Indonesian Mini Markets to Outpace Growth of Larger Stores

WE Online, Jakarta - Mini markets are better placed to capture the rebound in consumer spending in Indonesia, and growth in this segment will continue to outpace the growth of larger store formats, such as hypermarkets, in the country, Fitch Ratings says.

The mini market format has many advantages over its larger competitors: They require low capital commitment and need only a small area to operate, which means they can penetrate areas of lower traffic more easily. Equally important, mini market operators are committed to increase their market share across the modern retail chain.

The agency expects PT Sumber Alfaria Trijaya Tbk (Alfamart, AA-(idn)/Stable) and PT Indomarco Prismatama to continue opening more than 1,000 stores each in 2016 (2015: more than 1,200 new stores added).

The format benefits from better access to consumers and a more defensive non-discretionary product offering that is dominated by food. These factors drive customers to make more frequent visits and lead to more stable transaction volume. Alfamart's revenue increased 16% in 2015 (2014: 19%) and same-store sales rose 6.5% (2014: 6%).

In contrast, hypermarket operators, such as PT Matahari Putra Prima Tbk (MPPA), posted sluggish financial performances in 2015. MPPA operates 112 hypermarket stores (2014: 107) that account for more than 75% of the company's revenues. MPPA's revenue rose more slowly than Alfamart's at 2.5% in 2015 (2014: 15.5%) and its same-store sales growth was negative at -1.9% (2014: 5.4%).

Fitch believes that this was due to weaker economic activity, fewer new store additions (five in 2015 and eight in 2014), a high proportion of non-discretionary items and muted performance of new stores outside Java. Of its 13 stores that opened during 2014-2015, nine were located outside Java, which is Indonesia's most populous island where more than 140million out of Indonesia's 250 million population resides.

Fitch expects mini markets and hypermarkets to continue on their diverging paths as retailers' expansion will increasingly focus on areas outside Java. Mini markets are suited to be early entrants to these less-populated markets given their lower traffic requirements. We think early establishment of store will deter the entry of larger store formats - particularly as mini markets tend to open stores in close proximity.

Additionally, the format presents an easier transition for the growing middle class, who are used to going to traditional wet markets. The same level of flexibility does not apply to the larger formats, such as hypermarkets, where growth is partly a function of the number of shopping malls in which they are normally located.

Mini market chains are also aided by their strategy to expand their customer base by having longer opening hours for stores and improving their product selections. Hypermarkets are also facing increased competition for customers from convenience stores that offer additional perks such as free WiFi internet access and air-conditioned dining areas to increase the foot traffic.