Foreign powers enter retail war

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)