euro monitor international - analysis

Retailing in IndonesiaIndustry Overview | 07 Feb 2011

EXECUTIVE SUMMARY

Economic recovery lifts spending and relaunches market growthThe year 2010 marked the revival of the Indonesian economy. Indonesian retailing showed an upwards trend, posting highervalue growth compared with the previous year, performing even better after the global crisis passed. Higher disposableincomes resulted in consumers increasing their spending not only on daily necessities such as food and other groceryproducts, but also on non-essential items, such as clothing and other non-grocery products. In addition, continuousinvestment by major retailers during 2009-2010 was a push factor for positive growth. Although value growth and consumerpurchasing power did not rebound to pre-crisis level, the growth in retailing in 2010 managed to lift the overall growth inretailing during the review period.

Continued outlet expansion from modern store-based retailersIn 2010, modern store-based retailers in Indonesia poured more investment into expanding their presence in untapped areasacross Indonesia. Major retailers increased their outlet penetration to reach developing cities outside Java island, such asMakassar and Denpasar. Grocery retailers led in terms of expansion, with convenience stores and hypermarkets driving thisgrowth. Although traditional store-based retailers still dominated the Indonesian retail environment, they continued toexperience a further decline in share as a result of the aggressive expansion of modern store-based retailers.

Non-grocery gradually takes grocery retail shareAs many modern store-based retailers in Indonesia continued to offer the widest possible range of products in order toincrease traffic to their outlets and generate higher revenues, non-grocery sales continued to gradually take grocery retailshare. The growing urban population in Indonesia led to growing sophistication amongst consumers, and resulted inincreasing demand for and spending on non-grocery items, as well as basic grocery products such as food. In 2010,convenience stores such as Alfamart and Indomaret continued to expand their non-grocery product ranges. To support theWorld Cup in 2010, for instance, Indomaret obtained the license to be the official retailer of World Cup products in Indonesia,and distributed these products in its outlets.

Top retailers retain the lead in a fragmented marketRetailing in Indonesia remained highly fragmented in 2010, with numerous traditional independent grocery and non-grocerystores sprawled across the archipelago. In 2010, the top five companies – Sumber Alfaria Trijaya, Carrefour Indonesia,Indomarco Prismatama, Matahari Department Store and Hero Supermarket - maintained their leading positions and continuedto shape retailing in the country. With the advantage of ample access to financial resources and existing strong networks,these companies (which proved to be less susceptible to the impact of the economic crisis in the economy) strengthened theirpositions further by conducting a variety of promotional activities and extending their service offerings.

Brighter outlook is expected as the Indonesian economy picks upIncreased consumer confidence in 2010 was a positive sign for retailing in Indonesia. Low inflation and better than predictedGDP growth, coupled with increased spending across various product categories during the year, are expected to be carriedforward into the forecast five years. It is expected that multinational and domestic retailers alike will continue their pursuit todevelop the potential of retailing in Indonesia and will widen their scope to include expansion into other prospective areasoutside Java, considering its large population and proportionately low retail penetration. Last but not least, the Indonesiangovernment’s apparent commitment to encourage competition in the market and to improve the infrastructure in the countryalso lends support to this expectation.

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KEY TRENDS AND DEVELOPMENTS

Economic conditionsThe Indonesian economy showed recovery, with 6% GDP growth in 2010. Due to its large domestic market and relativelymodest dependence on exports, the country survived the global recession better than many large Asian countries, andcontinued on its growth track. Indonesia’s strong household consumption sustained economic growth when exports andinvestment slowed in 2009.

In 2010, stronger prices for commodity exports and the gradual recovery of the global economy provided an additionalboost to the Indonesian economy. Good harvests boosted farming income, whilst commodity exporters benefited from thesurge in China’s infrastructure investment.

A lower than expected unemployment rate of 8% in 2010 signified the economic expansion taking place in the countryduring the year. Indonesia also saw a 1% decline in the poverty rate compared with the previous year.

During 2010, the Indonesian government reduced its corporate tax rate from 28% to 25%. The government also allocatedUS$3.5 billion stimulus spending for infrastructure and tax breaks in 2010. The implementation of infrastructure spending,however, has been delayed, and the effect so far is marginal.

Strong growth in foreign direct investment due to notable investment by foreign investors took place in 2010. Thanks toIndonesia’s solid economic performance, rating agencies improved the country’s ratings, and this increased investors’confidence in Indonesia.

The year 2010 also marked the Indonesian implementation of ACFTA (ASEAN-China Free Trade Agreement). The effect ofthis free trade agreement between Indonesian and China on the economy, nevertheless, was not significant at the time ofwriting this report.

Current impactAs the economy came back on track, Indonesian consumers increased their spending across product categories. Lowerunemployment meant increased consumer purchasing power. Low- and middle-income consumers, who were most affectedby the crisis, enjoyed a higher level of disposable income, and this boosted the performance of retail channels, as theseconsumers increased their purchases at stores. The conducive economic environment for foreign direct investment, whichfurther drove the sprawling urban areas and the proliferation of modern retail brands across Indonesia during 2010 ,resulted in consumers gaining more access to the products they wanted, and satisfied their shopping needs more easily.

Similarly, the rapid revival of the Indonesian economy increased Indonesian consumers’ confidence in the future of theeconomy. Consumers started to look beyond daily necessities such as food, and increased their spending on otherproducts. As more informed consumers with higher amounts of money to spend, they also began to consider other factorsin their purchasing decision, not only focusing on price.

Although grocery retailing still accounted for the bulk of retailing in Indonesia, it was apparent that the positive economyboosted the performance of non-grocery retailing. Non-grocery retailing gradually improved its standing in overall retailing,as Indonesian consumers had more than enough income to fulfil their grocery needs and increase their consumption ofnon-grocery products.

Both domestic and foreign companies made their best efforts to capitalise on the Indonesian economic situation bycontinuing their outlet expansion and implementing various marketing strategies. Encouraged by the potential of majorcities outside Java island, major retailers aggressively established a foothold and started to establish their brands. Moreforeign companies saw Indonesia as a big potential market during a sluggish performance in their home markets, andraced to enter the market by obtaining stakes in local companies. Lotte Group, a large Korean company, for example,acquired Makro Indonesia in the first quarter of 2010. Domestic companies, on the other hand, continued to improve theirproducts and services to compete in the growing market.

Besides outlet expansion, companies also adopted their own various ways to attract consumers. Some updated their imageand changed their positioning to increase their competitiveness. Carrefour, for instance, converted some of itssupermarkets under the Carrefour Express fascia into Carrefour Market, emphasising its fresh and healthy product offering.Other retailers on the other hand, such as Matahari Department Store, chose to widen their product ranges, in this case byadding a selection of more expensive items in its offering, in order to attract high-income consumers in addition to theexisting low- to middle-income consumer base. Many retailers also aspired to take advantage of their existing presence toexpand into other channels. Matahari Putra Prima, for example, continued its focus on expanding its Times bookstore fasciaunder its subsidiary.


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OutlookWith the Indonesian central bank raising the country’s economic growth forecast to as much as 7% GDP growth in 2011,the outlook for the economy is positive in the forecast period. Strong household consumption is likely to sustain andunderpin the growth of the Indonesian economy overall. An improvement in exports will lead to higher incomes, andconsumer confidence will maintain the growth momentum during the forecast period.

During the forecast period, due to the development of the private sector, the unemployment rate is also predicted tocontinue to experience an average 2% decline every year. This will positively affect the macroeconomic situation in thecountry and support retailing.

In order to encourage domestic, and, most importantly, foreign investment in the country, the Indonesian government isexpected to maintain its commitment to fiscal stimulus spending on infrastructure and tax breaks. Nevertheless, thegovernment’s lack of implementation and transparency will remain a concern for investors.

Foreign direct investment in Indonesia, which has lagged behind that in neighbouring countries, is predicted to growfurther as foreign investors gain more confidence in Indonesia’s future potential and healthy economic situation. It is,however, subject to the political situation in Indonesia. The country’s past history of incidents threatening the safety offoreigners in the country, such as bombings in several places in Indonesia, and the reputation of being one of the mostcorrupt countries, however, might still hinder growth.

Moving into the forecast period, it is expected that ACFTA will lead to a more competitive retail environment in Indonesia.Grocery retailing will be less impacted due to the poor reputation of and low consumer confidence in products made inChina. Chinese non-grocery products, however, will be more attractive, as they offer a much lower price compared withdomestic products. This competition will have a slightly negative effect on the overall value of retailing.

Future impactWith the expected stronger economy, the forecast period to 2015 looks brighter for Indonesia. The growing economy willfuel the retail market, encouraging further spending and investment in the country. This will, in turn, continue the growthmomentum of the overall economy. In the longer-term, Euromonitor International expects steady growth in retailing, inline with the growth in the economy.

Retailing will continue to indulge Indonesian consumers’ growing demand for both grocery and non-grocery products.Retailers will continue to ride on the wave, expanding their territory to untapped areas in Indonesia, as consumers havegreater purchasing power. With vast geographic areas and a large domestic market, Indonesia will continue to be anattractive avenue for growth in the eyes of retailers. It is expected, therefore, that major retailers will continue to invest inand grow their retail businesses in the country.

Following the significant increase in spending seen since the economy started recovering, Indonesian consumers willcontinue to increase their spending on retail goods. Indonesian retailing is still heavily dominated by traditional channels,and penetration of modern outlets in rural areas of Indonesia is still relatively low. Investment by retailers in these areaswill lead to an increase in consumer spending during the forecast period.

