Hans Prawira, President Director, Alfamart: Interview

Hans Prawira, President Director, Alfamart

Interview: Hans Prawira

How can general retail be modernised?

HANS PRAWIRA: Although modern trade adoption has been quite fast in Indonesia, retail is still dominated by general trade at 74%. However, we notice that more and more shoppers prefer modern trade as it offers fixed prices, convenience, hygiene and better-quality products. Compared to other markets like Thailand or Malaysia, not to mention Japan or South Korea, it becomes clear that Indonesia is still underdeveloped. Half of the country’s population is under 30 years old and very attached to technology, as such, the potential is massive for the sector.

We aim to integrate general trade into modern trade, involving traditional retailers and modernising their stores. However, we have noticed two main challenges in this regard. The first is resistance to transparency. Some traditional retailers are not used to paying taxes or reporting properly and are afraid to do so. The other challenge is resistance to losing their independence to open and close when they want, or to give products away without thinking about product reconciliation. We need to empower these retailers to modernise and find synergies between the two sides, instead of just competing.

Does the mini-market model have potential?

PRAWIRA: We generally have convenience stores where you buy and eat in the same place. On the other hand, mini-markets are like small grocery stores, but with a different margin structure. It is important to find the right balance between convenience stores in areas where packaged food is in high demand such as in office buildings, and smaller markets that don’t offer food to be consumed inside them, as street food stalls are still quite important.

The mini-market model has a lot of potential, but we need a hybrid between them and convenience stores. The future is a small format with three factors: proximity; flexibility to go at any time; and, especially for the middle-low segment, a good item selection with only the best-selling and most competitively priced products. You don’t need to buy premium when you shop close to home.

What challenges exist for expanding mini-markets outside of Java?

PRAWIRA: Outside of Java infrastructure remains the biggest challenge. For example, distribution becomes a real problem regarding inventory buffers. In Jakarta and Java products can move around relatively easily as there are factories on the islands. But in other regions like Kalimantan you need higher levels of stock, as there is no guaranteeing when products will be delivered due to many uncertainties. Bigger stock levels create extra costs, but unlike supermarkets or hypermarkets where suppliers can send it directly, mini-markets need distribution centres as stocks levels are too small. The transit from factories to distribution centres on the outer islands is already an issue, while the transit from distribution centres to stores creates other challenges, with hard road conditions making delays even longer and affecting the quality of products on arrival. When we outsource trucks in remote areas we pay more, because they change parts very often. The market potential is good, but the extra inefficiency costs due to infrastructure problems are still too high.

Another problem is the availability and readiness of human resources. On the outer islands unemployment is high but people are not prepared to respond to the standards of modern trade. It is important for the government to tackle this issue, but we in the private sector also have a role to play in this through the cooperation in vocational schools. Lastly, the lack of clarity and consistency in regulations, not only outside of Java, but throughout the country, is hampering the development of modern trade, and the private sector is keen on seeing this addressed.

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The Report: Indonesia 2018

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