Indonesia Retail Industry

The year of 1998 was the time of the Indonesian government opened the retail industry to foreign investors. It was following the letter of intent, which the Indonesian government signed with the International Monetary Fund (IMF) to revive the ailing economy due to financial crisis. The letter of intent stated that the Indonesian government should revoke the ban on foreign investors to enter the wholesale and retail businesses. The decision to open the Indonesian retail industry to foreign investors was later legalized by a Presidential Decision No.99/1998 and a Decision Letter of the State Minister of Investment (Head of Capital Investment Coordinating Board) No.29/SK/1998. The regulations stipulated that licensing procedures and all other requisitions that a foreign retailer has to fulfill are the same with those applicable to local large-scale retailers.

Before the first foreign retailers entered the Indonesian market, local retailers were already actively developing modern retail formats. Since 1970s, Indonesian retailers have established a network of supermarkets all over the Indonesian archipelago and currently most Indonesian towns and cities have at least one supermarket with a sales surface between 1,000 and 4,000 m². In 2007, leading local retailers were Matahari, Alfa Retailindo, Ramayana, Indomarco and Hero. After the liberalization of the retail industry, foreign retailers began to invest in Indonesia. While some foreign retailers invest in the supermarket and minimarket sectors, most foreign capitals have been investing in the hypermarket sector. Large-scale modern retailing really took off at the end of the 1990s, when foreign investment in the country was being liberalized.

Ramayana operates department stores and supermarkets, commonly on the ground floor or basement of its department stores. According to Retail Asian, Ramayana in second place with Rp. 4.8 billion with wider sales area, 456.900 sqm. Ramayana also lead in term of outlet number than Carrefour. They have 89 outlets than 24 in Carrefour. It means Carrefour succeed in sales per sqm, Rp. 43 million/year more bigger than Ramayana which reach only Rp. 10,6 Million/year.

Superindo: PT Lion Super Indo operates some 50 supermarkets under the Super Indo banner in urban areas throughout Indonesia, one of the world's most populated nations. The Indonesian grocery chain has been working to modernize its store layout and focused on offering more fresh products. Belgium-based global grocery retailer Delhaize Group bought a 51% stake in Super Indo in 1997, which operated about a dozen stores at the time. Delimmo, the investment arm of Belgian retailer Delhaize, converted a convertible bond into a 51 per cent stake in the local retailer Superindo in December 1998. The grocery chain has grown substantially since then adding many new stores, a distribution center in Jakarta, and product lines, including organic and ethnic items. The chain's Super Indo 365 line of private-label products, launched in 2006, has grown to more than 140 items.

PT. Carrefour Indonesia (Carrefour): Since its establishment in 1998, Carrefour of France has been expanding its business rapidly in Greater Jakarta and other big cities. When French retailer Carrefour entered the Indonesian market – also in 1998 – its aim was to organically increase a network of hypermarkets in collaboration with its joint venture partner Tigaraksa. Carrefour, as a major player in the hypermarket sector, currently operates 29 outlets throughout the country. The company markets more than 50,000 product items and employs more than 10,000 employees. In 2006, Carrefour recorded sales of $656 million. In 2008, the company booked €893 million in total sales. This represented a 17 percent increase from the year before, but this also reflected the contribution to sales of PT Alfa Retailindo (Alfa) - the supermarket operator Carrefour acquired in January, 2008. Alfa's contribution to Carrefour was close to IDR3 trillion or almost €200 million. In 2008, Carrefour’s operations in Indonesia consisted of 37 hypermarkets (vs. 29 hypermarkets in 2006). The company recorded €627m sales in 2006, and sales were up 14.4% over the first nine months of 2007.

