Both Indonesia’s processed food and beverage industry and modern retail sectors are considered to have great potential for the next three years due to Indonesia’s huge domestic market, expanding middle class as well as sharply rising Internet and smartphone penetration (giving rise to a rapidly developing e-commerce industry). Meanwhile, accelerated economic growth and low inflation are the right recipe to boost people’s purchasing power, hence boosting sales.
In 2017 turnover in Indonesia’s processed food and beverage industry is expected to grow by 8 percent (y/y) to IDR 1,400 trillion (approx. USD $108 billion) from an expected IDR 1,300 trillion in 2016. Meanwhile, the nation’s modern retail industry is projected to expand in the range of 10 – 15 percent (y/y) to IDR 225 trillion (approx. USD $17.3 billion).
Tutum Rahanta, Deputy Chairman of the Indonesian Retailers Association (abbrev. Aprindo), says the combination of accelerating macroeconomic growth and controlled inflation are the main supporters for growth of Indonesia’s modern retail sector. In 2016 Indonesia’s gross domestic product (GDP) is expected to expand by 5.1 percent (y/y) up from the realization of 4.79 percent (y/y) in 2015. Recently, the World Bank announced it sees the Indonesian economy growing further by 5.3 percent in 2017 and 5.5 percent in 2018.
Aprindo Chairman Roy Nicholas Mandey added that after several years of economic slowdown, the retail sector of Indonesia has been recovering in 2016 on the back of low domestic energy prices (electricity, gas and fuel), the stronger rupiah exchange rate (versus the US dollar), rising government spending (on infrastructure development), low inflation (around 3 percent y/y), and accelerating economic growth. Due to these factors members of Aprindo have been eager to expand their businesses this year.
Based on a Bank Indonesia (BI) survey, Indonesia’s retail sales grew 14.4 percent (y/y) in August 2016, supported by sales of non-food items, extending the promising trend recorded in the preceding month (retail sales growth at +15.7 percent y/y). However, this survey also signals that retailers expect retail sales to slow in November 2016 due to rising inflation (a seasonal phenomenon).
Adhi Lukman, General Chairman of the Indonesian Food and Beverage Association (GAPMMI), agrees and expects the processed food and beverage Industry of Indonesia to rise by at least 8 percent (y/y) provided the government will not implement any policies that could undermine this growth (for example, the government once uttered the idea to implement a plastic excise tax). Besides the five above-mentioned factors, Lukman added that rebounding commodity prices also boost people’s purchasing power.
Lukman is also optimistic that direct investment in Indonesia’s processed food and beverage industry will surpass IDR 50 trillion in 2016, up 16 percent from IDR 43 trillion in 2015. However, investors urge authorities to lower interest rates as that would make business expansion much more affordable. Lukman emphasized that Indonesian authorities need to be consistent and committed (for example through effective implementation of the economic policy packages) in order to support this industry and thus be able to compete with counterparts in Malaysia and Thailand. 
Indonesian Modern Retail Industry:
in IDR trillion
¹ indicates forecast
Indonesian Food & Beverage Industry:
in IDR trillion
¹ indicates forecast
Source: Investor Daily
Government Reregulates Minimarkets & Convenience Stores in Indonesia?
The government of Indonesia is studying the possibility of issuing a presidential regulation that sets new rules regarding convenience stores and minimarkets in all Indonesian provinces. The aim of this regulation would be to protect the traditional retail shops and markets of Indonesia. Indonesia’s Trade Ministry is currently studying the issue. Darmin Nasution, Minister of Economic Affairs, said the new regulation would not be aimed at undermining the minimarket sector of Indonesia.
Instead the new regulation would give some new guidelines to the minimarket and convenience store industry in order to protect the traditional markets of Indonesia. Over the past decade minimarkets and convenience stores have mushroomed in Indonesia, especially in the urban areas (the market leaders are Indomaret and Alfamart). Their success comes at the expense of the traditional markets and shops (including the traditional small restaurants locally known as warung) usually run by the people who live not far above the country’s poverty line. In contrast, the modern retail shops are owned and operated by the richer segments of society.
Indonesia’s middle and upper income level consumers are increasingly purchasing their food and beverage products at these modern retailers and therefore form the main competitor of the traditional, independent small grocers. The modern retailers are also popular because they are clean, air-conditioned, and have a high degree of food safety.
Nasution said the new presidential regulation would also cover the products that are sold in the minimarkets and convenience stores. The government wants to open opportunities for the nation’s micro, small and medium-sized enterprises to sell their products in the modern minimarkets and convenience stores. This would mean that there will become limited room for the house brands.
However, there exists a problem here. Indonesia’s micro, small and medium-sized enterprises usually do not own a license from Indonesia’s National Drug and Food Control Agency (BPOM) that allows these entrepreneurs to produce and distribute their food and beverage products on a large scale. If these entrepreneurs have a license, it is usually the household industry license (PIRT) that allows some small-scale activities. Based on existing regulations the entrepreneurs would require a BPOM license if they were to sell their products at the modern retail shops (this license shows the product meets specific safety/health criteria).
Earlier this year the Trade Ministry also suggested it would soon issue a regulation that forces modern retailers to devote a special section in their outlets to products and beverages from the small and traditional entrepreneurs. It is a good plan but again it will cause problems at the implementation stage due to aforementioned license problems.
Currently, 65 percent of the modern minimarkets and convenience stores in Indonesia are run by big companies (for example listed company Sumber Alfaria Trijaya owns Alfamart, while Indomaret is owned by the Salim Group). The remaining 35 percent is owned by others through franchise agreements.
Ministry of Trade Regulation No. 7/2013 already set limitations for the modern retailers. It regulated the expansion of franchise retailers, limiting the number of outlets owned by a single company to 250. If a company already owns 250 outlets then – if it wants to add new ones – it needs to use the franchise model by teaming up with a third party (preferably a party from Indonesia’s small and medium-sized enterprises). This regulation was later amended by Ministry of Trade Regulation No. 58/2014 that states that those companies that had more than 250 stores prior to the regulation are allowed to continue operations if their number of outlets exceeds 250. The regulation also requires outlets to use a minimum 80 percent of local equipment and ingredients.
The new Presidential Regulation is not expected to add new rules regarding the amount of outlets that can be owned. 
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 Taken from Great Potential in Indonesia’s Modern Retail, Food & Beverage Sectors written by Indonesia Investments.
 Taken from Government Reregulates Minimarkets & Convenience Stores in Indonesia? written by Indonesia Investments.