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.