The strong economy and the Indonesian government’s determination to support both domestic and foreign investment willincrease retailers’ confidence in pouring more investment into Indonesia. During the forecast period, it is expected that, inaddition to prominent retailers which sustained their investment during 2008-2009, more companies will start to invest ingrowing their businesses in Indonesia. As first-mover advantage is deemed important in capturing new markets, retailerswill tailor their strategies to ensure their market shares.

With a good economic outlook ahead, and the penetration of modern retail outlets to rural areas outside Java, modernchannels will continue to gain share from traditional channels. Within grocery retailers, for instance, convenience storesand hypermarkets will gain favour from consumers, at the expense of other grocery retail channels, namely warungs(traditional food kiosks) and wet markets. Supermarkets, on the other hand, will lose share to hypermarkets, as the latteris perceived to be a more interesting one-stop-shopping experience, as people treat shopping as a family pastime. Withinnon-grocery retailers, chained specialist retailers, benefiting from their stronger brand names, will attract middle-incomeconsumers.

During the forecast period, grocery retailers are expected to continue expanding the range of goods offered. This will affectnon-grocery retailers, taking some of its share. Retailers targeting lower-income consumers will be most affected by thelow-priced items at grocery retail stores. Retailers with a high price-positioning will not be affected by this trend, due to thegap in product quality and value-added offerings, such as brand names and upscale store settings. Mid-priced retailers, onthe other hand, will be cautious, and treat this as a motivation to improve their products and services, giving consumersmore for their money.


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Internet retailingInternet retailing in Indonesia started to gain significance from 2007, although sales remained negligible within overallretailing. Internet security has been a major problem in the country, with frequent online credit card fraud. Both consumersand retailers alike are cautious about credit card online payments, and still avoid them whenever possible. In Indonesia,credit card ownership is also still limited to higher-income consumers. In 2008, there were 10 million credit cards incirculation in the country; a very modest number compared with the total population of 230 million people. The mostcommon online transactions are still through bank account transfers, followed by cash on delivery. Because transfers takemore time, and are not as convenient as payment by credit card, internet retailing in Indonesia, despite its rapid growth,has a hard time reaching its potential size. In 2010, many major store-based retailers utilised their online presence tosimply communicate with consumers, providing information regarding their brands and retail stores. Others used it as avirtual catalogue, and only accepted orders over the telephone.

In 2010, internet retailing finally made its mark; albeit covering limited target consumers and specific product types.Although concerns about security remained, more and more consumers, mostly people with little time or little access tophysical stores, started to consider online stores to shop for various products. Bank transfer transactions were still mostprevalent, although a few prominent retailers pushed the secure transaction systems on their e-commerce sites. Thereputation for online fraud was still deep in society, and people still avoided online purchases if they had better options.High involvement and information products dominated internet retailing. Airline tickets and media products were the mostdeveloped during the review period.

The internet penetration rate is also low in Indonesia; approximately 13% of the population at the end of 2009. Internetsubscription, similarly, is minimal, with about seven million subscribers compared with a population of 230 million.Although volume sales of computers increased by 22% in 2010 compared with the previous year, driven by sales of laptopsand netbooks, access to the internet is still mainly driven by the use of public Wi-Fi and warnets (internet kiosks) aroundthe country. Despite the Indonesian government’s efforts to promote the use of online services, consumers have notresponded positively to the various internet services offered, and instead have focused more on mobile services.

Current impactIndonesian consumers are starting to embrace internet retailing, as it offers practicality and easier access to productswhich are not available through store-based retailers. A growing number of consumers with little time to shop, as well asconsumers with limited access to bricks-and-mortar stores, use online stores to satisfy their shopping needs. Althoughinternet retailing in Indonesia still bears its reputation as insecure and unreliable, more consumers are willing to give it achance due to the convenience of getting the goods they want. The fact that internet retailers have tried to improve theirproduct offerings and services encouraged customers to repeat their visits to and purchases through online stores.

Urbanisation in Indonesia has created more demand from consumers, and growth is even faster than the pace at whichstore-based retailers are expanding their outlets. Penetration of modern store-based retailers is still low outside of the fivemajor cities in Indonesia, Jakarta, Surabaya, Bandung, Semarang and Medan. Internet shops offer consumers outsidethese areas convenience to get the products they need. The increased product offerings and regular promotions byestablished internet retailers also encouraged busy consumers to make more purchases online.

In 2010, grocery products did not exist in internet retailing. Within non-grocery internet retailing, only media productsinternet retailing (books and audio-visual products) stand out. Other internet retailing, such as consumer electronics andbeauty and personal care, exists, but sales are negligible. Traditional grocery retailers such as other grocery retailers andindependent stores, namely warungs (food kiosks) and toko kelontong, as well as fresh markets, are present in everycorner of Indonesia, and consumers can easily get supplies close to where they live. This eliminates the necessity for onlinegrocery shopping. The fact that many wealthy households have housekeepers at home also makes shopping easier forconsumers with busy lifestyles.

In recent years, due to the development of modern retail stores around major cities, especially in big shopping malls,shopping has turned into a favourite pastime. Families enjoy grocery shopping and shopping for treats at hypermarkets, forinstance, as family recreation. Internet shopping serves only to meet needs which are not met by store-based retailers.Media products internet retailing has developed well in Indonesia due to the lack of bookstores in small cities acrossIndonesia.

Online portals providing product price comparisons between internet retailers do not yet exist in Indonesia. Mostconsumers rely on search engines and word-of-mouth from friends and relatives. Social media has been increasinglypopular in the country lately, and is also used as a marketing tool by some companies.

The growth in internet retailing has started to attract some companies to invest more in their online businesses. Gramedia,the leading bookseller, for example, has announced the grand launch of its new online store address to increase consumer


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awareness and encourage more visits to its online store. Despite the narrower product range than its bricks-and-mortarstores, there is an apparent effort by the retailer to maintain a constant update of product selections and competitiveprices.

Internet retailing in Indonesia is dominated by store-based retailers’ internet sites, and not by pure e-commercecompanies. A well-established brand name is critical to succeeding in internet retailing in the country, as early adopterconsumers need assurance of the reliability and security of purchasing products online. Internet retailers with a physicalpresence of chained stores have a significant advantage over pure e-commerce companies. Unlike the pure e-commercecompanies, these internet retailers also benefit from their strong supply chains and distribution networks. These enablethem to provide a superior service to their customers.

Products offered through online stores are generally priced lower than products sold through retail stores. However, sincethe price difference is not significant, and internet retailing only contributes modestly to the overall retail market, it has notyet had any effect on overall pricing in retailing. Most internet retailers still place more emphasis on their distinguishedproduct offering, and cater their products to consumers with limited access to physical retail stores.

Internet retailing still has plenty of room for growth and expansion in Indonesia. With growing demand for convenienceamongst Indonesian consumers, it is expected that more people will consider purchasing products online. The biggestarchipelago with the fourth biggest population in the world, Indonesia is a strong potential market for internet retailing.Poor infrastructure and a lack of government control in terms of internet regulation, however, will be a challenge toachieving the potential of internet retailing.

Naramitha Tarra, for example, has taken the advantage of the internet to meet demand for audio-visual products amongstconsumers living a distance from its Disc Tarra outlets across Indonesia. Accounting for 10% of its total retail sales,internet sales have become an important part of the retailer’s business. Internet retailing is one way for companies inIndonesia to grow their businesses faster than they could by opening physical retail stores, which takes a much longer timeand major capital investment.

OutlookInternet retailing is expected to continue its rapid growth, albeit maintaining its small share within retailing due to variouschallenges in Indonesia. Unfulfilled product needs and untapped areas within Indonesia are opportunities for internetretailing. Whilst retail stores will continue to penetrate further into Indonesia’s second- and third-tier cities, internetretailers will continue to expand their consumer base by providing a wider product range and offering better pricescompared with store-based retailers.

Moving into the forecast period, internet penetration rates are expected to increase. Euromonitor International predicts astrong increase in computer ownership, as computers is expected to enjoy a 20% value CAGR in the next five years. Salesof netbooks are expected to surge, with a 39% value constant CAGR. Internet subscription and broadband penetration inIndonesia, however, are expected to be modest due to relatively high subscription fees for the majority of Indonesianconsumers, who are in the low- to middle-income bracket. Internet access through public Wi-Fi in foodservice areas andwarnets (internet kiosks) will continue to be more popular.

Future impactThe rapid growth of internet retailing will push the development of overall retailing in Indonesia. The availability of variousproducts online will intensify the competition within retailing over the next five years to 2015. Store-based retailers will notonly compete with other store-based retailers, but also with internet retailers. Internet retailing has no boundaries, andallows for lower operating costs, as well as easy set-up. This will make it easier for internet retailers to maintain a healthyprofit margin, whilst offering a better price. As a result, store-based retailers will also be pressed to accelerate their outletexpansion in the country.

The development of internet retailing in Indonesia will not result in consumers shunning store-based retailing. Although it isexpected to grow much faster than store-based retailing, internet retailing will still cater to specific groups of consumers –those with low access to physical stores, or those with limited time to shop – or specific types of products, such as uniqueproducts or better prices. Moreover, due to the sociable nature of Indonesians, retail stores will still frequently be visited,as they serve not only as places to shop, but also to meet people and be seen. Bargaining for the best price is part ofIndonesian culture. The majority of Indonesian consumers will still find shopping at stores more satisfying than simplypurchasing products online.

