16 Feb 2011
Retail revolution in Indonesia
Similar to China and India, which have huge populations with growing consumption, typified by the surge of middle-income consumers, Indonesia’s retail market can be equally attractive. Foreign brands and retailers are attracted to the Indonesian market for its huge appetite for imported goods, with strong growth prospects underlined by hefty retail sales and rapid modernisation of the retail sector.
Indonesia’s retail market potential not to be overlooked
As the world’s fourth most-populated country (over 230 million), Indonesia is similar to either China or India in relation to rapid retail market development. Foreign brands and retailers are attracted to the Indonesian market for its genuine appetite for imported goods, with strong growth prospects underlined by hefty retail sales and rapid modernisation of the retail sector.
In terms of market size, Indonesia’s retail market is around one-tenth the size of China’s, and one-third of India’s. However, Indonesia’s retail market, the largest among ASEAN countries, can be equally attractive in its own right.
First, Indonesia’s retail market is seen as less competitive than that of China in many aspects, typically, the concentrated presence of brands, relatively limited marketing push, and slow ascendance of local brands.
Secondly, Indonesia’s retail market has a higher proportion of modern retail than the India’s retail market (Indonesia: 37% versus India: 4%), generating pragmatic business opportunities for foreign brands and retailers.
Indonesia’s retail modernisation
Supported by ongoing urbanisation, an emerging middle-class segment and changing lifestyles, Indonesia’s modern retail will keep growing fast. The Indonesian Retailers Association (APRINDO) expects modern retail will continue rising annually by about 10% over the next few years.
Increasing foreign participation is a major force changing the entire retail landscape of Indonesia. In the early 2000s, Indonesia’s government lifted a number of restrictions on foreign participation in the retail sector. The successive entry and expansion of foreign retailers, such as Carrefour, Sogo, Giant (under Dairy Farm), Lotte Mart and Best Denki, intensified competition in the retail sector, which in turn boosted the growth of modern retail in Indonesia, and penetration in the major cities.
Currently, modern retail in Indonesia is most visibly seen in densely populated cities, such as Jakarta, Surabaya and Bandung. Over 80% of the modern retail outlets are in Java. Modern retail is expected to spread out and grow fast in other islands, such as Sulawesi and Sumatra, where the purchasing power will grow strong in line with the rapid development of natural resources-based businesses.
Rapid growth of shopping malls and department stores
In the past five years, a lot of up-scale shopping malls, such as Pacific Place (Jakarta), Senayan City (Jakarta) and Grand City (Surabaya) have been opened. Most of the up-scale shopping malls tend to have huge retail spaces and modern, stylish interior design. Senayan City, for example, has a total retail space of over 76,000 square metres, similar to Times Square in Hong Kong.
Shopping centres in Indonesia are now getting bigger and bigger, gradually turning into a convenient one-stop shopping location for consumers. Apart from electronics and fashion products, people can also shop for daily necessities, since most shopping malls now have hypermarkets, drug stores, specialty stores and fast-food outlets.
Source: Hong Kong Trade Development Council
Riding on the increasing number of shopping malls, department stores have also expanded fast in recent years. Total shopping space of department stores almost doubled from 2003 to 2007. In major shopping malls, two or even three department stores can be found.
In Indonesia, the department store is one of the most successful retail formats, which gives department store operators a strong hand in bargaining with shopping malls and brand owners. Up-scale department stores are mostly dominated by overseas brand names, such as Sogo, Seibu, Metro and Debenhams. Local department stores, such as Matahari and Ramayana, target the lower income group, with products commanding a quality higher than that of products sold in traditional markets.
The expansion of overseas department stores prompted local department stores to push up their positioning, targeting the middle-upper and upper income consumers. Matahari Group, for example, introduced Matahari New Generation, which has a modern interior design with branded goods sold.
Source: Hong Kong Trade Development Council
Emergence of hypermarkets and minimarkets
For grocery items, people can shop in minimarkets, supermarkets or hypermarkets. Minimarkets are small stores located closer to local shoppers, with the advantages of convenient access and a hygienic modern store. Hypermarkets are very large stores, which carry a wide range of products in cheaper prices. Supermarkets, which lie between the two, are now threatened by the emergence of minimarkets and hypermarkets.
Indeed, leading supermarket companies, such as Matahari Group and Hero, have already tapped into the fast-growing hypermarket sector. Instead of opening the hypermarkets in the saturated Jakarta, Hero chose to target Surabaya and Tangerang, where there had been fewer hypermarkets.
Modern Markets in Indonesia
Source: Indonesian Retailers Association, Media Data, President Decree 112th (2007), Daniel Suryadarma et al. (Impact of Supermarket to Transitional Market of Urban Area in Indonesia)