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Business

Indonesia's 2 big convenience store chains adding more links

JAKARTA -- Indonesia's convenience store market is dominated by two chains: Indomaret and Alfamart. Both are adding stores. They are also ramping up efforts to bring in more customers, encourage them to linger longer, and keep them coming back. 

     Prepaid cards are one of their key tools. Indomaret, the No. 1 player, offers its Indomaret Card for a fee of 200,000 rupiah ($17.3). Cardholders get discounts on certain products. They can also use the card to pay their electricity and cellphone bills.

Indomaret is setting up eat-in sections at some of its stores in hopes of keeping customers around longer.

     Since the program's introduction in 2011, the membership has grown rapidly. As of June 2013, more than 1.4 million customers had signed up -- mostly homemakers and office workers. The card is managed by Indomarco Prismatama, a unit of conglomerate Salim Group. 

     Some Indomaret outlets in Jakarta and Bali have also opened eat-in areas for snacks cooked on-site. The longer customers stick around, the company figures, the more likely they will be to buy something else.       

     Indomaret's sales, including license revenue, hit 33.6 trillion rupiah in 2013, double the figure four years earlier. It had 8,814 stores at the end of last year, and it aims to add another 1,800 this year, making itself one of Southeast Asia's largest chains. 

     Alfamart is not far behind. The chain had 8,557 stores as of the end of 2013, and plans call for 1,200 openings this year.

     Its operator Sumber Alfaria Trijaya also runs 587 Alfamidi stores that sell perishables, such as meat and vegetables. A group unit operates about 60 stores under the banner of Japanese chain Lawson. 

     Alfamart launched a prepaid card program in 2010 with Bank Central Asia, Indonesia's largest private bank. It aims to expand the membership base by not only encouraging the card's use at convenience stores but also getting more restaurants to accept it as well.  

Chained market

Although Indonesia's retail scene is mostly made up of small businesses, things are gradually changing as incomes rise. 

Alfamart's store-opening drive focuses on public transportation hubs, such as airports and train stations.

     Indonesia's population of about 250 million makes it the world's fourth-largest country by that metric. Per-capita gross domestic product in 2011 topped $3,000, a threshold said to be the point where middle-class consumption starts to surge.

     The country already has an estimated 20,000 convenience stores, the most in Southeast Asia. Surging costs of electricity and labor are issues for Indomaret and Alfamart. Still, there appears to be room for growth.

     Foreign chains would like to get in on that growth but are finding the market difficult to crack, largely due to restrictions on investment and slow development of logistics infrastructure.

     In principle, foreign companies are forbidden to invest in Indonesian convenience stores. Japanese operators, such as FamilyMart, are doing business through local licensees.

     Aside from national regulations, local barriers often crop up, too. In Jakarta, the application process for opening new shopping malls and convenience stores is essentially frozen.

     All this explains the limited presence of Japan's mighty chains. Seven-Eleven Japan, the largest Japanese convenience store operator, has mustered a network of about 150 stores since it entered Indonesia in 2009. Lawson has roughly 60 outlets there, while FamilyMart has about 15 and Ministop just eight.

     Japan is pushing for change. In June, Japan's and Indonesia's trade ministries held the Second Japan-Indonesia Policy Dialogue on Distribution in Yogyakarta. The officials from Tokyo urged their counterparts to eliminate the investment regulations on foreign retailers, as well as scrap requirements for local content in products.

     FamilyMart, which sent representatives to the public-private forum, made a presentation on how its business in Indonesia contributes to improving distribution networks and expanding employment opportunities.

     Japanese chains still see potential in Indonesia. But an official of one such company expects it to take 10 years for investments to pay off, rather than the initially predicted five.             

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