Over the forecast period it is not predicted that internet retailing will cause store-based retailers to close or reduce thenumber of stores to save money. Although internet retailing is expected to maintain a high growth rate during the forecastperiod, the scale of the business is too small to impact store-based retailers in general. Internet retailing is still at an earlystage in Indonesia, and many consumers are still sceptical about its reliability and security. It will also take time for


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internet retailing to reach lower-income consumers (the bulk of Indonesian consumers), who have limited access to privateinternet access in their homes, and rely instead on warnets or internet kiosks.

As internet retailing becomes more visible, it is expected that more retailers will start to incorporate it into their businessstrategies. For large retailers with an expansion strategy to penetrate untapped areas of Indonesia, they will continue toconcentrate more on building their retail stores, whilst gradually extending their internet retail arms.

In the next five years, internet retailing will affect growth in specific channels within non-grocery retailing to some extent.Internet retailing will thrive in product types with low penetration in the country. Besides media products, home andgarden, as well as electronics and appliance products, for instance, will show faster growth within internet retailingcompared with other products.

Due to a lack of demand for grocery products online, grocery retailers are not expected to see growth in grocery internetsales over the forecast period. Grocery retailers will continue to improve their products and services, whilst focusing onextending their consumer base through outlet expansion.

With internet retailing starting to show some significance in 2010, it is predicted that the years to 2015 will mark thecontinuous growth of internet retailing in the country. Internet providers might be able to offer better rates to gain moresubscribers, resulting in a higher internet penetration rate. With some improvement in online security and infrastructure,internet retailing will continue to expand its consumer base and grow its small base within Indonesian retailing. Retailerswith an online presence in 2010 will strengthen their positions and establish trust amongst consumers. In order to maintainpositive momentum and achieve an optimum sales performance, it will be beneficial for retailers to start early and continueto nurture the development of internet retailing, updating their offering to suit consumers’ needs.

Government regulationGovernment intervention plays an important role in shaping the retail environment in Indonesia. Following the issuance ofseveral regulations to ease the entry of foreign firms and capital into Indonesia, foreign retailers have taken the country bystorm. This has been seen through the establishment of local subsidiaries, such as Carrefour Indonesia, as well as theincreasing share ownership in local retail companies, exemplified by the increasing stake of Dairy Farm InternationalHoldings in local company Hero Supermarket. The rapidly strengthening role of foreign retailers in the country towards theend of the review period required the government to take stringent measures.

The Indonesian government has launched specific regulations regarding retailing in the country. Following protests fromtraditional retailers, who felt disadvantaged by the entry of numerous modern retailers, the government enacted a numberof policies and regulations concerning the establishment of modern retail outlets. Nonetheless, adherence to theseregulations remained low at the end of the review period, as the implementation and supervision of these regulations wasnot strong enough. Understandably, government regulations are in many ways failing to control the existence of modernretailers, and small traditional retailers are becoming vulnerable to substantial competition.

Carrefour Indonesia’s takeover of the local company Alfa Retailindo in 2009 has invited a great deal of controversy in theretail market, and tested the Indonesian government’s stand on encouraging foreign investment whilst protecting domesticcompanies. In 2010, as it was deemed a monopoly, the Indonesian Business Competition Supervisory Commission (KPPU)took the case to the Supreme Court. Carrefour won the appeal, but this was followed by KPPU’s re-appeal of the result,reinstating its order for Carrefour to sell its stake in Alfa Retailindo. In April 2010, finally the case was dropped, after alocal conglomerate, Para Group, took 40% ownership of Carrefour’s share in Alfa Retailindo.

In 2010, the Indonesian government still ruled policy on foreign direct investment, excluding investment in grocery retailoutlets with an area of less than 1,200 sq m. This prevented foreign entry into the growing area of convenience stores andsmall supermarkets. The government also prohibited the opening of 24-hour convenience stores as a protective measureagainst the declining share of traditional grocery retailers, namely other grocery stores (warungs/kiosks) and independentstores.

Considered beneficial in terms of developing entrepreneurship within society, franchises and direct selling are stronglyencouraged by the government. In 2010, the government transferred the authority to issue the approval of new directselling company registrations to the head of BPKM (Investment Coordination Body) to ensure a more efficient and fasterprocess.

Current impactGovernment policy to regulate retailing in Indonesia has proven to be effective in controlling the level of foreign ownershipin Indonesian retailing, whilst at the same time still providing a good return on investment. In 2010, foreign companiessuch as Carrefour, Dairy Farm International and Delhaize derived a significant part of their total company sales fromIndonesia through their local subsidiaries.


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The limitation on foreign companies operating retail outlets with an area of less than 1,200 sq m has left domesticcompanies dominating small grocery retailing. The fastest growing fascias in convenience stores, Alfamart and Indomaret,are locally-owned, fuelled by franchising systems. In 2010, foreign companies focused their attention on hypermarkets andsupermarkets within grocery retailing, and other formats within non-grocery retailing.

Concern has been expressed by traditional wet market sellers that the proliferation of modern grocery retail stores all overIndonesia has negatively affected their shares, as the distance between their stores and convenience stores, in manycases, is very small. However, the Indonesian government has not attempted to issue any other regulations, other thanencouraging such sellers to increase their competitiveness, for instance through renovation of their stalls. Some districtofficials have stopped issuing permits allowing the opening of new convenience stores in their regions, but the centralgovernment has not shown the same level of support up to now.

Indonesian consumers benefit from the current government regulation in the country. Healthy competition amongstretailers results in better products and services for consumers. Growing foreign investment will help to develop Indonesianretailing.

The support lent by the Indonesian government to growing modern trade channels drove higher value sales in retailing.Traditional grocery retailers reacted by extending their product offering, and some upgraded the façades of their kiosks orstalls, as well as maintaining lower prices. Currently still accounting for the bulk of Indonesian retailing, many traditionalgrocery retailers will still have the opportunity to sustain themselves in the midst of the expansion of modern groceryretailing, and its increasing trend across Indonesia.

OutlookIn the coming years, the Indonesian government will continue to encourage foreign investment in the country in order tosupport the country’s stronger economy. It is predicted that the regulations related to retailing will be in favour of, and notagainst foreign companies. Similar to what they did by increasing the maximum foreign ownership of direct sellingcompanies, the government, in the near future, is expected to further relax certain regulations and make it easier forforeign companies to enter the Indonesian market.

In order to protect traditional retailers from the rapid growth of modern retailers in the country, and to respond to concernsfrom the Indonesian Traditional Market Association (APPSI), the Indonesian government will also continue to extend itssupport in the form of financing and guidance to companies in improving their businesses. For instance, it will continue tohelp sellers which are revamping or rebuilding traditional markets. The government might also continue to further limit thedevelopment of modern grocery retail stores to areas without a prominent traditional market presence, such as maintainingthe policy to prohibit modern retailers from operating 24-hours.

Following ACFTA implementation, it is also expected that the government will continue to adjust its policy, including thetaxation on various industries, according to its future bilateral agreements with China.

Future impactDue to changing government regulation, Indonesian retailing will become more dynamic and competitive in nature. Theincreasing presence of foreign companies in Indonesian retailing, thanks to more flexible regulation, will stimulate domesticcompanies to further improve their product and service offering. With much more experience in developed marketsoverseas, foreign retailers will bring value in terms of enriching the Indonesian retail market.

Competition between traditional and modern retailers, especially in grocery retailing, will in fact help to shape theIndonesian retail market to gradually reflect a good balance between traditional and modern retailing. With lessinvolvement of the government in restricting growth in modern retailers, the retail market will move along with economicdevelopment to reflect a more sophisticated country. It is expected that the number of traditional grocery retailers willcontinue to decline, as they close outlets due to the competition from modern grocery retailers, with their aggressiveexpansion across Indonesia.

As the Indonesian government has eased its regulation on foreign direct investment, Euromonitor International expects agradual increase in the number of foreign companies entering retailing between 2011 and 2015. Indonesia’s standing ashaving the fourth biggest population in the world, with very low penetration of modern retail stores, will make it look veryattractive to foreign investors. It is expected that with the Indonesian government proving its commitment to supportforeign direct investment through its policies, retailers will gain more confidence and increase their stakes in theirIndonesian operations.

Private labelDuring the review period, more private label products were introduced by retailers, and have since gained significance interms of sales. The economic crisis encouraged consumers to be more careful in their spending, and increase the take-up


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of private label brands, which generally offer better value for money. In 2010, retailers continued to expand their privatelabel ranges, focusing on the growing categories within their stores.

In 2010, private label existed in both grocery and non-grocery retailing. However, it only accounted for a small share ofvalue sales. Generally, it is presented as a simpler version of the leading brands, and is only available in one variant. Mostprivate label brands are positioned as lower-priced, and are offered only by prominent retailers, which outsourceproduction to large manufacturers with extra capacity.

Hypermarkets such as Carrefour and Giant led the development of private label within grocery retailing. Emphasisinggrowing categories such as processed food and tissue and hygiene products, they expanded their product offering furtherin 2010. Because of their strong retail brand names and foreign origin, consumers are confident about Carrefour andGiant’s private label brands, and take them into consideration when deciding their purchases. By widening their privatelabel product ranges, the two retailers also increased consumers’ exposure to these brands, thereby increasing their sales.

