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8/8/2019 Indonesia Presentation Ronnie

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Modern Market Growth and ChangingModern Market Growth and ChangingMap of Retail Food Sector in IndonesiaMap of Retail Food Sector in Indonesia

Ronnie S. Natawidjaja, Ph.D.

Center for Agricultural Policyand Agribusiness Studies

Padjadjaran UniversityINDONESIA


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Development of Supermarket

The first supermarket was registered in early 70s and there was no

further development within ten years.

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.

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.

Supermarket development in the period of 1978- 1992 was mostly

in Metro Jakarta and few large cities in Java Island.


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Early Supermarket Development

1 121

110

307

489

0

100

200

300

400

500

600

68-72 73-77 78-82 83-87 88-92 93-97

Year

Numbe

rofSupermarket

Source: BPS, 2003


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Development of Modern Market(1997-2003)

Source: DRI, 2003, Visidata, 2003 Average growth per year = 14,63%

6 8 10 153 8 4 0 4 9

4 4 2

3 8 5

4 4 0

4 9 4

53 8573

59 9

2 9 0 2 9 03 15

552

73 0

8 58

9 72

0

200

400

600

800

1000

1200

1997 1998 1999 2000 2001 2002 2003

NumberofStore

Hypermarket Supermaket Minimarket Expon. (Minimarket) Expon. (Supermaket)


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Minimarket Distribution in 2004

Source: Retail Indonesia, 2005

0

200

400

600

800

1000

1200

1400

JaBoTaBek West Java Mid. Java East Java Sumatra Others

Province

NumberofStore

Waroeng

Gelael

AMPM

Circle K

Alfamart

Indomaret

12.0%

3.0%

15.4%

0.1%2.3%

67.2%


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Supermarket Distribution in 2004


0

20

40

60

80

100

120

140

160

180

200

JaBoTaBek West Java Mid. Java East Java Sumatra Others

Province

NumberofStore

Naga

Hari-Hari

Club Store

Sogo

Goro

Alfa

Yogya

Matahari

Superindo

Ramayana

Hero

17.8%

7.2%8.9% 7.5% 8.9%

49.7%


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Hypermarket Distribution in 2004


0

5

10

15

20

25

30

JaBoTaBek West Java Mid Java East Java Sumatra Other

Province

Num

berofStores Hypermart

Indogrosir

Giant

Makro

Carrefour

10%

4%

14%

10%

4%

58%


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Unique Characteristic of SupermarketGrowth in Indonesia

Why is modern market development mostly

concentrated only in certain areas, particularly Metro

Jakarta and its sub-urban areas? What is the pull and push factor of its development?

What are problems, gainer and looser, from the

development of supermarket?

How to reduce the social cost of most likely the looser?

How to turn the threat and opportunity in to economicpotential?


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Scatter Plot of Income Per Capitaand Number of Stores

0

50

100

150

200

250

300

350

400

450

0 5000 10000 15000 20000 25000

Income Per Capita (Thousand IDR)

Numbe

rofSupermarketStores

Metro Jakarta

Kalimantan

Sumatera

Papua


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Scatter Plot of Number of Householdsand Number of Stores

0

50

100

150

200

250

300

350

400

450

- 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000

Number of Household

NumberofSupermarket

Metro Jakarta

M aluku

Papua

Bali

Nusa Tenggara

Kalimantan

Sulawesi

M id. Java

West Java

East Java

Sumatera


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Scatter Plot Population Size of Major Cityand Number of Stores

0

50

100

150

200

250

300

350

400

450

- 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

NumberofStore

Metro Jakarta

SurabayaBandung

Semarang

Medan


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Percentage of Foreign Investmentin the Modern Market

66.2%

9.8% 11.0%

33.8%

90.2% 89.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Hypermarket Supermarket Minimarket

Foreign Domestic

Source: International Business Strategies, 2003


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Marketing Strategy and Investment

Foreign investment mostly on hypermarket

and about 10% on supermarket and

minimarket, some of them are franchised 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


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Modern retail market is taking overtraditional market by 1-3% per year

3.6% 4.7% 5.0% 5.4% 7.6%

18.0%20.3% 20.4% 21.1%

22.0%

78.3% 74.9% 74.6%73.4% 70.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004

Minimarket Supermarket Traditional Provisions

Source: ACNielsen, 2004


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Even though the contribution of modern trade in the

number of stores is only about 1%, contribution interm of sales turnover is 25% of the total market

Source: ACNielsen, 2004


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Demonstration of Traditional Market TradersAssociation on Supermarket Development

Traditional traders

(wet market) asking

for protection to theDPRD (Local

Peoples Assembly)

Metro Jakarta from

competition withsupermarket


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Farm

Collector

Supply Chain of Horticulture Productsto Supermarket/Hypermarket

Importer

SmallFarmers

Large Farmer/Agriculture Firm

Agri ProductSupplierCompany

DedicatedAssembler

SUPERMARKETHYPERMARKET

Wet Market(Traditional)

35%

10%

65%

15%

10%

35%

30%

5%

60%8% 7%

10%10%

5%35%

40%

80%

15%

25%

5%

30%

40%

30%

70%

10%

100%

60%

10% 15%

5%

25%

Adapted from: DAI CDS IPB, 2004


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Key Element of Supply ChaintoSupermarket

Institutional Setting

Infrastructure

InputSupply

AgricProduction

Process

DedicatedSupermarket

SupplyerSupermarket Consumer

Information Flow

Product Flow

Financial Flow


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Problem for Farmers

Difficulties in responding to demand of agricultureproduct with specific quality, quantity, and time sustainably

Low technology investment

No extension service help on the technology andinvasion

Farmers group is only formally exist (govt. guidedprogram), but can not functionally responded to thechanging environment; farmers mostly work individually


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Problem for Dedicated SupermarketSupplyer

Payment of hypermarket and supermarket is not cash

and carry, paid in 10-20 days

Credit payment of supermarket cannot be used ascollateral for a loan from banking system

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

Difficult to built long time working relationship withfarmers, always looking for short term gain


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Threat to Local Farmers

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 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 If supermarket cannot find the product locally, will import from

some where else cheaper and better quality

Induce policy sentiment to protect farmers and politically sound

protectionism.


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Conclusion

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;

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

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 tofarmers if they cannot meet the standard requirement.


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Future Trend

Modern market growth in Metro Jakarta, Bogor, Tanggerang, Bekasi willstill continue to grow for the next 5 years. However, the growth will soonsaturated and slowing down.

With the continue growth of the Indonesian economy, modern retail will

continue to expand with the growth between 15-25% annually. The picturemay change quickly if supermarket grow and spread outside Java andkabupaten level.

The share of modern market in Indonesia at the moment is only 10-15%, itseem to be not too important. If supermarket spread to outside Java andkabupaten level, it has potential to increase its share to 60% within lessthan 10 years.

Minimarket is part of the market strategy of local supermarket to survivecompetition, going deeper into smaller population in a housing complex.

The expansion of minimarket have more potential to penetrate down tokabupaten (district) and kecamatan (subdistrict) level.


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Policy Suggestion

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

Technology of farmers, SMEs, and traditional provisions

need to be improved, so that their product standard fit with

the supermarket standard Strengthen farmers and SME organization

Long term credit for investment and support of bridging

financial support to help actors of supply chain tosupermarket

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