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The Minimart Culture

A friend of mine just landed from New York, and as we stroll around Sudirman, he remarked on the relatively low pedestrian activity in the Sudirman area compared to other emerging countries he visited.

Little did he know... Sudirman's supposed to be the pedestrian hotspot in Jakarta, with the most complete access to public transportation and well equipped pedestrian infrastructure.

According to a research study utilizing smartphone data, our average daily step count falls behind that of other countries, such as Hong Kong and even India. In essence, there is a noticeable lack of enthusiasm for walking, with average daily step count sitting at 3513 steps.

Source: Healthline

This data is clearly confined to individuals with smartphones and should not be construed as an indicator of laziness. Numerous factors can impact the daily step count, including less developed public transportation and pedestrian infrastructure, as well as the readily accessible and affordable gojek.

The understanding of both data and cultural nuances has proven to be crucial in the survival or failure of businesses here in Indonesia.

The minimarket scene has long been a duopoly between Alfamart and Indomaret. Both offer similar products and store layouts, and Indonesians, displaying minimal brand loyalty, usually opt for the one nearest to them for their shopping needs...

Therefore despite its global recognition, 7-Eleven entered the market in 2009 but withdrew in 2017. This shows that the Indonesian market is distinctive, and strategies successful in other countries cannot simply be replicated here.

7-Eleven introduced a model featuring a premium minimarket and an in-store cafe. However, this approach seemed ill-suited for the market at that time, considering Indonesia’s low purchasing power. As a result, the revenue generated did not justify the operating costs incurred.

Interestingly, this model is gaining traction in Indonesia in the recent years. Minimarts are evolving from offering only daily necessities to including ready-to-eat meals. AMRT's vast network of ~22,000 stores across the country provides a competitive edge in accumulating consumer behaviours data, helping them identify optimal products and store model for each location.

In contrast to the dwindling hypermart stores, minimarts are on the rise. AMRT aims to add 1,000 stores by year-end, with 956 new stores already added as of November.

In suburban areas, there is a noticeable shift from daily shopping at traditional markets to the convenience of readily accessible minimarts, which offer a better shopping experience and daily promotions.

Source: Nielsen, Company

Additionally, AMRT leverage on Alfapop to gain foot traffic from Indonesia's unbanked population (~50%), offering a range of e-services such as mobile credit, data packages, electricity vouchers, and bill payments for public services and motor vehicle installments.

AMRT also boast membership totalling up to 16 mn members with 10 mn active members.

Since the shift to app-based membership in 2019, the redemption rate has surged to 80%, a notable increase from 50% redemption rate when card-based were in place.

To boost earnings, Alfamart employs a private label strategy, contributing ~5% to sales and known for higher margin amongst other products. They strategically selects its product mix to optimize both turnover and margin per sqm. Fun fact: their top-selling private label is tissue!

In terms of growth, Alfamart plans to expand outer island stores with lower cost structure and increase Lawson's footprint as a premium minimarket, targeting 400 new stores this year.

It's worth mentioning that during 2018-2021, Indomaret consistently had higher sales revenue than Alfamart. In 2022, Alfamart's sales revenue reached IDR96.9 tn with 17,813 stores, narrowly surpassing Indomaret, which recorded IDR96.7 tn from a higher store count of 19,996.

In 9M23, AMRT's net profit surged by 25% to IDR2.19 tn, and revenue rose ~11% to IDR80 tn compared to the same period last year. A strong 4Q23 result is expected, considering it traditionally contributes ~35.5% to AMRT's net profit over the past three years.

We consider AMRT to be a formidable player with substantial experience in this competitive market with high entry barriers. Moreover leveraging on their economics of scale and collections of big data, there are still plenty of room for AMRT to scale up.

Riding the wave of Indonesia's rising minimart trend, they are poised to reap the rewards of their robust store expansion in recent years. Additionally, with the country's growing GDP and the capital boost from upcoming elections increase the people’s purchasing power, which means more sales for AMRT!

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