Private label also started to emerge within non-grocery retailing. Focusing on low involvement products, non-groceryretailers offered private label products to increase their profit margins and complement their other offering in stores. AceHardware’s own private label, for example, covers batteries and standard light bulbs. Non-grocery private label products,nevertheless, are still much smaller in size and underdeveloped compared with grocery private label products.

Current impactAs private label continues its growth, and such products gain exposure in retail stores, consumers are becoming moreaware of their presence. With a wider product range across different categories, they are now considered during the buyingprocess. Priced lower than the leading brands, with hardly any promotions or other marketing activities to support them,private label products are still perceived as lower-priced alternatives to the leading brands.

Indonesian consumers still regard private label products as inferior in quality compared with the leading brands in the samecategory. Private label products distributed by prominent retailers are perceived as offering value for money, and attractmostly lower-income consumers. The majority of Indonesian consumers still put a great deal of emphasis on brand name,especially when it comes to grocery purchases. Non-grocery private label products are perceived in a similar way, althoughto a lesser degree. In very low involvement products such as cotton balls, for example, private label products excel.

The growth in private label resulted in manufacturers maintaining competitive prices for their leading brands, andconstantly improving their product quality. Promotions and marketing activities became more important than ever todistinguish their brands in the market.

Despite the growing number of private label products introduced in the market, there is still more room for expansion inthe Indonesian retail market. Retailers’ expansion into various untapped cities across Indonesia will create opportunities forprivate label due to the demand in these markets for value for money products. Through experience, consumers areexpected to gain confidence in private label products, and this will continue to build sales of such products.

Convenience stores have started to introduce private label products in their outlets, albeit to a limited extent. Focusing oncommodities such as sugar and rice, convenience stores use their private label products to generate traffic to their storesand increase their competitiveness against traditional grocery retailers, such as warungs (food kiosks) and wet marketsellers.

OutlookPrivate label is expected to experience further growth over the forecast period. As private label products are seen morefrequently, Indonesian consumers are expected to become more familiar with them and become more confident inpurchasing and consuming such products.

The growth of private label is expected to be faster in grocery products. The fact that Indonesian consumers are stillrelatively more brand-conscious in their purchases of non-grocery products, and have more options which offer a low pricecompared with retailers’ private label products, will be challenges which face private label. Private label products will haveto maintain their lower price positioning to thrive in the Indonesian retail market.

Future impactThe growth in private label will, slowly and surely, strengthen retailers’ position in the market. With higher bargainingpower, retailers will be in a better position to deal with manufacturers. It will also allow them to increase their profitmargins, as private label continues to generate more sales during the forecast period.

Higher demand for private label will be realised once retailers increase their penetration to various untapped cities acrossIndonesia. By 2015, it is expected that sales from private label brands will account for a significant part of retailers’ totalrevenues.


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To ride the growth momentum of private label, retailers will constantly improve the quality of their private label products,and at the same time, provide a wider product range, more shelf-space and lower pricing over the coming five years.

Continued urbanisation spurs retail developmentIndonesia underwent urbanisation throughout the review period. In 2006, the number of urban households overtook thenumber of rural households, and the gap has since widened. The rate of urbanisation in Indonesia is not expected todecline, and a faster pace is more likely to be seen in the near future. By 2012, it is projected that there will be more than36 million urban households, while the number of rural households will decline to 28 million. The increasing urbanisation ofIndonesia has resulted in many consumers leading busier, faster-paced lifestyles.

Current impactRetailing has benefited from the urbanisation which is taking place in the country. As Indonesian consumers are movingfrom rural areas to cities, they are demanding more products, and increasing their spending on various products whichequip them for their lives as city dwellers, and to assist in their busy lifestyles.

Retailers have responded by tailoring their products and services to suit these new lifestyles. Grocery retailers, forexample, have increased their ranges of ready meals, processed food, and other packaged food products to meetconsumers’ need for convenient products. Retailers also compete with each other to make their stores consumers’ chosenshopping destinations by placing their retail stores in strategic areas, sometimes next to each other.

The development of various cities across the country also triggered major retailers to push aggressive expansion.Convenience stores retailers have gained the most, as they meet consumers’ demand for easier access to their dailynecessities in a cleaner, and more inviting modern retail setting.

OutlookWith this trend, the development of retail stores is likely to continue. Outlet expansion will continue capitalising on therising disposable incomes of consumers living in these new untapped urban areas. Retailers are expected to compete toestablish their presence in the major cities across Indonesia; no longer limited to Java, but also cities with potential outsideJava. Domestic companies targeting middle- to low-income consumers will enjoy the fastest growth due to the opening upof a large potential market. However, international retail brands will also gradually gain more share due to urbanisation inthe country.

Future impactIt is forecast that the urbanisation of Indonesia will continue during the forecast period, with the number of Indonesiansliving in cities reaching 50 million people by 2015. Gradual development in cities outside Java will take place year-on-year.

By the end of the forecast period, in 2015, Indonesian retailing will have grown much bigger in size, with the majorretailers establishing a foothold and capturing a share of the market. As middle-income consumers are the majority of newurbanites, grocery retailers and non-grocery retailers which target middle-income consumers will grow the fastest andbenefit the most. Retailers are expected to tailor their products and services according to the new demand in order tomaintain the growth momentum and protect their shares from new entrants.

Near the end of the forecast period, following the proliferation of domestic retailers into cities outside Java, and thegrowing purchasing power of these city dwellers, foreign retailers will join the foray and introduce their brands in themarket.

Mergers and acquisitions in retailingDuring the review period, Indonesian retailing was coloured by many mergers and acquisitions. Both domestic and foreignretailers attempted to increase their shares in the Indonesian retail market, seeing mergers and acquisitions as the fastestand easiest way to further establish their brands and instantly broaden their customer base. In 2010, retailers andcompanies looking to enter and take advantage of growth in Indonesian retailing continued to seek ways to achieve theirgoal by merging, or acquiring other companies.

Current impactMergers and acquisitions in Indonesian retailing have made the market more competitive. The consolidation of companiesresulted in a few stronger companies competing for share.

In 2010, two large acquisitions took place: Trans Corp’s acquisition of Carrefour Indonesia (majority stake), and CVCGroup’s acquisition of part of the newly spun-off Matahari Department Stores’ stake.


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These two acquisitions resulted in the Carrefour and Matahari Department Stores brands becoming stronger in the retailmarket. Trans Corp, as a large conglomerate in Indonesia, has not only been a strong financial growth engine for Carrefourin Indonesia, but through its other subsidiaries, ranging from banking to entertainment, will manage to infuse manyvalue-added services to its grocery business. Matahari Department Stores, being a separate entity after partly beingacquired by CVC, a private equity company, and its own parent company, Matahari Putra Prima, will flourish in non-groceryretailing, as it will have a better management focus, and, more importantly, higher capital to fuel its expansion plans.

OutlookMoving into the forecast period, it is expected that more companies will look for consolidation opportunities. Newcomerswill seek out potential existing retail brands to quickly enter the market and take advantage of the growing Indonesianretail market, whilst existing retailers, pressed by intensifying competition, will welcome partnerships as a way tostrengthen their positions in the market. These mergers and acquisitions will further develop the overall retail market.

Over the forecast period, retailers venturing out into different formats will be more common, and more new concepts willbe introduced. After the takeover of Alfa Retailindo by Carrefour Indonesia, for instance, some of the Carrefour Expressoutlets were converted into Carrefour Market outlets in 2010. After the entry of Korean Lotte Group in Indonesian retailingby taking over Makro Indonesia, the biggest cash and carry retailer in Indonesia, the company has stated its plan toestablish Lotte hypermarkets in the near future.

Future impactAs investment is poured into Indonesian retailing, it is expected that during the forecast period it will increase insophistication year-on-year. Indonesian consumers, especially consumers living outside Java, previously located far fromthe presence of many major retailers, will not only benefit from easier access to products, but will also enjoy more optionsin terms of spending their time and money in a variety of retail formats and from a variety of brand choices.

Smaller existing regional retailers will see this impacting their sales, and they will be encouraged to compete in order tomaintain their long-established brands in their respective regions. Traditional retailers are expected to see their sharesgradually decline in the next five years, as consumers are moving towards modern retailers, especially in grocery retailing.

