Indonesian Retailers Winning the Convenience Battle: Mini-Markets vs. Convenience Stores

Successful convenience stores or mini-markets such as 7-Eleven and Circle K manage to grow their businesses on a global level, opening branches all around the world. Other stores, like Shell and Exxon, embed themselves in gas stations as a feasible strategy to gain more traffic.

Yet, not all of them serve their best interests, as these global chains have to compete with the local stores. This is because convenience stores are driven by consumer expectations, which may differ from one country to another.

This is not an exception for Southeast Asia, as this situation also exists in Indonesia.

Indonesia Local Convenience Stores: Indomaret and Alfamart

Popular Indonesian convenience store chains, Indomaret and Alfamart, are the two most competitive mini-stores that have successfully covered most of the markets for convenience stores in the country. They focused on providing consumer needs, like warungs, but with more variety of goods, additional services, and payment options.

In 2021, Indomaret will have the most convenience stores in Indonesia, with around 19 thousand stores dispersed nationwide. This was followed by Alfamart, which had approximately 16 thousand stores.

A Facade of an Indomaret and Alfamart store.
Source: Author

As for store formats, Indomaret and Alfamart don’t have that big of a difference. Both markets sell a range of consumer goods. An expanded version of both stores, Indomaret Fresh and Alfamidi, provides a wider range of products, including fresh produce and various frozen meals.

Variety of consumer goods sold in Indomaret.
Source: Author

Furthermore, both Indomaret and Alfamart have reasonably priced coffee stands embedded in their stores to attract more customers. Certain Indomaret stores have Point Coffee, while Alfamart has Beanspot.

You will often find both Indomaret and Alfamart stores located near each other. This is because it is a strategy to:

  • Attract as many consumers as possible: using the hotelling theory, both stores could locate themselves near each other and get an even percentage of profit. Moreover, consumer preferences determine the choice of purchases.
  • Save research budget: for instance, a business feasibility study on a certain location by Alfamart will be applicable for Indomaret.
  • Build the consumer’s perspective: The proximity of the stores allows customers to judge for themselves which retail is best, of course, depending on their individual preferences.

How 7-Eleven Failed in Indonesia

In 2009, 7-Eleven opened its first store in Indonesia. Since then, the worldwide-known convenience store has expanded rapidly, successfully opening up to 190 outlets in 2014. 7-Eleven used to be a popular hangout hub for the public where they could grab their signature drink, the Slurpee, hotdogs with unlimited cheese sauce, and cheap alcoholic drinks. It is a go-to place for high-school students after school and for working adults during break and after work. Furthermore, they also provide free WiFi access, which boosts their attractiveness even more.

However, 7-Eleven started to collapse in 2015. The Ministry of Trade issued a new regulation on the distribution and sales of alcoholic beverages, prohibiting them from being sold in mini-markets. The regulation has significantly impacted 7-Eleven’s revenue since it took effect, which has dropped by 23.9 percent. In contrast, Alfamart and Indomaret did not face the same tribulations. In fact, their revenue increased as they provided a more comprehensive range of products.

The Potential Reasons

7-Eleven finally closed all its operations in Indonesia in 2017, two years after the alcohol ban. Aside from the alcohol ban that heavily affects 7-Eleven’s charm in Indonesia, other reasons are also taken into account as to why 7-Eleven failed to thrive in Indonesia:

  • Limited Expansion

7-Eleven only expanded its stores in the capital city, Jakarta, and did not try to approach other surrounding cities. There might have been strict regulations for expanding to other cities as a foreign-owned company.

  • Low market share

Up until a year before its closing, 7-Eleven only accounted for 0.7% of the market share, with 190 stores and only in Jakarta. The presence is almost nonexistent for the local players, as Indomaret almost possesses half of the market with 15.000 stores all over Indonesia, followed by Alfamart.

  • Minimum Transaction

7-Eleven stores were always so crowded that people would sit on the floor to enjoy their food, yet they still didn’t spend enough to cover the expenses. This correlates with Indonesian hangout culture, where one would order a cup of coffee and stay for hours. Along with low repeat purchases, this backfires on 7-Eleven’s strategy.

Source: CNBC

What Does Indonesia’s Future Hold for Convenience Stores?

All in all, 7-Eleven needs to deploy a different strategy if they want to re-enter Indonesia. In comparison, Alfamart and Indomaret focus more on customer needs and less on providing additional services and improving the customer experience. Therefore, before focusing on the customer experience, 7-Eleven needs to identify the trends in customers behavior and preferences if they want to re-enter the Indonesian market.

As of now, the fiercest competitors are coming from Japanese convenience store chains: FamilyMart and Lawson. Like 7-Eleven, they also put emphasis on their services and products, such as low-cost coffee drinks or Korean street foods that are well-known among the younger generations due to the Korean Wave (Hallyu). The two also deployed the hotelling theory, locating themselves adjacent to each other.

Main photo by Photo by Viki Mohamad on Unsplash

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