Foreign powers enter retail war
The arrival of new foreign chain stores to Jakarta has not gone unnoticed in this time of economic crisis. Is this a sign that doing business here -- amid the crumbling purchasing power of consumers, that analysts predict will take years to recover -- still holds promise? The Jakarta Post reporters Aan Suryana, Emmy Fitri, Kamba Basrie, Lukman Natanagara, Sylvia Gratia M. Nirang, Sugianto Tandra and photographer P.J. Leo investigate the prospects and strategies of these new arrivals.
JAKARTA (JP): As Indonesia struggles through its worst ever economic slump, Jakarta consumers are seemingly being overrun with the arrival of several new foreign franchise stores all vying for their attention.
Among the most conspicuous newcomers are the French supermarket chains Carrefour and Continent. The Netherlands-based wholesaler Makro has been established here for some years.
The large investments made by these companies seem to indicate they are undeterred by the worst of the country's economic troubles and have confidence in weathering the current political storm.
The "invasion" came after the signing of a letter of intent between the Indonesian government and the International Monetary Fund (IMF) in March last year.
As part of a package of policy reform required by the IMF for the country to qualify for the multi-billion dollar bail-out, Indonesia had to lift its restrictions on foreign investment in the retail and wholesale markets.
The Investment Coordinating Board (BKPM) issued two decrees, which were strengthened by Presidential Decree No. 99/1998. They allow foreign investors to own a majority share in a partnership with local companies.
One of the new players here, Continent, is a chain of large supermarket stores that aims to offer a great range of products -- from groceries to clothes and refrigerators -- all in the one place.
Jean-Luc Montembault, director of France's Promods Group -- which owns 51 percent of PT Contimas Utama Indonesia, the operator of the chain here -- told The Jakarta Post that his company would push forward with expansion plans in the country despite the ongoing economic and political crises.
"Indonesia is one of few countries where this kind of business will develop in the future," he said, adding that he was convinced the hypermarket retail business would survive the economic crisis because it provided quality products at discounted prices.
He said customers these days were looking for discounts to stretch their money further.
Several supermarkets have criticized its presence in the country, alleging Continent practices dumping tactics, selling its products below manufacturer prices.
Montembault denied the allegations, saying the company was merely slashing profit margins in the hope it would be compensated by a large sales volume.
"It's not dumping," he said. "Because if it is, we can't be doing that for a long time. At some point you have to jack up prices and by then we'll sink. It's purely the ability to manage the flow of products from factory to us.
"It's a discount system: a low margin, big volume of sales, a performing organization. In this moment of crisis, we can help customers provide a wide range of products with cheaper prices."
Concerning the political uncertainty, Montembault said, "We have already calculated the risk."
Indonesians will go to the polls on June 7, thought to be the first fair and free elections after 30 years under the authoritarian rule of Soeharto.
The prospect of elections has made many people jittery, exacerbated by reports of bloody unrest and rioting in many areas nationwide. Disturbances have often been marked by looting and arson of retail outlets.
The 19-month-old economic crisis has catapulted about half of the country's more than 200 million people into poverty and led to massive layoffs in major cities like Jakarta, with both the banking and manufacturing sectors in serious trouble.
Montembault said the establishment of the first Continent Hypermarket at Pasar Festival in Jakarta's Kuningan area was no abrupt maneuver. He said the decision was made in 1995, after a business partnership was formed the previous year with PT Sinar Kilat Buana of the Sinar Mas Group.
The store was to have opened in May 1998, but it was delayed until October of that year because of the political turmoil surrounding Soeharto's downfall.
Continent, the second French retail chain to operate in Indonesia after Carrefour, provides more than 15,000 different products at discounted prices. Earlier last week it opened its second 8,000-square-meter hypermarket at Pluit Megamall in North Jakarta.
Montembault said Promods would open its third US$5 million hypermarket retail operation in Jakarta at the end of July.
The expansion philosophy of Promods, according to Montembault, is to adapt its business practices to local nuances.
"People who know Indonesian customers are our Indonesian colleagues ... but we train them to understand details. We want them to (be in charge when we) open the new stores," he said.
Montembault said Continent was facing tough competition both from other foreigners and local retailers.
With the Makro chain competing on the wholesale front, and Carrefour and the well established Hero supermarkets vying for customers, no one can be complacent.
Montembault said local retailers were quick to respond to Continent's presence by improving ways of doing business.
"They are very professional," he said, while showing the Post how a local supermarket chain had imitated its arrangement of cooking oils.
Continent displays the whole range of cooking oils in one aisle, rather than arranged by manufacturer as local stores were used to doing. Montembault said his way was more convenient for customers.
"It will be a tough competition for us (with local retailers)," he said.
And as Continent is new, it has to work hard to develop its connections with manufacturers and suppliers to catch up to its more established competitors.
The other French retail chain here, Carrefour, is also enthusiastic about its prospects in Indonesia.
"We will continue to expand our business here as long as the political and security conditions enable us to do so," said Handy Lim, Senior Development Manager of PT Carti Satria Mega Swalayan, the operator of Carrefour Hypermarket, as quoted by Bisnis Indonesia daily.
Sources at BKPM said an Australian retail chain, Point Break Enterprises, would also open an outlet in Jakarta by the end of this year, in partnership with a local company.
Makro is an older foreign retail store operator, an affiliate of SHV Makro of the Netherlands. Under a deal with PT Karabha Unggul, Makro opened its first outlets in Pasar Rebo, East Jakarta in September 1992. Now Makro has eight outlets, five of which are scattered around the Greater Jakarta area, with the others in Bandung, Surabaya and Bali.
Basuki Ismael, Makro's spokesman, told The Post that although there are other store chains like Continent and Carrefour, Makro does not want to compete head-on.
"Of course, we try to provide the lowest possible prices. But if Continent and Carrefour sell their products cheaper than Makro does, we will not follow them," Basuki said.
Makro outlets require its customers to be members, at the annual cost of Rp 25,000.
Asked whether Makro intended to pressure retailers like Golden Truly, Hero and Gelael, Basuki said they had no intention at all.
"Our main intention is to sell the best and cheapest products. We don't want to influence people to go to Makro and not to go to Golden Truly. We leave it up to them," Basuki said.
And how do customers respond to the glut of such stores to choose from?
Mirna A. Basalamah, public relations manager of Hotel Mercure Rekso, said she enjoyed doing her monthly shopping in Continent because it is more convenient than other supermarkets.
"I can buy almost everything I need here at lower prices. I can save my time and my energy," she said.
Dewi, a housewife from Cilincing, North Jakarta, said she used to do her monthly shopping in Indomart or Diamond outlets in Kelapa Gading. Both are local supermarket chains, but she has started to go to the Carrefour outlet in Cempaka Putih because of the lower prices.
It is of course the customers that make or break a retail store, and they tend to go to the shop that suits their needs best. (team)