MARKET INDICATORS

Table 1 Employment in Retailing 2005-2010

2005 2006 2007 2008 2009 2010

Total employment ('000 people) 94,428.6 95,093.0 99,690.8 102,748.4 105,165.5 108,032.0

Employment in retailing ('000 people) 10,588.6 10,969.8 11,331.8 11,671.8 11,963.6 12,226.8

Employment in retailing (%) (% of total employment) 11.2 11.5 11.4 11.4 11.4 11.3

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews

MARKET DATA

Table 2 Sales in Retailing by Category: Value 2005-2010

Rp billion 2005 2006 2007 2008 2009 2010

Store-based Retailing 674,546.9 741,123.4 804,271.7 855,158.3 891,935.7 950,886.8

Non-Store Retailing 7,815.0 8,650.7 9,770.7 11,154.6 12,368.1 14,120.0

Retailing 682,361.9 749,774.1 814,042.5 866,313.0 904,303.7 965,006.8

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews,trade sources

Table 3 Sales in Retailing by Category: % Value Growth 2005-2010


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% current value growth 2009/10 2005-10 CAGR 2005/10 TOTAL

Store-based Retailing 6.6 7.1 41.0

Non-Store Retailing 14.2 12.6 80.7

Retailing 6.7 7.2 41.4


Table 4 Sales in Retailing by Grocery vs Non-Grocery 2005-2010

% retail value rsp excl sales tax 2005 2006 2007 2008 2009 2010

Grocery 66.0 66.0 66.5 66.5 66.0 65.5

Non-Grocery 34.0 34.0 33.5 33.5 34.0 34.5

Total 100.0 100.0 100.0 100.0 100.0 100.0


Table 5 Sales in Store-Based Retailing by Category: Value 2005-2010

Rp tn 2005 2006 2007 2008 2009 2010

Grocery Retailers 463.5 513.8 559.1 592.9 617.4 657.4

Non-Grocery Retailers 211.0 227.3 245.2 262.3 274.6 293.5

Store-based Retailing 674.5 741.1 804.3 855.2 891.9 950.9


Table 6 Sales in Store-Based Retailing by Category: % Value Growth 2005-2010


Grocery Retailers 6.5 7.2 41.8

Non-Grocery Retailers 6.9 6.8 39.1

Store-based Retailing 6.6 7.1 41.0


Table 7 Sales in Non-Grocery Retailing by Category: Value 2005-2010

Rp tn 2005 2006 2007 2008 2009 2010

Clothing and Footwear Specialist Retailers 67.0 71.0 75.6 79.8 83.0 88.0

Electronics and Appliance Specialist Retailers 23.7 25.8 28.3 30.7 32.2 34.5

Health and Beauty Specialist Retailers 23.1 25.1 27.5 29.8 31.6 34.5

Home and Garden Specialist Retailers 13.2 14.2 15.5 16.7 17.6 18.6


11 of 26 11/16/11 11:00 AM

Rp tn 2005 2006 2007 2008 2009 2010

Leisure and Personal Goods Specialist Retailers 22.3 24.0 26.0 28.1 29.8 32.6

Mixed Retailers 17.1 19.2 21.3 23.1 24.2 26.6

Other Non-Grocery Retailers 44.8 47.9 51.0 54.1 56.2 58.8



Table 8 Sales in Non-Grocery Retailing by Category: % Value Growth 2005-2010


Clothing and Footwear Specialist Retailers 6.0 5.6 31.4

Electronics and Appliance Specialist Retailers 7.0 7.8 45.8

Health and Beauty Specialist Retailers 9.1 8.4 49.6

Home and Garden Specialist Retailers 6.0 7.2 41.4

Leisure and Personal Goods Specialist Retailers 9.5 7.9 46.4

Mixed Retailers 10.0 9.2 55.0

Other Non-Grocery Retailers 4.5 5.6 31.3

Non-Grocery Retailers 6.9 6.8 39.1


Table 9 Sales in Non-store Retailing by Category: Value 2005-2010

Rp tn 2005 2006 2007 2008 2009 2010

Direct Selling 7.8 8.6 9.7 11.1 12.3 14.0

Homeshopping 0.0 0.0 0.0 0.0 0.0 0.0

Internet Retailing 0.0 0.0 0.0 0.1 0.1 0.1

Vending - - - - - -

Non-Store Retailing 7.8 8.7 9.8 11.2 12.4 14.1


Table 10 Sales in Non-store Retailing by Category: % Value Growth 2005-2010


Direct Selling 14.0 12.4 79.6

Homeshopping 16.7 9.0 53.7

Internet Retailing 38.8 76.3 1,604.1

Vending - - -

Non-Store Retailing 14.2 12.6 80.7

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews,


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trade sources

Table 11 Retailing Company Shares: % Value 2006-2010

% retail value rsp excl sales tax 2006 2007 2008 2009 2010

Sumber Alfaria Trijaya Tbk PT - - 0.9 1.1 1.3

Carrefour Indonesia PT 1.0 1.0 1.2 1.1 1.1

Indomarco Prismatama PT 0.4 0.5 0.6 0.8 1.0

Matahari Department Store Tbk PT - - - - 0.9

Hero Supermarket Tbk PT 0.6 0.6 0.7 0.7 0.8

Matahari Putra Prima Tbk PT 1.1 1.2 1.3 1.5 0.8

Ramayana Lestari Sentosa Tbk PT 0.6 0.6 0.6 0.6 0.6

Mitra Adi Perkasa Tbk PT 0.4 0.4 0.5 0.5 0.6

Gramedia Asri Media PT 0.2 0.2 0.3 0.3 0.3

Lion Superindo - Gelael PT 0.2 0.2 0.2 0.2 0.2

Alfa Retailindo Tbk PT 0.3 0.2 0.2 0.2 0.2

Ace Hardware Indonesia Tbk PT - 0.1 0.1 0.2 0.2

Kimia Farma Apotek PT 0.1 0.1 0.1 0.1 0.1

Citra Nusa Insan Cemerlang PT 0.2 0.2 0.2 0.1 0.1

Akur Pratama PT 0.1 0.1 0.1 0.1 0.1

Graha Sudirman Centre PT 0.1 0.1 0.1 0.1 0.1

Midi Utama Indonesia PT - - 0.0 0.1 0.1

Tupperware Indonesia PT 0.1 0.1 0.1 0.1 0.1

Sumber Alfaria Trijaya PT 0.4 0.6 - - -

Others 94.2 93.7 92.7 92.1 91.1

Total 100.0 100.0 100.0 100.0 100.0


Table 12 Retailing Brand Shares: % Value 2007-2010

% retail value rsp excl sales tax Company 2007 2008 2009 2010

Alfamart Sumber Alfaria Trijaya Tbk PT - 0.9 1.1 1.3

Carrefour Carrefour Indonesia PT 1.0 1.2 1.1 1.1

Indomaret Indomarco Prismatama PT 0.5 0.6 0.8 1.0

Matahari Department Store Matahari Department Store Tbk PT - - - 0.9

Giant Hero Supermarket Tbk PT 0.5 0.6 0.6 0.7

Hypermart Matahari Putra Prima Tbk PT 0.5 0.6 0.6 0.7

Ramayana Ramayana Lestari Sentosa Tbk PT 0.6 0.6 0.6 0.6

Gramedia Gramedia Asri Media PT 0.2 0.3 0.3 0.3

Sogo Mitra Adi Perkasa Tbk PT 0.2 0.2 0.2 0.2

Super Indo Lion Superindo - Gelael PT 0.2 0.2 0.2 0.2

Ace Hardware Ace Hardware Indonesia Tbk PT 0.1 0.1 0.2 0.2


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Carrefour Alfa Retailindo Tbk PT - 0.2 0.2 0.2

