7-Eleven has built a significant worldwide presence since its inception in 1927 but the Japanese-owned international convenience chain still has its eye on building its presence in key emerging markets. Michelle Russell met Henri Honoris, the head of Modern Putra Indonesia, 7-Eleven’s operator in the populous Asian market, to discuss the plans for the chain there.
As the world’s largest operator, franchisor, and licensor of convenience stores, 7-Eleven has built a global presence, with over 50,000 stores worldwide. It operates stores in 16 countries: its largest markets being Japan, the US and Thailand. But it is Indonesia, ranked as fifth in the world’s major developing markets by Global Intelligence Alliance, that is emerging as a market with substantial opportunities, on which local operator Modern Putra Indonesia is looking to capitalise.
Indonesia’s robust economy has given greater spending power to a wider portion of the population, driving demand and making the country an attractive destination for multinational companies. According to Boston Consulting Group, around 74m of the country’s 250m people live in households that spend more than US$200 per month. but it forecasts this portion to rise to 141m by 2020.
Henri Honoris, the president director of Modern Putra Indonesia, says demographic trends in the country present an opportunity for the business.
Honoris says Indonesians are becoming wealthier as the country’s GDP has increased and, with wealth, means a growing population. However, while families have expanded, more women are also working, meaning households are looking for convenience.
“Indonesia’s GDP has increased, so the middle class is increasing and they are producing more children and [subsequently] a lot of young females,” Honoris tells just-food at this year’s World Retail Congress in Paris.
He adds: “Most consumers are looking for convenience. With a population of 250m, [mostly] both parents are working so they’re looking for convenient, value for money foods. That is the trend right now.”
Modern Putra operates 140 7-Eleven convenience stores in Indonesia, focused primarily on selling fresh produce but it also offers brands like Slurpee frozen drinks, Big Bite hot dogs and Gulp soda drinks
Honoris suggests the group is not content to watch the grass grow, however, and has plans to build its store network. “We are just three years into our operations now and we have 140 stores, but by 2015 we will have around 440 stores and by 2020 we will have 1,000 stores. Getting the format right is the most important thing. We haven’t started our accelerated growth yet so once we get the formula right then we will grow.”
As for the future, Honoris suggests Modern Putra Indonesia’s growth will mirror that of 7-Eleven in Thailand, where the retailer operates 7,000 stores serving a population of 70m. “That is the ratio [we are working to]. Indonesia has 250m population, so you can use Thailand as a guide. What we want is not impossible.”
However, Honoris says the retailer needs to build the right infrastructure to support this growth.
“Short-term, we need to build our infrastructure right. As 7-Eleven focuses on fresh food right now, we have to build our distribution, so our distribution centre; we have to enlarge it. We also have to build a training centre to train our employees and then build the stores as we build our infrastructure. Key is ensuring the infrastructure is right and then we can grow faster.”
And Modern Putra is making the profit to ensure it can fund that growth. In 2012, the retailer’s parent PT Modern Internasional recorded sales growth of 12.5% to IDR1.01bn (US$89m). In its 2012 annual report, the company said it has allocated 77.5% of its IDR527m capex to the development of its 7-Eleven store network and infrastructure.
However, while developing the convenience format is key for Modern Putra, Honoris says the retailer is keen to eventually develop an online grocery presence, particularly given the relatively young demographics of the country.
“With a population of 250m in Indonesia, mobile phone penetration is now close to 200m. When people are eligible to have a mobile phone they tend to order more than one, so internet [use] in Indonesia is more mobile than via a PC, laptop or tablet.
Honoris says an online grocery presence for Modern Putra is “on the horizon” but that any launch might be over two years away yet. “We focus on communicating our product and services online, but we haven’t sold any products online yet. Online grocery is starting in Indonesia but it’s not big yet. In the future yes. Online in Indonesia is still in its infancy but there is an opportunity for sure.”
For the time being though, Honoris says the focus is on building its convenience store network, and this involves the expansion of the 7-Eleven private-label line to eventually include ambient as well as fresh produce.
“Our fresh food sales are around 45% of our sales revenue and fresh food is all private-label. Yes [we will add] ambient products. It will [eventually] be all grocery products as well. In Japan, 80% of 7-Eleven’s products now focus on private label.”
As for location, Honoris says the retailer is happy to remain in Jakarta for the time being.
“Because our business is focused on fresh food, the focus on network planning is on the central geographic area and to saturate it. All of our 140 stores are in Jakarta. For the short term we will stay in Jakarta and maximise our infrastructure.”