Indonesian retail continues growth, expects to hit $37 billion, says Technavio

22, Mar. 2021

A HERO supermarket in South Jakarta in March 2021 awaits more customers as parent company PT Hero Supermarket Tbk plans more ideas to boost sales. (NNA)
A HERO supermarket in South Jakarta in March 2021 awaits more customers as parent company PT Hero Supermarket Tbk plans more ideas to boost sales. (NNA)

By Anita Fildzah and Celine Chen

JAKARTA, NNA – Consumer confidence in Indonesia continued to grow in February as economic conditions improved, according to a survey by Bank Indonesia.

Reflecting better retail performance, the consumer confidence index for February 2021 moved up steadily to 85.8, from 84.9 in January.

Roy Nicholas Mandey, chairman of Indonesian Retail Entrepreneurs Association (Aprindo), told NNA the rise in the index in January and December shows "people have optimism for shopping or consumption."

People started to shop more as their incomes increased, he said, adding that consumption is expected to soar as COVID-19 vaccination in the country would be the game-changer.

Although pandemic lockdowns wrecked retail businesses in 2020, they enjoyed a comeback toward the end of the year because of spending for Christmas and New Year.

Bank Indonesia's survey shows a turnaround when retail sales grew by 4.8 percent in December, recovering from November's contraction of minus 1.2 percent for most commodity groups.

The Retail Entrepreneurs Association expects the retail market to grow by 3-3.5 percent, on hopes of projected GDP of 4-4.5 percent for Indonesia this year.

Retail growth in 2019 is believed to have reached 7.8 to 8 percent in 2019 before it fell to contraction last year. During severe lockdowns to fight the COVID-19 pandemic, the government had shortened the operating hours of supermarkets and traditional markets.

Research company Technavio said Indonesia's retail is poised to grow by $37.32 billion during its forecast period of 2021-2025, progressing at a compound annual growth rate (CAGR) at about 4 percent.

In a report in January, it said the pandemic has continued to transform the growth of various sectors, with varied results. While a few industries will suffer a drop in demand, numerous others will continue to remain unscathed and show promising growth opportunities.

It said e-commerce retail, which boomed for Indonesia last year, will be one of the major growth factors, while food and beverage will be the leading segments.

Technavio also believes that the retail market's fragmentation will accelerate with new players over the next five years.

Among the industry leaders are CT Corp., PT Erajaya Swasembada Tbk, PT Hero Supermarket Tbk, PT Lion Super Indo, PT Multipolar Tbk, PT Ramayana Lestari Sentosa Tbk, PT Sumber Alfaria Trijaya Tbk, PT. Circleka Indonesia Utama, PT. Indomarco Prismatama and PT Mitra Adiperkasa Tbk.

"Although the expansion of the retail landscape will offer immense growth opportunities, factors such as underdeveloped infrastructure are likely to pose a challenge for the market vendors," said Technavio.

In a report in December, Fitch Ratings believes growth for supermarkets and hypermarkets is likely to remain weak well into 2021, but smaller stores, such as mini-markets would remain resilient and see better recovery prospects as they enjoy closer proximity to consumers.

Fitch noted that Indonesian grocery spending fell by 4.9 percent year on year in January-September 2020, with supermarkets and hypermarkets taking a bigger hit with a 9.5 percent decline, according to Nielsen figures. However, the modern mini-markets managed to grow by 6 percent during the same period.

To remain competitive and meet customer expectations, PT Hero Supermarket Tbk, the operator of supermarkets and hypermarkets, said it is continuing with long-term strategies and improvements. For instance, it has added some new payment services for the convenience of customers, its spokesman told NNA.

Apart from online sales, Transmart Carrefour is holding themed promotions to boost sales at its supermarkets.

Satria Hamid, vice president of its corporate communications, said the chain wants to regain the confidence of customers and get hem to visit their stores again.