Kimia Farma Kimia Farma Apotek PT 0.1 0.1 0.1 0.1

CNI Citra Nusa Insan Cemerlang PT 0.2 0.2 0.1 0.1

Toserba Yogya Akur Pratama PT 0.1 0.1 0.1 0.1

Electronic City Graha Sudirman Centre PT 0.1 0.1 0.1 0.1

Alfa Midi Midi Utama Indonesia PT - 0.0 0.1 0.1

Tupperware Tupperware Indonesia PT 0.1 0.1 0.1 0.1

Hero Hero Supermarket Tbk PT 0.1 0.1 0.1 0.0

Matahari Department Store Matahari Putra Prima Tbk PT 0.6 0.7 0.8 -

Others Others 94.9 93.1 92.6 91.6

Total Total 100.0 100.0 100.0 100.0


Table 13 Store-Based Retailing Company Shares: % Value 2006-2010


Sumber Alfaria Trijaya Tbk PT - - 0.9 1.1 1.4

Carrefour Indonesia PT 1.0 1.0 1.2 1.1 1.1

Indomarco Prismatama PT 0.4 0.5 0.7 0.8 1.0



Matahari Putra Prima Tbk PT 1.1 1.2 1.3 1.5 0.8




Lion Superindo - Gelael PT 0.2 0.2 0.2 0.2 0.2

Alfa Retailindo Tbk PT 0.3 0.2 0.2 0.2 0.2



Akur Pratama PT 0.1 0.1 0.1 0.1 0.1


Midi Utama Indonesia PT - - 0.0 0.1 0.1

Sepatu Bata Tbk PT 0.1 0.1 0.1 0.1 0.1

Kawan Lama Sejahtera PT 0.1 0.0 0.1 0.0 0.1

Home Center Indonesia PT 0.0 0.0 0.0 0.0 0.0

Sarinah (Persero) PT 0.0 0.0 0.0 0.0 0.0

Sumber Alfaria Trijaya PT 0.4 0.6 - - -

Others 94.3 93.7 92.7 92.1 91.1

Total 100.0 100.0 100.0 100.0 100.0



14 of 26 11/16/11 11:00 AM

Table 14 Store-Based Retailing Brand Shares: % Value 2007-2010

% retail value rsp excl sales tax 2007 2008 2009 2010

Sumber Alfaria Trijaya Tbk PT - 0.9 1.1 1.4

Carrefour Indonesia PT 1.0 1.2 1.1 1.1

Indomarco Prismatama PT 0.5 0.7 0.8 1.0

Matahari Department Store Tbk PT - - - 0.9

Hero Supermarket Tbk PT 0.6 0.7 0.7 0.9

Matahari Putra Prima Tbk PT 1.2 1.3 1.5 0.8

Ramayana Lestari Sentosa Tbk PT 0.6 0.6 0.6 0.6

Mitra Adi Perkasa Tbk PT 0.4 0.5 0.6 0.6

Gramedia Asri Media PT 0.2 0.3 0.3 0.3

Lion Superindo - Gelael PT 0.2 0.2 0.2 0.2

Alfa Retailindo Tbk PT 0.2 0.2 0.2 0.2

Ace Hardware Indonesia Tbk PT 0.1 0.1 0.2 0.2

Kimia Farma Apotek PT 0.1 0.1 0.1 0.2

Akur Pratama PT 0.1 0.1 0.1 0.1

Graha Sudirman Centre PT 0.1 0.1 0.1 0.1

Midi Utama Indonesia PT - 0.0 0.1 0.1

Sepatu Bata Tbk PT 0.1 0.1 0.1 0.1

Kawan Lama Sejahtera PT 0.0 0.1 0.0 0.1

Home Center Indonesia PT 0.0 0.0 0.0 0.0

Sarinah (Persero) PT 0.0 0.0 0.0 0.0

Sumber Alfaria Trijaya PT 0.6 - - -

Others 93.7 92.7 92.1 91.1

Total 100.0 100.0 100.0 100.0


Table 15 Non-Grocery Retailers Company Shares: % Value 2006-2010








Akur Pratama PT 0.4 0.4 0.4 0.4 0.4


Sepatu Bata Tbk PT 0.2 0.2 0.2 0.2 0.2

Metropolitan RetailMart PT 0.2 0.2 0.2 0.2 0.2


15 of 26 11/16/11 11:00 AM


Kawan Lama Sejahtera PT 0.2 0.2 0.2 0.2 0.2

Electronic Solution Indonesia PT 0.1 0.1 0.1 0.1 0.2

Felice Jewellery PT 0.1 0.2 0.2 0.2 0.2


Naramitha Tarra PT 0.2 0.2 0.1 0.1 0.1

Sumber Kreasi Cipta Logam PT 0.2 0.2 0.1 0.1 0.1

Catur Mitra Sejati Sentosa PT 0.1 0.1 0.2 0.2 0.1

Tozy Sentosa PT 0.1 0.1 0.1 0.1 0.1

K-24 Indonesia PT 0.0 0.0 0.1 0.1 0.1

Optik Melawai Prima PT 0.1 0.1 0.1 0.1 0.1

Ace Indoritel Perkakas PT 0.3 - - - -

Others 92.9 92.6 91.8 91.8 88.4

Total 100.0 100.0 100.0 100.0 100.0


Table 16 Non-Grocery Retailers Brand Shares: % Value 2007-2010


Matahari Department Store Matahari Department Store Tbk PT - - - 2.9

Ramayana Ramayana Lestari Sentosa Tbk PT 2.0 2.1 2.0 2.1


Sogo Mitra Adi Perkasa Tbk PT 0.5 0.6 0.6 0.7

Ace Hardware Ace Hardware Indonesia Tbk PT 0.4 0.5 0.5 0.6

Kimia Farma Kimia Farma Apotek PT 0.5 0.5 0.5 0.5

Toserba Yogya Akur Pratama PT 0.4 0.4 0.4 0.4

Electronic City Graha Sudirman Centre PT 0.4 0.5 0.5 0.4

Bata Sepatu Bata Tbk PT 0.2 0.2 0.2 0.2

Metro Metropolitan RetailMart PT 0.2 0.2 0.2 0.2

Kawan Lama Kawan Lama Sejahtera PT 0.2 0.2 0.2 0.2

Electronic Solution Electronic Solution Indonesia PT 0.1 0.1 0.1 0.2

Felice Jewellery Felice Jewellery PT 0.2 0.2 0.2 0.2

Guardian Hero Supermarket Tbk PT 0.1 0.1 0.1 0.2

Debenhams Mitra Adi Perkasa Tbk PT 0.1 0.1 0.1 0.2

Sports Station Mitra Adi Perkasa Tbk PT 0.1 0.1 0.1 0.1

Disc Tarra Naramitha Tarra PT 0.1 0.1 0.1 0.1

Julia Jewelry Sumber Kreasi Cipta Logam PT 0.2 0.1 0.1 0.1

Mitra10 Catur Mitra Sejati Sentosa PT 0.1 0.2 0.2 0.1

Centro Tozy Sentosa PT 0.1 0.1 0.1 0.1

Matahari Department Store Matahari Putra Prima Tbk PT 2.1 2.2 2.5 -

Others Others 91.3 90.5 90.3 89.5

Total Total 100.0 100.0 100.0 100.0


16 of 26 11/16/11 11:00 AM


Table 17 Non-store Retailing Company Shares: % Value 2006-2010


Citra Nusa Insan Cemerlang PT 15.0 13.4 11.8 10.7 9.4

Tupperware Indonesia PT 5.1 5.7 6.0 6.6 7.5

Sophie Martin Indonesia PT - - 5.9 6.2 6.2

Orindo Alam Ayu PT 4.0 4.8 5.7 5.4 5.6

Amindoway Jaya PT 5.0 5.2 4.5 4.4 4.4

Nusa Selaras Indonesia PT 1.1 0.9 0.7 0.8 0.9

Tahitian Noni International Indonesia PT 0.6 0.6 0.6 0.7 0.7

Luxindo Raya PT 2.6 1.5 1.1 0.7 0.7

Singa Langit Jaya PT 1.6 1.0 1.4 1.0 0.5

Herbalife Indonesia PT 0.5 0.5 0.4 0.5 0.5

Naramitha Tarra PT 0.1 0.2 0.2 0.3 0.3

Gramedia Asri Media PT - 0.1 0.2 0.2 0.3

Sunrider Nusaperdana PT 0.3 0.3 0.3 0.3 0.2

Paramitra Media Perkasa PT 0.1 0.1 0.1 0.1 0.1

Nugra Aloeverindo PT 0.2 0.1 0.1 0.1 0.1

Unicity Network PT 0.1 0.1 0.1 0.1 -

Nadja Sukses Utama PT 6.2 6.2 - - -

Avon Indonesia PT 0.8 - - - -

Others 56.6 59.4 60.7 62.1 62.5

Total 100.0 100.0 100.0 100.0 100.0


Table 18 Non-store Retailing Brand Shares: % Value 2007-2010


CNI Citra Nusa Insan Cemerlang PT 13.4 11.8 10.7 9.4

Tupperware Tupperware Indonesia PT 5.7 6.0 6.6 7.5

Sophie Paris Sophie Martin Indonesia PT - 5.9 6.2 6.2

Oriflame Orindo Alam Ayu PT 4.8 5.7 5.4 5.6

Amway Amindoway Jaya PT 5.2 4.5 4.4 4.4

Nu Skin Nusa Selaras Indonesia PT 0.9 0.7 0.8 0.9

Tahitian Noni Tahitian Noni International Indonesia PT 0.6 0.6 0.7 0.7

Lux Luxindo Raya PT 1.5 1.1 0.7 0.7

Tianshi Singa Langit Jaya PT 1.0 1.4 1.0 0.5

Herbalife Herbalife Indonesia PT 0.5 0.4 0.5 0.5

Disc Tarra Naramitha Tarra PT 0.2 0.2 0.3 0.3


17 of 26 11/16/11 11:00 AM



Sunrider Sunrider Nusaperdana PT 0.3 0.3 0.3 0.2

FastWorld Paramitra Media Perkasa PT 0.1 0.1 0.1 0.1

Forever Living Nugra Aloeverindo PT 0.1 0.1 0.1 0.1

Unicity Unicity Network PT 0.1 0.1 0.1 -

Sophie Martin Nadja Sukses Utama PT 6.2 - - -

Avon Avon Indonesia PT - - - -

DRTV Innovation Paramitra Media Perkasa PT - - - -

Others Others 59.4 60.7 62.1 62.5

Total Total 100.0 100.0 100.0 100.0


Table 19 Forecast Sales in Retailing by Category: Value 2010-2015

Rp tn 2010 2011 2012 2013 2014 2015



Retailing 965.0 970.4 978.5 987.4 996.7 1,007.1

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 20 Forecast Sales in Retailing by Category: % Value Growth 2010-2015

% constant value growth 2010-15 CAGR 2010/15 TOTAL

Store-based Retailing 0.8 3.9

Non-Store Retailing 6.1 34.3

Retailing 0.9 4.4


Table 21 Forecast Sales in Store-Based Retailing by Category: Value 2010-2015

Rp tn 2010 2011 2012 2013 2014 2015

Grocery Retailers 657.4 661.0 666.9 673.2 679.3 686.2




Table 22 Forecast Sales in Store-Based Retailing by Category: % Value Growth 2010-2015


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Grocery Retailers 0.9 4.4

Non-Grocery Retailers 0.6 2.9

Store-based Retailing 0.8 3.9


Table 23 Forecast Sales in Non-Grocery Retailing by Category: Value 2010-2015

Rp tn 2010 2011 2012 2013 2014 2015

Clothing and Footwear Specialist Retailers 88.0 87.4 86.8 86.4 86.0 85.8

Electronics and Appliance Specialist Retailers 34.5 34.7 34.9 35.3 35.7 36.3

Health and Beauty Specialist Retailers 34.5 35.0 35.5 35.9 36.4 36.8

Home and Garden Specialist Retailers 18.6 18.6 18.7 18.9 19.1 19.3

Leisure and Personal Goods Specialist Retailers 32.6 33.9 35.0 36.2 37.3 38.5

Mixed Retailers 26.6 26.7 26.9 27.2 27.5 27.9

Other Non-Grocery Retailers 58.8 58.2 57.7 57.4 57.3 57.4



Table 24 Forecast Sales in Non-Grocery Retailing by Category: % Value Growth 2010-2015


