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Modern Internasional, the parent company of Indonesia’s 7-Eleven franchise operator, on Thursday said it would close all of the unit’s convenience stores by June 30 due to “limited resources to support operations.

The announcement comes less than a month after it announced that talks to sell the convenience store unit, Modern Sevel Indonesia, to an affiliate of Thai conglomerate Charoen Pokphand Group collapsed. Modern Internasional’s share price remained at a near all-time low of 50 rupiah ($0.004) per share on Thursday with a market capitalization of 228 billion rupiah.

Modern Sevel, which operated 161 7-Eleven stores in Indonesia at the end of last year, pioneered the air conditioned, eat-in style convenience stores in the country in 2009, but has recently struggled to compete with local food vendors and the rapidly growing networks of Alfamart and Indomaret, the country’s top two local convenience store chains.

Modern Internasional, owned by Indonesia’s Honoris family, also sells medical equipment and Ricoh photocopy machines. The convenience store business, however, accounted for around three quarters of its total revenue of 891 billion rupiah in 2016.

A spokesperson for Modern Internasional did not immediately respond to requests for comment. [1]

 

End of an Era: All 7-Eleven Stores to Be Closed by Month-End

Modern Sevel Indonesia, a retailer unit of Modern Internasional, a listed company controlled by the Honoris family, has announced it will close all of its remaining 120 7-Eleven outlets across the country.

Photo Courtesy Berita Satu for Jakarta Globe.

Photo Courtesy Berita Satu for Jakarta Globe.

The decision marked a tragic end for the once popular chain that just seven years ago set a new benchmark for the country’s convenience stores, thanks to its introduction of an eat-in-store concept.

With this letter, we intend to inform that as of June 30, 2017, all 7-Eleven outlets under Modern Sevel Indonesia will suspend operations,” Chandra Wijaya, director of Modern Internasional, said in a statement to the Indonesia Stock Exchange on Thursday (22/06).

Chandra said the decision was made due to the company’s limited ability to support operational activities of the 7-Eleven outlets.

Since the end of last year, Modern Sevel has closed 46 7-Eleven stores, citing continuing losses the stores made, leaving only 120 stores in operation.

The stores’ sales dropped to Rp 891 billion ($67 million) last year from Rp 1.2 trillion in 2015. Modern Internasional’s loss widened by more than times to Rp 636 billion over the period.

Modern Sevel accounted for around three quarters of the revenue of the parent company that also sells medical equipment and Ricoh photocopy machines.

Modern Sevel was particularly hit hard by the government’s decision to ban sale of alcoholic beverages in convenience stores, which undermines the chain’s appeal as a hangout place for young people.

At its peak, beer sales alone contributed between 8 percent to 12 percent of the company’s sales and boosted sales of snacks and other food items.

A last-ditch attempt to sell the ailing business to Charoen Pokphand Restu Indonesia, a local unit of Thai’s conglomerates Charoen Pokphand, for Rp 1 trillion fell through last month.

Matters related to and arising from the 7-Eleven operational shutdown will be followed up in accordance with applicable laws and regulations, and be resolved immediately,” Chandra added.

Modern Internasional was founded by Otje Honoris, whose love of photography inspired him to establish a photography equipment distribution for Japan’s Fuji Photo Film in Jakarta in 1971.

Facing an onslaught from digital photography, Henri Honoris, Otje’s grandson, led the company to transform its widespread Fuji photo processing stores into 7-Eleven stores back in 2009. [2]

Image Courtesy Sabit - Tirto.id

Image Courtesy Sabit – Tirto.id

Two modern retailers Alfamart and Indomaret experienced a decrease in profit along with the addition of outlets. Are these two retailers going to have the same fate as 7-Eleven?

7-Eleven booth belongs to PT Modern Sevel Indonesia ever triumphant, then its glory faded, and finally it vanished from Indonesia. Sevel entered Indonesia in 2008. Every year, there are about 30 to 60 new Sevel outlets opened in Jakarta. This makes the number of Sevel outlets continue to grow. In 2011, there were only 50 Sevel outlets. In 2012, the number increased almost doubled. Quite aggressive.

Until 2014, the number of Sevel outlets in Jakarta has reached 190. In that same year, as many as 40 new outlets Sevel opened. Net sales also rose 24.5 percent to Rp971, 7 billion from the previous year which only Rp778, 3 billion. That year could be called the peak of Sevel’s glory.

The following year, Sevel sales declined, as did the number of outlets. In 2015, Sinar’s total net sales fell to Rp886.84 billion. For the first time Sevel closes outlets. Unmitigated, 20 at once. While the new outlets opened only 18, the smallest number of stores increased since 2011.

On June 22 this year, Director of PT Modern Sevel Indonesia Chandra Wijaya announced the closing of all Sevel outlets officially. As of June 30, none of Sevel outlets in Indonesia are operating.

Alfamart, also have a similar pattern like 7-Eleven. Although still too far, but if not anticipated, he could have the same fate. In 2011, he only had 5,797 outlets. Five years later, the number of outlets more than doubled, reaching 12,366 outlets.

