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JUNE
1, 2001 VOL.27 NO.22
Forget
Politics. Go Shopping
Amid the daily
turmoil, Indonesia's middle class is spending like never before, boosting the
economy and transforming the retail landscape
By SIMON MONTLAKE in Jakarta for Asiaweek
As riot police wearily take up positions around Jakarta for yet another week of
political protests, Budi Nasution goes through his shopping list in the
air-conditioned comfort of a Carrefour hypermarket in the central business
district. Chocolate milk, instant noodles, chicken drumsticks on special offer .
. . and did he remember shampoo? The 36-year-old businessman and his wife
finally push the loaded cart to the counter. The cashier totes up their
purchases and swipes Nasution's direct-debit card. "They have the best
selection of products here and they sell at good prices," he says happily.
"I don't even bother going to the traditional market anymore."
Despite Indonesia's political troubles, its estimated 30 million middle- and
upper-class consumers are enjoying shopping like never before. Personal
consumption was a key driver in last year's 4.8% GDP growth, with the Indonesian
Retailers Association reporting a 22% surge in store takings to 28.6 trillion
rupiah ($3.4 billion) — a return to pre-Asian crisis levels for modern retail
stores. Spending on packaged food items was even 10% higher in real terms than
in 1997. There was a 4% decrease in retail sales in April as the rupiah fell
against the dollar due to moves by parliament to impeach President Abdurrahman
Wahid. But retailers remain upbeat. "We believe we will see similar growth
this year as last year," says Kus Prodjolalido, executive director of the
280-strong retailers' group.
His optimism rests on a fundamental shift in consumer behavior. Indonesia's
middle-class shoppers are becoming more like their counterparts elsewhere in
Asia: market-savvy, trend-conscious, and demanding. Sales at high-end boutiques
are also up, and car purchases are back to pre-1997 levels. "Indonesia has
been opening up after Suharto [stepped down as president in 1998], so people are
more exposed to the rest of the world," says Berndt Soderbom, country
manager for Indonesia of advertising giant Leo Burnett. "They absorb trends
much faster. Their lifestyles are changing, and part of the change is shopping
in supermarkets and hypermarkets rather than wet markets. It's not a big jump
[in a total population of more than 210 million], but a change [among 30 million
middle-class consumers] can have a big impact."
The winners are the seven Jakarta hypermarkets owned by France's Carrefour. The
company declines to reveal financial results, but analysts estimate its annual
sales exceeded $150 million last year. Carrefour is the most popular shop among
well-off consumers in Jakarta because of its wide variety of quality products at
competitive prices. In a survey by international consultant McKinsey in late
1999, a year after the first Carrefour hypermarkets opened, 23% of respondents
said the French retailer was their market of choice. Only 17% picked local
supermarket chain Hero while 8% chose Matahari, another supermarket.
Carrefour opened its first outlet in October 1998, just five months after bloody
riots forced Suharto to resign. Executives at the Paris headquarters had felt
extra nervous because retailers were among the victims of the violence —
Matahari, owned by the ethnic Chinese Riady family, had four outlets razed to
the ground. But 1998 was also the year when the International Monetary Fund laid
down tough conditions for a multibillion dollar rescue package, including a
pledge that Indonesia throw open its doors to foreign retailers.
Carrefour decided its European strategy of opening outlets in out-of-town
locations with plenty of parking wouldn't work in Indonesia. Asia's crowded
urban areas require stores served by public transport. So the company focused on
sites in the central business district and shopping malls, which had become
cheaper in the aftermath of the violence. It also went local. Its 8,000-sqm
stores, about four times the size of the typical Hero outlet, stocked more
Indonesian-made goods than its rivals. No baguettes or Bordeaux here. Instead
there are fresh prawns and leafy vegetables, as well as non-food items like soap
and shampoo that account for 60% of total sales. And the stores are cheap — an
important factor in a country where the average per capita income is still only
$617.
Hero is fighting back. It will replicate Carrefour's formula in a 10,000-sqm
hypermarket that will open later this year in a yet-to-be-announced populous
residential district in Jakarta. The store will be called Giant, the brand name
of Singapore and Malaysian hypermarkets operated by Hong Kong's Dairy Farm. Hero
is counting on Dairy Farm, which owns 32% of its stock, to equip its executives
and workers with specialized skills to run mega stores. "I'm confident we
can bring the [Giant] concept over here," says company president Ipung
Kurnia. Giant will compete directly with Carrefour on pricing and the variety
and quality of the mostly local goods it will sell.
Kurnia is wary of repeating Matahari's failure. The competing chain opened five
Mega M hypermarkets in the mid-1990s, but closed them two years ago because its
people could not run them like the low-margin, high-volume operations
hypermarkets are supposed to be. Says Matahari senior executive Danny Konjongian:
"We won't go head-to-head on pricing with Carrefour anymore." Matahari
has reverted to its supermarket-within-a-department-store format. But it cannot
stand idly by. The shift in middle-class spending could turn into a full-blown
retail revolution when — or if —stability finally returns to Indonesia. |