Clothing and Footwear Specialist Retailers -0.5 -2.5

Electronics and Appliance Specialist Retailers 1.0 5.2

Health and Beauty Specialist Retailers 1.3 6.7

Home and Garden Specialist Retailers 0.7 3.7

Leisure and Personal Goods Specialist Retailers 3.4 18.1

Mixed Retailers 1.0 5.1

Other Non-Grocery Retailers -0.5 -2.4

Non-Grocery Retailers 0.6 2.9


Table 25 Forecast Sales in Non-store Retailing by Category: Value 2010-2015

Rp tn 2010 2011 2012 2013 2014 2015

Direct Selling 14.0 14.9 15.8 16.8 17.7 18.7

Homeshopping 0.0 0.0 0.0 0.0 0.0 0.0

Internet Retailing 0.1 0.1 0.1 0.2 0.2 0.3

Vending - - - - - -


19 of 26 11/16/11 11:00 AM

Rp tn 2010 2011 2012 2013 2014 2015



Table 26 Forecast Sales in Non-store Retailing by Category: % Value Growth 2010-2015


Direct Selling 5.9 33.4

Homeshopping 2.5 13.1

Internet Retailing 22.0 170.2

Vending - -

Non-Store Retailing 6.1 34.3


APPENDIX

Operating environment

Foreign direct investment in retailForeign direct investment (FDI) in the country started to make progress in the 1970s, and saw rapid growth until themonetary crisis of the late 1990s. This rapid growth was underpinned by the significant expansion of the internationaleconomy, as well as trade and domestic investment. As the FDI flow to Indonesia declined significantly up to the early2000s, the government declared “Investment Year 2003”, in order to increase FDI flow and collect development funds atthe end of the working contract with the International Monetary Fund (IMF).

Under the leadership of President Soeharto, up to 1998 the presence of foreign retailers in Indonesia was minimal, as theyfound it difficult to enter the market; this situation obviously favoured local retailers. In 1998, however, the Indonesiangovernment issued several new regulations, including Presidential Decree number 99/1998, to ease the entry of foreignretailers into the country. This meant that local retailers had to compete openly with foreign players, and were no longerprotected by regulations. In 1998, the government also signed a letter of intent with the IMF in relation to Indonesia’seconomic restructuring policy. The agreement stated that the government must fully support the liberalisation of the retailenvironment. As a result, it became increasingly easy for foreign retailers with large capital to expand their networks andacquire local companies.

Responding to rising concern that the Presidential Decree on Modern Markets, which was issued in December 2007 byPresident Yudhoyono, would restrict the operation of foreign retail chains in the country, the government assured foreignretailers that the regulation was aimed at creating harmonious competition between the modern and traditional retailenvironments, and will not restrict foreign ownership in retail businesses in the country.

Despite fully supporting the entry of foreign retailers in the country, investors in Indonesia still have to adhere to severalexisting regulations, such as the Ministry of Trade Decree on Franchising number 12 2006, which requires that internationalfranchises use local partners when expanding their operations in Indonesia.

Informal retailingAt the end of the review period, there was no published data regarding the informal retail environment in Indonesia. Thelatest data obtained from the Indonesian National Statistics Office, BPS, indicated that in 2004 there were 10,485,974informal establishments in wholesale, retail, restaurant and accommodation services, employing a total of 17,797,199people.

The number of businesses and value sales in the informal retail environment in Indonesia reached an all-time high duringthe monetary crisis of the late 1990s. The closure of many manufacturing and service companies resulted in many peoplelosing their jobs in the formal environment, and thus they tried to create their own jobs in the informal sector in order tosurvive. Given the government’s limited efforts to reduce the number of informal retail players over the review period, the


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value of informal retailing continued to grow in 2010, providing a threat to the formal retail environment.

Product areas particularly affected by the informal retail environment include alcoholic drinks, cigarettes, OTC healthcareproducts, books, audio-visual goods and electronic products.

Grocery retailers are most affected by informal retailing, since there are a considerable number of street vendors (knownas pedagang asongan in Indonesia) who roam the streets, especially in cities, with a limited range of grocery products.Informal retailing also threatens formal non-grocery retailers such as drugstores, booksellers, audio-visual stores, clothingand footwear retailers and electronics and appliance specialist retailers.

Driven by urbanisation and consumerism amongst urban dwellers, the majority of informal retailing businesses are locatedin urban areas, especially in major cities such as Jakarta. These businesses typically operate on streets and in other publiclocations, causing conflict between the urban authorities, which are trying to maintain their cities’ cleanliness, and informalurban retailers, which need space for their activities in order to survive.

Informal retailing in Indonesia largely targets lower-income consumers. As they do not pay tax to the government,informal retailers are able to offer lower prices. Nonetheless, a number still sell their products at prices comparable tothose of formal retailers, in order to achieve greater profit margins.

In September 2007, Jakarta City Council endorsed a new bylaw or public order, stating that no individual may become astreet vendor, and no individual may trade with street vendors. The bylaw imposed punishments of a maximum of 180days of imprisonment and a maximum of Rp50 million in fines for offenders. This may threaten the existence of theinformal retail environment in Jakarta, although the implementation of the law is still questionable, given the low level oflaw enforcement in the country, and the fact that the bylaw will affect the lives of many people making a living as streetvendors. Apart from this, there were no other regulations targeting informal retailing in Indonesia in 2010.

Opening hoursThe majority of retail stores in Indonesia follow common opening hours, from 10.00hrs to 22.00hrs, with outlets located inshopping malls usually following the opening hours of the malls. In Jakarta, opening hours for retail outlets are regulatedby city bylaw No 2/2002, which states that operating hours for non-government markets run from 10.00hrs to 22.00hrs.During the review period, one modern retailer which opened its outlet beyond 22.00hrs was forced to return to normaloperating hours due to protests by the City Council regarding violation of the bylaw.

24-hour retailing exists in Indonesia, especially in chemists/pharmacies, including the brands Kimia Farma and K-24.Jakarta city bylaw No 2/2002 states that stores wishing to open outside the required hours must obtain special permissionfrom the Governor of Jakarta. Meanwhile, a special regulation applies to forecourt retailers, which have to open 24 hours aday, 365 days a year.

During holiday periods such as Hari Raya Idul Fitri or Christmas, opening hours may be extended to cater for holidayshopping, with several hypermarkets opening 24 hours a day.

For independent players such as traditional kiosks, opening hours are generally more flexible, and it is not uncommon forstores to open only at 11.00hrs or midday, particularly if the stores are not located in a main street area. In addition,stores located in smaller cities or rural areas typically open until 20.00hrs or 21.00hrs instead of 22.00hrs, as consumers inthese areas normally do not stay out of their homes late, and the surrounding areas are less crowded at night comparedwith the larger cities.

Presidential Decree No 112 Year 2007 Article 7 regulates that the business hours of hypermarkets, department stores andsupermarkets are from 10.00hrs to 22.00hrs (Monday to Friday) and from 10.00hrs to 23.00hrs (Saturday and Sunday). Italso mentions that the mayors or governors of particular regions may determine the opening hours for modern retailoutlets beyond 22.00hrs on public holidays or on other specific days.

Since 2008, the Indonesian government has planned to come up with a new regulation to limit the operational hours ofshopping malls and other places, such as offices and hotels, up to 01.00hrs in order to reduce the use of electricity. In2010, to show its support for traditional retailers, the government also emphasised that modern retail stores are notallowed to operate 24-hours.

Retail landscapeOver the review period, retailing in Indonesia remained largely concentrated in high streets rather than outside towns,because of the higher traffic generated in the former areas compared with the latter. However, there was an observableincrease in interest in out-of-town areas, mostly because high streets were becoming saturated. In order to attract moreconsumers and increase their appeal, it has become common in out-of-town areas for several retailers (particularly smallerones or shopping centre developers) to congregate in one area to create a shopping hub.


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Shopping centres and malls are increasingly favoured hotspots for consumers of all ages in the country, mainly because ofthe wide range of retailers they accommodate. The rising trend of shopping in malls was also caused by the rapid influx ofshopping centres. By the end of the review period, several areas in larger cities were reaching saturation or oversupply interms of shopping and trade centres, including the Mangga Dua and Kelapa Gading areas in North Jakarta.

Shopping centres in Indonesia have increasingly been recognised as convenient one-stop-shopping locations, as mostshopping malls house a hypermarket or supermarket, pharmacies, fast food outlets, restaurants and cafés and specialiststores. Some centres have both hypermarkets and department stores, and most shopping centres also house a bank, orATMs. Consequently, shopping centres have become the ultimate place to shop for consumers, particularly workingconsumers with limited time to shop for the family.

Cash and carryIn 2010, value sales of cash and carry in Indonesia remained small, registering less than 1% of total value sales of groceryretailers, at around Rp4 trillion. By the end of the review period, there were only a few cash and carry brands in Indonesia,including Makro, Goro and Indogrosir. Facing significant competition from hypermarkets, cash and carry registered a poorperformance in the latter part of the review period. Sales showed slight growth, due largely to the better performance ofLotte Shopping Indonesia.

