The GOI opened the retail industry to foreign investment in 1998 following a letter of intent which the GOI signed with the International Monetary Fund (IMF) to revive Indonesia’s ailing economy. Soon after the 1998 liberalization, many big foreign retailers began to invest in Indonesia. Foreign retailers have been particularly active in the hypermarket and department store sectors.
The continuous growth of the retail industry has been driven mostly by strong domestic consumption, serving as a primary factor that supports Indonesia’s economy. In 2010, total sales of Indonesia’s retail industry were expected to reach $9.68 billion, generated by more than 8,000 non-traditional retail outlets throughout the country.
Competition in the Indonesian retail industry has been very sharp, especially after the entrance of foreign retailers. While some foreign retailers failed and closed down their outlets, many are successful and expanding their business. In Indonesia, there is no regulation governing where a retailer can establish outlets. As a result, many large retailers are strategically located in the heart of Indonesia’s big cities and compete directly with smaller retailers.
In Indonesia, most hypermarkets are located strategically in heavily populated areas in many big cities, and examples include Carrefour, Hypermart, and Lotte. Consequently, hypermarkets attract many customers every day and compete directly with supermarkets and mini-markets. In the near future, the hypermarket business is expected to expand significantly as many major players are planning to open more outlets all over Indonesia.
In terms of total sales turnover, mini-markets do not contribute significantly to the Indonesian retail industry. However, mini-markets have enjoyed substantial growth in recent years. As most mini-markets are franchises, their networks have been growing rapidly over the last few years. With a comfortable shopping ambience, a targeted range of products, competitive prices, and easy accessibility, the mini-markets have been gaining popularity and establishing a solid presence in residential and business areas. In the mini market business, Circle K is the leading foreign company in Indonesia and has been competing against local companies. 7-11 announced a partnership with an Indonesian franchisee, and stores opened in 2010.
Specialty shops have also been gaining popularity in Indonesia as they provide opportunities for customers to compare products from many different suppliers prior to making a purchase. They usually attract serious customers, display their products in an attractive fashion and maintain reasonable prices. Most specialty shops also employ an ample, knowledgeable sales promotion staff that is ready to assist customers. With the proliferation of malls in Indonesia, specialty shops are expected to expand rapidly and gain market share from other retail competitors. In Indonesia, specialty shops are available in many product lines, and examples include Electronic City, Guardian, and the Body Shop.
The presence of U.S. retailers in Indonesia has been significant in the areas of specialty shops and mini markets. Specialty shops like Ace Hardware and Athlete’s Foot now have a strong presence in Indonesia.