PT. Makro Indonesia (Makro): PT. Makro Indonesia, a subsidiary of the Netherlands-based retail chain operator SHV Holdings, started its operation in 1992 with the establishment of its first outlet in east Jakarta. In 2007, Makro operated 19 outlets in 13 cities including Jakarta, Bandung, Semarang, Medan and Bali. The company’s sales in 2006 were $467 million. It was owned by Dutch wholesaler SHV Holdings. SHV in July 2008 said that it would sell its stake in PT Makro Indonesia to expand their business in Thailand and hired HSBC Holdings to find a buyer for the discount chain. First mover was the Dutch company SHV that entered Indonesia via its subsidiary Makro Asia, opening its first Makro Cash & Carry store in 1992. Catering to small entrepreneurs, the cash & carry format suits an emerging market well. Foreign retailers, however, really started to affect developments in Indonesia after the government began facilitating foreign investment in 1998. On October 08, 2008 Lotte bought a 75 percent stake in discount store chain PT Makro Indonesia for 294 billion won ($223 million). All stores will be renamed Lotte Mart. With this purchase, Lotte Mart now has 27 branches overseas, including eight in China bought last December from Makro China, as well as 58 branches in Korea. The company also plans to open a Lotte Mart store in Vietnam later in the year. Shinsegae-owned discounter E-Mart is neck-and-neck with Lotte with 16 branches in China and 117 branches in Korea.

PT. Indomarco Prismatama (Indomaret): Indomaret was mini-market-chain business owned by PT. Indomarco Prismatama. Indomarco focused on its Indomaret convenience stores and had leading position in this sector. Since its establishment in 1988, the company had been expanding rapidly. In 2007, Indomaret had franchised about 1,800 outlets throughout the country. Indomaret displayed more than 3,500 food and non-food items in all its outlets. In 2006, the company’s sales reached $356 million. Quite a contrast with Hero, the company was under control of its main foreign shareholder Dairy Farm.

PT. Hero Supermarket Tbk. (Hero): Hero began to operate its first outlet in 1970s and experienced a significant setback when 16 of its outlets were looted and burned down during the May 1998 riot. However, the company’s financial performance had improved along with better economic and social conditions since 1999. PT. Hero Supermarket operated more than 90 outlets in Indonesia and recorded $322 million worth of sales in 2006. In addition to the supermarket business, the company also operated “Giant” hypermarket. In February 1998, Hong Kong-based retailer Dairy Farm acquired a 32 per cent stake in local retailer PT Hero. In 2008, 44.55 percent of stakes belonged to Dairy Farm which had a right to increase this to a 69.1 percent majority share at will.

Alfa Retailindo, a listed company on the Jakarta Stock Exchange, was a major operator in Indonesia convenience store, operating 29 stores across the country (with sales area comprised between 1000m² and 4000m²), of which 13 are located in Jakarta. In 2004, Alfa Retailindo gained net profits plummet by 71 per cent to US$11,731. In August 2005, the companies expanded to Makassar and Bekasi with investment was just about US$4.1 million in order to open two new stores. Alfa Retailindo reported net sales in 2006 of IDR 3624bn (€265m). Before 2007, the majority shareholder was local company Sigmantara Alfindo, subsidiary of HM Sampoerna, which owned 56.6 per cent of the shares. In 2007, the US Company Altria became the retailer’s second largest shareholder after its subsidiary Philip Morris acquired the Indonesian cigarette manufacturer Sampoerna which holds 23.4 per cent of the shares.

PT. Matahari Putra Prima Tbk. (Matahari): Matahari operated department stores, supermarkets, hypermarkets, discount stores and drugstores stores. The holding company of the Matahari Group was in 1958. Since its establishment, the company had been evolving from a small store that sold children’s clothing in Pasar Baru, Jakarta to be a national retail giant with 83 department stores, 10 children specialty stores, 27 “Hypermart” hypermarkets, 38 supermarkets, 36 health & beauty centers and more than 110 family entertainment centers. While hypermarkets were almost unknown phenomenon in 1995, Matahari had already started with its Mega M hypermarket format –local retailer – acquisition of an existing network was no option. PT Matahari Putra Prima Tbk reported earnings results for the year 2008. For the year, the company posted a 22.6% increase in sales to IDR 12 trillion ($1.09 billion) from IDR 9.8 trillion in the previous year. Matahari Department Store (MDS) and Matahari Food Business (MFB) were respectively accounting for IDR 5.9 trillion and IDR 5.7 trillion of the total sales. Each outlet of the two business units recorded an increase of 10.8% in sales. Despite the strong growth in sales the company suffered a decline in net profit to IDR 10 billion on foreign exchange loss in 2008. Matahari Department Store provides sales outlook for the first quarter and full year of 2009.