In Indonesia, consumers consider cash and carry to be similar to hypermarkets, with the only significant difference beingthe requirement for membership. This is mainly because most hypermarkets offer prices which almost match the low pricesof cash and carry, due to their significant economies of scale. Furthermore, the sales area of cash and carry is generallysimilar to that of hypermarkets, with a total sales area of around 6,000 sq m or more, and both formats regularly holdpromotional periods. Hypermarkets, however, is generally perceived as the more comfortable of the two formats.

The majority of cash and carry customers are small and mid-sized retailers which resell their purchases throughindependent stores or kiosks. This group forms the main source of income for cash and carry, as these customers shopeither weekly or monthly at cash and carry outlets in order to stock up. Other key groups of customers for cash and carryare caterers, restaurants and bakers, because of the outlets’ low price position.

Along with small retailers and foodservice operators, households represents another target group for cash and carry. Somehouseholds prefer to shop at a cash and carry for their monthly groceries. Although consumers have to spend a largeamount per trip, as they are purchasing in bulk they save money, as unit prices tend to be lower than in other retailers.Therefore, householders typically stock up on high usage commodities such as laundry care products, instant noodles,tissue and hygiene products and cooking oil.

The requirement for membership makes cash and carry less accessible to consumers than hypermarkets. As a result,players continued to ease the membership requirements for customers over the review period. In response to theincreasing competition, the largest cash and carry operator in the country, Makro, lifted its membership fee of Rp50,000per year altogether in 2005, both for new and existing members.

Up to 2010, Makro remained the leading cash and carry operator in the country. It had a chain of 19 outlets by the end ofthe review period, located in various major cities, such as Jakarta, Yogyakarta, Balikpapan, Banjarmasin, Palembang,Pekanbaru and Makassar. Although customers must be members, and the products are sold in bulk, the company managedto resist the competition from other retailers, and achieved steady growth over the review period. The majority ofhouseholders who shop at Makro are searching for value for money, and are willing to spend more per trip on bulk-buying.Other customers include small independent retailers and horeca operators. These smaller retailers prefer to shop at Makrorather than through large distributors, as they want to avoid bureaucracy and can find more options at Makro.

In mid-2006, Makro began restructuring in order to increase its sales, which were poor in the first half of the year. Onepart of this involved establishing a marketing division to boost its marketing activities, such as aggressive communicationvia print media, especially newspapers. In early 2007, Makro started to hold a monthly event called “Horeka Days” toattract horeca players (hotels, restaurants and cafés), with various activities, such as cooking demonstrations, in-storekitchens, and inviting chefs to share their knowledge.

In 2008, the majority shareholder of Makro Indonesia, SHV Holdings of the Netherlands, decided to sell its stake in thecompany, as it aimed to focus on other countries, such as Thailand. In October 2008, Lotte Group of South Korea acquiredSHV Holdings. In January 2009, Makro Indonesia officially changed its name to Lotte Shopping Indonesia. Although thenew company plans to change the name from Makro to Lotte Mart, this plan had not been realised at the time of writing.

In the short-term, Lotte Shopping Indonesia has plans to venture into the hypermarkets format, whilst sustaining the cashand carry format. In 2011, the company plans to start with five hypermarkets in various major cities around the country.This is likely to pose a threat to existing hypermarket brands such as Carrefour and Giant in the forecast period.


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Table 27 Cash and Carry: Sales Value 2006-2010

Sales value Rp million, current prices 2006 2007 2008 2009 2010

Cash and carry 5,015 4,911 4,267 4,097 4,191

% growth 6.9 -2.1 -13.1 -4.0 2.3

Source: Official statistics (Badan Pusat Statistik (Central Statistics Office), trade press (including Kompas, Marketing, MediaIndonesia, MIX, SWA), company research, trade interviews, Euromonitor International estimates

Note: Sales value excludes VAT, sales tax

Table 28 Cash and Carry: Sales by National Brand Owner: Sales Value 2007-2010

Rp million, current prices

Company (NBO) Brand(s) 2007 2008 2009 2010

Makro Indonesia PT Makro 2,287 2,424 – –

Lotte Shopping

Indonesia PT Makro – – 2,545 2799

Alfa Retailindo Tbk PT Super Alfa 1,243 373 – –

Goro Batara Sakti PT Goro 118 119 119 120

Inti Cakrawala Sakti PT Indogrosir 1,263 1,352 1,433 1272

Source: Trade press (including Kompas, Marketing, Media Indonesia, MIX, SWA), company research, trade interviews,Euromonitor International estimates

Note: Sales value excludes VAT, sales tax

Table 29 Cash and Carry: Number of Outlets by National Brand Owner: 2007-2010

Outlets

Company (NBO) Brand(s) 2007 2008 2009 2010

Makro Indonesia PT Makro 19 19 – –

Lotte Shopping

Indonesia PT Makro – – 19 19

Alfa Retailindo Tbk PT Super Alfa 8 3 – –

Goro Batara Sakti PT Goro 1 1 1 1

Inti Cakrawala Sakti PT Indogrosir 6 6 6 5

Source: Trade press (including Kompas, Marketing, Media Indonesia, MIX, SWA), company research, trade interviews,Euromonitor International estimates

DEFINITIONSThis report analyses the market for retailing in Indonesia. For the purposes of the study, the market has been defined as


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follows:

Store-based retailing

Grocery retailers

Hypermarkets

Supermarkets

Discounters

Small grocery retailers

Convenience stores

Forecourt retailers

Chained forecourt retailers

Independent forecourt retailers

Independent small grocers

Food/drink/tobacco specialists

Other grocery retailers

Non-grocery retailers

Mixed retailers

Department stores

Variety stores

Mass merchandisers

Warehouse clubs

Health and beauty specialist retailers

Chemists/pharmacies

Parapharmacies/drugstores

Beauty specialist retailers

Other healthcare specialist retailers

Clothing and footwear specialist retailers

Home and garden specialist retailers

Furniture and furnishings stores

DIY, home improvement and garden centres

Electronics and appliance specialist retailers

Leisure and personal goods specialist retailers

Booksellers and stationers

Audio-visual stores


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Toys and games stores

Sports goods stores

Pet shops and superstores

Other leisure and personal goods specialist retailers

Other non-grocery retailers

Non-store retailing

Vending

Homeshopping

Internet retailing

Direct selling

Other terminology:

GBO refers to Global Brand Owner, which is the ultimate owner of a brand.

NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO maybe a subsidiary of a GBO or it may be a completely separate company. Share tables at both GBO and at NBO level areprovided in the report. Reference to shares in the report analysis is at NBO level.

Explanations of words and/or terminology used in this report are as follows:

AFTA: ASEAN Free Trade Area: trade pact between ASEAN (Association of Southeast Asian Nations) countries on theelimination of tariffs on various goods imported from other ASEAN countries, which took effect in 2003.

ACFTA: ASEAN China Free Trade Agreement: trade pact between ASEAN (Association of Southeast Asian Nations) countrieswith China on the elimination of tariffs on various goods imported from China, and vice versa, which took effect in 2010.

BPS: Badan Pusat Statistik, or National Statistics Office of Indonesia.

Hari Raya Idul Fitri: an Indonesian holiday celebration to mark the end of Ramadan, the fasting month for Muslims. This isthe largest festive period in Indonesia, and is also called Lebaran, a less formal term.

Jabodetabek: the term given to the metropolitan area surrounding Jakarta, which consists of Jakarta, Bogor, Depok,Tangerang and Bekasi. It is the largest metropolitan area in Indonesia.

KPPU: stands for Komisi Pengawas Persaingan Usaha, or Business Competition Monitoring Commission. A government bodyin charge of competition between companies in various markets in Indonesia.

Mini-mart: introduced in 1998, mini-marts are a modern version of traditional provisions shops. Air conditioned and with ashop size of a minimum of 60 sq m, mini-marts such as Indomaret offer around 2,000 product lines.

Pyramid selling: a discredited type of direct selling. It requires the participant to make a payment prior to joining thescheme, and the only way to get back the initial fee is the recruitment of more members, rather than the sale of goods andservices. Thousands of members lose money under such schemes.

Toko kelontong: an independent family-owned retail outlet, which is normally located in a neighbourhood residential area.These outlets are permanent, and are normally located in front of the store owner’s house. These outlets carry moregrocery than non-grocery products. That said, these are normally larger, and carry more non-grocery items than warungs.

Warnet: Warung internet, an Indonesian acronym for internet shops, where Indonesians go to use the internet. Chargesare by the hour.

Warung: small, typically family-owned business. In retailing, these are usually not permanent establishments. Warungs areincluded under other grocery retailers. The outlets carry more grocery than non-grocery products

Sources used during research include the following:

Summary 1 Research Sources


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© 2011 Euromonitor International

Official Sources Badan Pengembangan Ekspor Nasional (National Agency for Export Development)

Biro Pusat Statistik (Statistics Indonesia)

Department of Trade

USDA Foreign Agricultural Service

Trade Associations APLI (Asosiasi Penjualan Langsung Indonesia)

BPS (Biro Pusat Statistik)

Trade Press Asia Times Online

Bisnis Kita Magazine

BisnisJakarta.com

Indonesian Business On Web

Investor.co.id

Marketing Magazine

MIX Magazine

Prospektif Magazine

Republika Newspaper

Sinar Harapan

Suara Merdeka Newspaper

SWA Magazine

The Jakarta Post

Warta Ekonomi

Source: Euromonitor International


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