fees depended on how
many square meters of land the supermarkets stood on.

Steve said that Aprindo had urged the government to thoroughly
asses the impact of foreign supermarkets on local supermarkets.
If there was a serious impact, the government should create a
regulation that restricts the massive expansion of foreign
supermarkets.

"We know that the IMF requires the government to open our
market by lifting restrictions on foreign investment in retail
and wholesale, but I don't think we should follow the requirement
blindly," he said.

Golden Truly supermarket chain has also felt the effects of
customers taking their custom elsewhere.

"We have yet to make an official calculation of the number of
customers who have turned away from us, but it's possible that
the number is great since the new hypermarkets spend more to be
able to exist here," a staffer of the chain's purchasing
department said.

The staffer, who has worked at the company for 10 years, added
that his company was evaluating the new competition between local
and foreign supermarket chains.

"All of us are accustomed to competing because business can't
be run without any competition, but if the competitors are too
strong, I don't think local companies will ever have fair
competition," he said.

The retailer, which had several outlets destroyed during the
mid-May riots, now mostly depends on local residents and people
working near its outlets for business. Other people who used to
be regular customers seem to prefer traveling the further
distance to shop at newly opened foreign franchised supermarkets.

But Tri Wandaka, a duty manager of Gelael supermarket in Blok
M, South Jakarta, said Gelael was not worried about the
possibility of tough competition from franchised supermarkets
like Carrefour and Continent.

"We have succeeded in rising to market challenges until today,
even after the establishment of wholesale stores such Makro and
Continent," he told the Post, adding that Gelael had celebrated
25 years of existence here.

Tri urged the government to consider imposing regulations on
wholesale supermarkets, like Goro and Continent, concerning
retailing their items here.

"I'm not too sure about the government regulation, but Makro,
Continent and Carrefour, which claim to be wholesalers, should
operate as wholesalers, meaning they should not retail their
merchandise," he said.

Gelael, which has 10 outlets in Indonesia, employs about 800
people.

A store manager of Tip Top supermarket, who asked for
anonymity, said Tip Top believed it could compete with foreign
supermarkets because it sells its products at lower prices.

"Look at our outlets now, people always flock to shop here,
especially on Sundays. It is because we sell goods at lower
prices compared to our competitors, both local or foreign ones,"
he said.

Steve acknowledged that local supermarkets had an advantage
over foreign players because they were more familiar with
Indonesians' shopping habits.