There is a discrepancy in expectations. The hope, when adding a booth, income certainly increases, but what happens is not the case, “said Marolop Alfred Nainggolan, Analyst of Kapital Connection.

Alfred explained that what happened to Alfamart is when building and opening new outlets, the money used is usually money that flowering such as bank loans or bond issuance. Expectations, from the addition of outlets will certainly be additional revenue. When the increase in income is not significant, then the profit will be eroded because the company has the cost of interest expenses that must continue to be paid.

First semester of this year, PT Sumber Alfaria Trijaya Tbk’s profit eroded from Rp83 billion in the same period last year to only Rp38, 8 billion. Revenue in the first six months of this year actually grew 13.5 percent compared to last year. Profit grows 13 percent. However, its net profit plummeted due to high interest costs and bonds.

Based on its financial statements, this year the AMRT-coded issuer pays Rp1 trillion of bonds payable. Payments for its long-term debt also increased from Rp208 billion in the first half of last year to Rp244 billion this year.

He adds to the outlet of borrowed money, then his earnings grows standard, while the burden of interest swells. As a result, earnings drop, “Alfred’s analysis of Alfamart’s financial statements.

Similar analysis also applies to Indomaret. From January to June this year, PT Indoritel Makmur Internasional Tbk – owner of Indomaret trademark – only posted a net profit of Rp30.5 billion. In fact, in the same period last year, the profit reached Rp105, 5 billion.

According to him, if not refrain from continuing to open new outlets, Alfamart and Indomaret may be fared like 7-Eleven. “Theoretically, if they continue to open new outlets with flowering funding, it may slowly end up just like Sevel,” Alfred said.

He suggested that modern retailers are not too aggressive. Because when the booth is added, not necessarily increased revenue. Consumers do not increase their shopping activity, they just move their activities.

For example, when at the end of the aisle there is a modern retail outlet, the community of one aisle would certainly shop at the retail store. Because it has many buyers, the retail store opened a new outlet about 500 meters from its original location. The new store will still be visited by buyers, but they are the same buyers who came to the first store. As a result, revenues are the same or slightly different, but the cost of expenses due to opening new stores increases.

 

Retail Industries Decrease, DPK Increase

Not only Indomaret and Alfamart are melesu and eroded profit. The retail industry in general is also slowing down. This year, the Indonesian Retailers Association (Aprindo) is actually targeting sales of up to Rp220 trillion or growing 10 percent from last year’s sales. However, in the first half of this year, the industry only scored 3.7 percent growth.

Seeing what was achieved in the first half, I think the 10 percent growth target until the end of the year will be very difficult to achieve,” said Roy Nicholas Mandey, Chairman of Aprindo, Thursday (3/8).

He considered there is a change in consumer behavior in shopping at retail stores. The ease and progress of the times, Roy said, make people have many options in shopping. People can buy online or through Go-Jek services. “If they are shopping with Go-Jek it’s not necessarily that it’s bought at a modern retail store,” Roy said.

When retail industry income sluggish, banks are even flooded. The amount of third party funds in savings and deposits in May this year exceeded Rp5,000 trillion. The figure grew 11.18 percent from the same period last year.

According to data from the Financial Services Authority (OJK), savings deposits stood at Rp1,571 trillion, growing 9.7 percent from the same period last year. While the amount of money in deposits grew 10 percent, to Rp2,222 trillion.

Bhima Yudhistira, an economist from the Institute for Development of Economics and Finance (INDEF) said two things happened. First, the middle to lower society experienced a decrease in purchasing power. “From low inflation over the past two years, we can see the condition of our purchasing power,” Bhima said.

In July last year, core inflation was at 0.34 percent. While in July this year, only 0.26 percent. This low inflation, according to Bhima, shows that aggregate demand is declining.

Second, the rich hold their consumption by saving money in the bank, both in regular savings and deposits. These wealthy people anticipate economic conditions until political risks ahead of the 2019 presidential election. “The simple language, the rich are on guard from the worst conditions,” Bhima said.

In a macro, continued Bhima, two things that show the condition of the economy is less qualified. Labor absorption also fell in the first half of this year, from 680 thousand in the first half of 2016 to 539 thousand. If the absorption of labor continues to decline, the impact will be on purchasing power until tax revenue.

For Alfamart and Indomaret, there are two problems that are being faced. In addition to the expansion strategy that Alfred explained, the two retailers were also hit by a decline in purchasing power as mentioned by Bhima. [3]

 





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References Sources:

[1] Taken from Indonesia’s 7-Eleven operator to shut all stores written by Wataru Suzuki for Nikkei Asian Review.

[2] Taken from End of an Era: All 7-Eleven Stores to Be Closed by Month-End written by Jakarta Globe.

[3] Taken from Mungkinkah Alfamart dan Indomaret Menjadi Seperti 7-Eleven? written by Wan Ulfa Nur Zuhra for Tirto.id.

Editorial Benang Merah Komunikasi

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