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.

Overview Minimarkets & Convenience Stores in Indonesia:

Indomaret  13,900
Alfamart  11,115
Alfamidi   1,143
7-eleven    175
Convenience Stores   ±500
Minimarkets ±28,000

Source: Bisnis Indonesia