International -- Asian Business: Indonesia
Attack of the Indonesian Hypermarkets (int'l edition)
Can the country's grocers fight off foreign giants?
The new Carrefour supermarket on Jalan Sudirman, Jakarta's busy main thoroughfare, may look like the French hypermarches in Paris or Marseille: food on one side; electronics, books, and clothing near the door. But the resemblance ends there. The deli carries no goose-liver pate or Camembert. Instead, there is coleslaw with chilies, and stacks of tofu snacks. "We have to adapt to the local market," says Triyono Prijosoesilo, business-development manager with Carrefour's Indonesian subsidiary, Contimas Utama Indonesia.
With its ravaged economy and unstable politics, Indonesia hasn't exactly been high on foreign investors' shopping lists lately. But Carrefour and Holland's Makro have moved into Jakarta's retail sector, and Indonesians have responded, drawn by the large selection of merchandise as well as by prices far lower than at small retailers. The stores are stirring up the industry and sparking a supermarket war with more established players. They also are challenging traditional open-air markets and Chinese-owned mom-and-pop groceries. In response, local retailers have had to seek powerful backers, lower their prices, improve quality, and plan bigger stores of their own. "They are changing the whole retail sector in fundamental ways," says Hans Vriens, vice-president of consultant Apco Worldwide in Hong Kong.
The Europeans may be hard to catch. Carrefour, the world's second-largest retailer, entered Indonesia at the height of the Asian crisis in 1998 and has since opened six stores. Dutch-owned Makro Asia has opened eight outlets and plans two more. Even though modern supermarkets nationwide account for only about 15% of grocery sales, the figure is double that in Jakarta, according to research firm ACNielsen Corp. And that share will likely grow as the middle class recovers its buying power.
While clothiers, electronics stores, and other retailers are also feeling the heat of the hypermarches, the real battle is taking place over food. Hero Supermarkets, Indonesia's largest chain, with 66 stores, is on the defensive. Unable to beat Carrefour's prices without losing money, the 29-year-old chain has been fighting back by focusing its price cuts on a few high-profile goods, such as rice, and offering periodic specials. "I have to be honest; I'm quite nervous," says Ipung Kurnia, Hero's president and the eldest son of the company's founder.
Normally, for example, chicken drumsticks at Hero's Plaza Senayan store cost 5% more than at Carrefour nearby. But on a recent day, they were sharply discounted to $1.85 a kilogram. Papayas were also on sale, but sugar was 12% above Carrefour's price.
The inability to compete on daily low prices forces Hero to rely on volume sales at its stores. It also must compete on freshness and has built a special warehouse to handle perishable items; the chain uses "Think Fresh" as its slogan. Also, while Carrefour's giant stores are mostly in central Jakarta, Hero has opened small outlets in almost every new neighborhood and big mall. But Hero is still losing market share. Although it recently posted record 1999 operating profits of $10.2 million, an 11% increase over 1998, retail analyst Teguh Hartanto of Danareksa Securities says Hero's fourth quarter should have been better because of the holidays.HOMEGROWN. So Hero has recruited foreign help of its own, selling a 32% stake to Hong Kong's Dairy Farm (a subsidiary of Jardine Matheson Holdings Ltd.), which operates supermarkets around the region. The infusion of foreign cash is helping, but the store still tries to promote a homegrown image. "Regardless of who the shareholders are, Hero is still a local company," says Kurnia. Small independent retailers are fighting back, too. The 280-member Indonesian Retail Merchants Assn. has urged Jakarta to impose zoning restrictions on the hypermarkets.
To fend off the anti-foreign backlash, Carrefour also is trying to appear local. It is training Indonesians to fill management positions. And because Indonesians are used to picking out fish themselves at local markets, the stores display seafood on ice-layered tables instead of behind display counters.
Indonesians clearly are enjoying the better choice. Oni, a 30-year-old woman who usually shops at Hero, recently tried Carrefour for the first time. "It's cheaper," she says. "But at Hero, the produce is higher quality." Just the kind of competition consumers need.By Warren Caragata in Jakarta