“Minimarkets,” the local term for convenience stores, have flourished in both urban and suburban areas alike over the last five years. While value-priced local players Indomaret and Alfamart have led the way, they face growing competition from global chains Circle K and 7-Eleven, with the latter staking out a growing presence catering primarily to upper-income consumers. While the every-other-block coverage and vast selections of cold soft drinks that define convenience stores are very much present in Indonesia, the outlets have also emerged as a popular social space for that country's vast cohort of young people, giving the channel an importance in terms of branding and product visibility that belies its still-small share.
A cornerstone of the Indonesian retail scene (and indeed, Indonesian social life) is the warung—a small neighbourhood shop, often not much more than a kiosk, selling small impulse items like cigarettes, candy, soft drinks and snacks. Many also include a small café/restaurant space serving light meals. Warungs can be found all across Indonesian cities and towns, often serving as both a place to stop for daily necessities as well as a place to sit, chat with friends, and enjoy a light snack. Underscoring their importance, warungs accounted for more than half of all grocery retail in Indonesia in 2011, according to Euromonitor International data.
This environment has proven fertile ground for the expansion of convenience stores, which in many ways are simply a modernised version of the warung, offering brightly-lit, clean, air-conditioned interiors, long operating hours, and a vast selection of branded items. Indonesian operators have taken the parallels still further, encouraging the use of their stores as a gathering-place—foodservice selections have been expanded, seating areas and free Wi-Fi added, with some operators hosting public viewings of soccer matches and other major events. With legendarily heavy traffic in cities like Jakarta often making long cross-city jaunts an impossibility, convenience stores now rival fast food chains and coffee shops as destinations for millions of young Indonesians.
The place to be
The expansion of convenience stores as a channel has been explosive, more than tripling in size since 2006, with 2011 sales surpassing US$4.1 billion (Rp 37 trillion). Local operators has thus far led the way, with the Alfamart and Indomaret brands accounting for 50% and 39% of 2011 sales, respectively. Recalling the landscape seen in markets like Japan and South Korea, demand is such that in many locations the two brand's outlets can be found side by side or within a few metres of each other. Despite this seeming dominance, competition is growing fast—7-Eleven has been present since 2009, now operating more than 45 outlets, while Circle K has seen its presence expand from 100 outlets in 2007 to nearly 350 in 2011. Two other Japanese players, Lawson and FamilyMart, have likewise announced ambitious expansion plans.
In many ways, the popularity and brisk expansion of convenience stores in Indonesia recalls trends seen elsewhere in East Asia—the importance of the channel in Japanese retail is well-documented, while Thailand is undergoing a convenience store boom of its own, with the channel approaching US$7 billion (Bt 218 billion) in 2011. Yet the importance of convenience stores in Indonesia as a social space is relatively unique, one with major implications for players in a host of industries.
For soft drinks and snack brands looking to build brand awareness among young people with growing purchasing power, convenience stores hold an importance well in excess of their current share of total spending. For fast food chains, the channel has the potential to become a competitor beyond even that seen in Japan—while 7-Eleven is that country's largest foodservice brand, and convenience stores are a fixture in daily life, they have never served as a magnet for teenagers looking to socialise in the way they already do in Indonesia.
Finally, and most intriguingly, for retailers they offer a potential glimpse at the future. The convergence of retail and foodservice has been underway for some time, with retailers looking to further monetise vast traffic streams and foodservice operators looking to create the kinds of effective “in-store” experiences retailers have long taken for granted. While convenience stores have long targeted grab-and-go and impulse eating occasions, the idea of convenience stores as a place for socialising and informal meals is quite new, suggesting a potential new chapter in the ongoing struggle for traffic.