ASEAN business opportunities

Indonesia's retail sector has long been dominated by traditional retail such as community wet markets, mom-and-pop shops, and grocery stores.

Since June 21, the Indonesian government has officially revoked the emergency state of the new coronavirus epidemic and downgraded the corresponding epidemic prevention and control level to the level of local epidemic. Traffic in Indonesia has resumed, major shopping malls and wet markets have lifted restrictions on the epidemic and opened their doors to welcome customers. Consumption has accelerated recovery and fireworks have soared.

Retail sales rose 2.6 per cent month-on-month in October, driven by strong sales of household products such as food and drinks, according to a retail survey released by Indonesia's central bank in early November. After the epidemic, offline consumption has been energized and demand has been continuously released.

Online sales are no less impressive. Data released by Admitad, a world-renowned digital marketing company, shows that during this year's "Double 11", Indonesia's online sales were hot, with transaction volume rising 35% year-on-year and 65% month-on-month. Both online and offline consumption have strengthened, highlighting the vitality and potential of Indonesia's retail industry.

From traditional retail to modern retail

Indonesia, the largest economy in ASEAN, has maintained a gross domestic product growth rate of around 5 per cent since 2008, except for 2020 and 2021, when the economy was dragged down by COVID-19. By the end of 2022, Indonesia has a population of more than 270 million with a median age of 29.9 years old, and the young population structure provides sufficient momentum for economic development.

Indonesia is one of the few members of the global trillion-dollar GDP club. The Economist Intelligence Unit expects Indonesia's GDP per capita to reach $5,000 in 2023 and about $6,000 in 2027.

The huge population size and steady economic growth have brought Indonesia a vast domestic market, increasing household purchasing power and modern consumption habits, making Indonesia's retail industry one of the most attractive markets in Asia.

According to the Global Retail Development Index released by management consulting firm Kearney, Indonesia's retail sales in 2021 amounted to 6044 trillion rupiah (about 407 billion US dollars), contributing 35.6% of Indonesia's GDP, making it the largest retail market in Southeast Asia.

Retail industry is the basic industry of Indonesia's national economy and an important indicator of domestic consumption. The development of retail industry is closely related to economic growth and the improvement of people's living standards. Retail in Indonesia has long been dominated by traditional retail such as community wet markets, mom-and-pop shops, and grocery stores, and retail channels such as the traditional market in Ubud, Bali, carry an important function of local culture and social exchange, and are the main place of daily shopping for many Indonesian families.

According to McKinsey's 2021 survey data, traditional channels such as mom-and-pop stores and wet markets make up 77 percent of Indonesia's retail formats, while the remaining 23 percent are modern retail channels, of which 65 percent are convenience stores.

Miniso, a Chinese lifestyle department store brand, entered Indonesia in 2016 and now has more than 200 stores across the country. Li Zhongyang, general manager of Minho Indonesia, said in an interview with a Global magazine reporter that Indonesian society has a strong sense of human feeling, and traditional retail channels are more preferred by ordinary families because they have specific space as a carrier and scenario-based consumer demand, especially in the vast number of small and medium-sized cities and villages, where traditional retail accounts for a higher proportion.

However, in Indonesia's big cities, with the acceleration of social development and the pace of life, the middle and upper income class tend to one-stop consumption, and the traditional retail channels are gradually replaced by modern retail channels such as shopping centers, large supermarkets and convenience stores that have both convenience and entertainment. The promotion and consumer credit provided by banks in cooperation with the retail industry have also contributed to the modern retail industry. Coupled with the increasing number of foreign retailers entering the Indonesian market, constantly affecting the consumption habits of Indonesians, Indonesia's retail industry has gradually changed from traditional retail to modern retail.

The Indonesian government is open to foreign investment in the Indonesian retail industry, and international retail giants such as Lotte Mart, Sogo Department store and Metro have long been rooted in Indonesia. In addition to Miniso, there have been Chinese enterprises entering Indonesia's offline retail industry in recent years. Chinese entrepreneur Wang Qifang opened Hapimart in Indonesia in 2021 to bring the shopping experience of modern hypermarkets to the Indonesian people, and currently has three supermarkets in Jakarta and surrounding areas, and the fourth supermarket is expected to open early next year. Before the epidemic, Chinese youth Ma Liangpeng set up PIMA convenience store in Indonesia, the number of stores was once more than 20, during the epidemic reduced to 16.

Indonesian Retailers Association chairman Roy said Indonesia's political stability, sustained GDP growth and moderate inflation provided a good foundation for retail development. After the end of the epidemic, as domestic and foreign supply chains return to normal, the government continues to increase the minimum wage, Indonesia's retail industry is expected to usher in a faster momentum of development.

Shift from offline retail to online retail

In recent years, consumption patterns such as online shopping, live streaming and community group buying have increasingly become new forms of consumption in large and medium-sized cities in Indonesia. Almost all life needs such as rice, flour, grain and oil, beauty and cosmetics, and digital home appliances can be purchased with one click, and online consumption activates Indonesia's retail industry "a pool of spring water" and becomes a "new engine" to promote Indonesia's economy.

The increasing popularity of mobile Internet, the rise of a new generation of consumer groups, and the growth of Internet finance and cashless payments have continued to expand the scale of Indonesia's e-commerce market. A survey by Singapore-based Data Reporting website showed that 62.6 percent of Indonesian Internet users aged 16 to 64 had purchased products or services online in 2022, up 3.3 percentage points from the previous year. This means that more than half of Indonesia's Internet users are actively participating in e-commerce, which is becoming increasingly popular in Indonesia.

According to Singapore-based consultancy Moton Ventures, Indonesia's e-commerce gross merchandise volume (GMV) reached $51.9 billion in 2022, making it the largest e-commerce market in Southeast Asia, accounting for 52 percent of the region's $99.5 billion e-commerce GMV.

The huge e-commerce cake has also made Indonesia an arena for platforms such as local leading e-commerce companies Tokopedia, Bukarapak and international e-commerce giants Shrimp Skin shopping website and Lezanda Company. In this context, convenience stores in Indonesia have also begun to seek development and transformation, using the advantages of technology and entities to connect online and offline, and bring consumers a new shopping experience.

Indonesia's largest convenience store chains Alpha Supermarket and Indomaret each have nearly 20,000 stores, accounting for more than 90% of Indonesia's convenience store ecosystem. Alfa Supermarket has launched its own App and built a team of 30,000 riders to carry out its online business, which now accounts for 3.5% of total sales. Indomaret has also launched its own online shopping site with delivery to 10 of Indonesia's largest metropolitan areas.

At the same time, Tocopedia Company, Bukarapak company and other giants cooperate with traditional retail practitioners in Indonesia to emulate the community group-buying model in China, enabling the nerve endings of retail markets such as mom-and-pop stores, so that "information can run", greatly reducing procurement costs and improving circulation efficiency.

The integration of online and offline makes the store and e-commerce lose a clear boundary. Indonesia's traditional retail industry through the small shop "touch the net", explore more sinking market flow, to achieve the world is not difficult to do small business goal.

Li Zhongyang said that in recent years, affected by factors such as the impact of e-commerce, rising commercial real estate rents, and structural adjustment of consumer demand, Indonesia's physical retail has been impacted. This also encourages retail enterprises to use technological means to continue to expand their core capabilities and achieve online and offline integration.

Indonesian President Joko Widodo is an important driver of the development of Indonesia's digital economy. In 2022, Indonesia made digital transformation one of the three major topics of the G20 summit during its presidency.