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Modern Market Growth and Changing

Map of Retail Food Sector in Indonesia

Ronnie S. Natawidjaja, Ph.D.

Center for Agricultural Policy


and Agribusiness Studies
Padjadjaran University
INDONESIA
Development of Supermarket

z The first supermarket was registered in early 70s and there was no
further development within ten years.
z The supermarket was growing very rapidly since 1983 along with
the early stage of economic growth and increase in income per
capita marked as the beginning of the green revolution era.
z In the period of 1983-1987, supermarket grows with the rate of
85% per year. The growth was declining but remains increasing by
12% per year between 1993 and 1997.
z Supermarket development in the period of 1978- 1992 was mostly
in Metro Jakarta and few large cities in Java Island.
Early Supermarket Development

600

489
500
Number of Supermarket

400

307
300

200
110
100
21
1 1
0
68-72 73-77 78-82 83-87 88-92 93-97
Year
Source: BPS, 2003
Development of Modern Market
(1997-2003)

1200

9 72
1000

8 58

800
73 0
Number of Store

59 9
573
600 552 53 8
494
442 440
385
400
3 15
290 290

200

38 40 49
6 8 10 15
0
1997 1998 1999 2000 2001 2002 2003

Hyperm arket Superm aket Minim arket Expon. (Minim arket) Expon. (Superm aket)

Source: DRI, 2003, Visidata, 2003 Average growth per year = 14,63%
Minimarket Distribution in 2004

1400
67.2%
1200

1000
Waroeng
Number of Store

Gelael
800
AMPM
Circle K
600
Alfamart

400 Indomaret
15.4%
12.0%
200
3.0% 2.3%
0.1%
0
JaBoTaBek West Java Mid. Java East Java Sumatra Others
Province

Source: Retail Indonesia, 2005


Supermarket Distribution in 2004

200

180 49.7%
Naga
160 Hari-Hari
Club Store
140
Sogo
Number of Store

120
Goro
100 Alfa

80 Yogya
17.8% Matahari
60
Superindo
40 8.9% 8.9% Ramayana
7.2% 7.5%
20 Hero

0
JaBoTaBek West Java Mid. Java East Java Sumatra Others
Province

Source: Retail Indonesia, 2005


Hypermarket Distribution in 2004

30 58%

25

Hypermart
N u m b er o f Sto res

20
Indogrosir
15 Giant
Makro
10 Carrefour
14%
10% 10%
5
4% 4%
0
JaBoTaBek West Java Mid Java East Java Sumatra Other
Province

Source: Retail Indonesia, 2005


Unique Characteristic of Supermarket
Growth in Indonesia

z Why is modern market development mostly


concentrated only in certain areas, particularly Metro
Jakarta and its sub-urban areas?
z What is the pull and push factor of its development?
z What are problems, gainer and looser, from the
development of supermarket?
z How to reduce the social cost of most likely the looser?
z How to turn the threat and opportunity in to economic
potential?
Scatter Plot of Income Per Capita
and Number of Stores

450

Metro Jakarta
400

350
Number of Supermarket Stores

300

250

200
Sumatera

150
Kalimantan
100

Papua
50

0
0 5000 10000 15000 20000 25000
Incom e Per Capita (Thousand IDR)
Scatter Plot of Number of Households
and Number of Stores

450

400

Metro Jakarta
350
Number of Supermarket

300

250

200
West Java
M id. Java Sumat era
150
East Java
Sulawesi

100 Nusa Tenggara


Kalimant an
B ali
50
Papua
M aluku
0
- 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000

Number of Household
Scatter Plot Population Size of Major City
and Number of Stores

450

400
Metro Jakarta
350

300
Number of Store

250

200
Bandung
150
Semarang Surabaya

100
Medan
50

0
- 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

Population Size
Percentage of Foreign Investment
in the Modern Market

100%

90%
33.8%
80%

70%

60%
90.2% 89.0%
50%

40%
66.2%
30%

20%

10%
9.8% 11.0%
0%
Hyperm arket Superm arket Minim arket

Foreign Dom estic

Source: International Business Strategies, 2003


Marketing Strategy and Investment

z Foreign investment mostly on hypermarket


and about 10% on supermarket and
minimarket, some of them are franchised
z Most supermarket is local investor. To face
tight competition, large supermarket develop
small convenient store (minimarket) and
more aggressively place the store closer to
the consumers
Modern retail market is taking over
traditional market by 1-3% per year

100%

90%

80%

70%
73.4% 70.5%
78.3% 74.9% 74.6%
60%

50%

40%

30%

20% 22.0%
20.3% 20.4% 21.1%
18.0%
10%
3.6% 4.7% 5.0% 5.4% 7.6%
0%
2000 2001 2002 2003 2004

Minimarket Supermarket Traditional Provisions

Source: ACNielsen, 2004


Even though the contribution of modern trade in the
number of stores is only about 1%, contribution in
term of sales turnover is 25% of the total market

Source: ACNielsen, 2004


Demonstration of Traditional Market Traders
Association on Supermarket Development

Traditional traders
(wet market) asking
for protection to the
DPRD (Local
People’s Assembly)
Metro Jakarta from
competition with
supermarket
Supply Chain of Horticulture Products
to Supermarket/Hypermarket
Importer

35%

Large Farmer/
Agriculture Firm 30%
35% 10%
8% 10%
7%
60%
10% 10% SUPERMARKET
Agri Product 80%
Supplier HYPERMARKET
Small 65% 25% 40%
Company
Farmers 25%
5% 35% 5%
15%
15% Farm 10% 30%
100% Collector 30% Dedicated
60% 5% Assembler
5%

70% Wet Market 40%


(Traditional)
10%
15%

Adapted from: DAI CDS IPB, 2004


Key Element of Supply Chain to
Supermarket

Institutional Setting

Information Flow

Input Agric Dedicated


Supply Production Supermarket Supermarket Consumer
Process Supplyer

Product Flow

Financial Flow

Infrastructure
Problem for Farmers

z Difficulties in responding to demand of agriculture


product with specific quality, quantity, and time sustain
ably
z Low technology investment
z No extension service help on the technology and
invasion
z Farmers group is only formally exist (govt. guided
program), but can not functionally responded to the
changing environment; farmers mostly work individually
Problem for Dedicated Supermarket
Supplyer

z Payment of hypermarket and supermarket is not cash


and carry, paid in 10-20 days
z Credit payment of supermarket cannot be used as
collateral for a loan from banking system
z Difficult to find consistent quality and quantity of produce
sustain ably, buy 1 ton, 0,4 ton to supermarket and 0,6
ton has to be resale to wet market
z Difficult to built long time working relationship with
farmers, always looking for short term gain
Threat to Local Farmers

z Share of hypermarket and supermarket in Indonesia is predicted


to grow continually. However, at the moment is only 10-15%, it
seem to be not too important. The picture may change if
supermarket grow and spread outside Java and kabupaten level
z Looking to the development in other countries the share can reach
80% of the food market, farmers will face very limited share if
cannot join the growth of supermarket
z If supermarket cannot find the product locally, will import from
some where else cheaper and better quality
z Induce policy sentiment to protect farmers and politically sound
protectionism.
Conclusion

z The growth of hypermarket and supermarket is consumers demand


pull. For the time being, the growth is only strong in the Java island,
large urban area and metropolitan;
z Minimarket is part of the market strategy of local large supermarket
to survive competition. Can penetrate deeper into a housing
complex in urban area. Threat mostly to the traditional and mom-
pop shop
z Development of modern market can be effectively induced
agriculture product standardization, food safety and increase
farmer's welfare. But at the same time also it can be a threat to
farmers if they cannot meet the standard requirement.
Future Trend

z Modern market growth in Metro Jakarta, Bogor, Tanggerang, Bekasi will


still continue to grow for the next 5 years. However, the growth will soon
saturated and slowing down.
z With the continue growth of the Indonesian economy, modern retail will
continue to expand with the growth between 15-25% annually. The picture
may change quickly if supermarket grow and spread outside Java and
kabupaten level.
z The share of modern market in Indonesia at the moment is only 10-15%, it
seem to be not too important. If supermarket spread to outside Java and
kabupaten level, it has potential to increase its share to 60% within less
than 10 years.
z Minimarket is part of the market strategy of local supermarket to survive
competition, going deeper into smaller population in a housing complex.
The expansion of minimarket have more potential to penetrate down to
kabupaten (district) and kecamatan (subdistrict) level.
Policy Suggestion

z There have to be a government policy preventing “direct”


competition of hypermarket and supermarket, with traditional
market according to local socio economic characteristics and
population density
z Technology of farmers, SMEs, and traditional provisions
need to be improved, so that their product standard fit with
the supermarket standard
z Strengthen farmers and SME organization
z Long term credit for investment and support of bridging
financial support to help actors of supply chain to
supermarket