Olly Prayudi, corporate director at Fitch Ratings Indonesia, said that although inflation had taken a toll on consumer buying power, which could worsen if subsidized fuel prices were raised, brick-and-mortar retail businesses would still introduce a gradual cost pass-through to avoid hurting domestic consumption more.

Though inflation had exceeded Bank Indonesia’s expectations three times, Olly still expected market shares of small-format stores to grow, especially as because supermarkets and hypermarkets were still struggling to recover.

“We expect the combined [number] of Alfamart and Indomaret stores to exceed 40,000 by the end of this year,” Olly told The Jakarta Post on Monday.

He also noted that several grocery store chains had booked poor performances in the first quarter, including PT Hero Supermarket (HERO).

HERO’s first-quarter revenue dropped 43 percent year-on-year (yoy) to around Rp 1 trillion (US$67 million), while its net loss rose to Rp 67 billion from Rp 1.64 billion in the same period last year.

“Supermarkets and hypermarkets will still face hardships in 2022 due to strong challenges from minimarkets and traditional markets,” Olly added.

Read also: Consumer confidence drops slightly as retail sales remain strong

In a commentary published in June, Fitch Indonesia projected that Alfa Group retail operator PT Sumber Alfaria Trijaya and Indomaret retail operator Group PT Indomarco Prismatama would each expand by a minimum of 1,000 outlets this year, in spite of accelerating inflation and a sluggish retail sales index (RSI).

The Fitch commentary suggested that the two retailers’ expansion could be due to the downfall of hypermarkets like HERO’s Giant as a result of slumping sales, which had opened huge market opportunities for the two convenience store chains to fill.

Between the two companies, Fitch projected a more bullish performance from the Alfa Group for its better business model.

This was primarily due to subsidiary PT Midi Utama Indonesia, the operator of Alfamidi stores, which had offered wider diversification. While Alfamidi’s inventory was similar to that of supermarkets, the stores were located closer to residential areas, which formed the core of mini-mart businesses.

And though Alfamart had gradually increased its prices to keep up with suppliers’ price hikes amid rising inflation, the move had not drastically reduced consumer buying power.

Regardless, Alfamart still saw a bright future for its business, with its massive investment in brand promotion, its plan to open between 800 and 1,000 new stores this year and potential revenue growth of 8 to 10 percent.

Alfamart’s first-quarter revenue was up 19.07 percent yoy to Rp 22.91 trillion, while its net profit grew 35.32 percent yoy to Rp 675.80 billion in the same period. Meanwhile, it had opened around 600 new stores by the end of the second quarter.

“Consumers no longer prioritize brands, but have shifted to value for money,” Alfamart corporate affairs director Solihin told the Post on Monday. “Therefore, promotions are quite helpful, as they can offer the best options for the consumers.”

Indomaret, on the other hand, estimated around 1,500 new stores this year due to “high confidence” on its overall sales, while it had opened 800 new stores this year to date.

However, it had yet to calculate its 2022 revenue growth estimates because of uncertainty over fuel prices and their impact on purchasing power.

Indomaret contributed around 93 percent to its parent company's Rp 227 billion combined profit from all associates in the first quarter.

“We continue to support the efforts made to maintain stable prices for basic goods. The most important thing at this time is to ensure the availability of goods and the stability of market prices,” Indomaret coordinator director Wiwiek Yusuf told the Post on Monday.

Hypermarket slumber

On the other hand, supermarket chain PT Trans Retail Indonesia, part of conglomerate businessman Chairul Tanjung’s CT Corp, noted that large grocery stores were facing a hard time because of their need to attract a large number of consumers at a time when many had switched to online shopping.

In an attempt to pivot the business, Trans Retail was pouring its resources into its online grocery shopping cooperation with e-commerce giant Bukalapak and AlloFresh while developing its digital ecosystem under CT Corp, such as with Allobank.

“Our current focus is for the overall growth of the business group, so our strategy needs to also include the consideration from our sister companies,” Satria Hamid, Trans Retail’s vice president of corporate communications, told the Post on Monday.

“New Transmart stores would follow suit if a new Trans Icon [mall] is opened,” he added.

Read also: The future of retail is digital, but it’s not the end of mom-and-pop stores

Yongky Susilo, an expert with the Indonesian Commercial Tenants Association (Hippindo), said recovery in the modern retail industry would remain sluggish. The industry’s monthly performance had not developed any momentum after Idul Fitri, as lower class consumers’ buying power had been battered by inflation while upper class consumers exploited the opportunity to spend more overseas.

The RSI for food, beverage and tobacco were forecast to drop 1.3 percent month-to-month (mtm) in July, a vast improvement from the 13 percent drop in June. Meanwhile, the home appliance RSI was expected to increase 2.6 percent mtm after falling 4.8 percent in June.

Yongky expected mini-marts to continue on the current trend in leading the retail industry’s recovery because of their accessibility, while embracing new innovations such as fast food and self-service drinks that were attractive to middle class consumers.

He noted that supermarkets were starting to learn from past mistakes and trying to adapt by increasing the diversity of both imported and local products in their inventories, but that hypermarkets had not changed their business model previous years.

But if hypermarkets could adapt, he said, “they can take massive opportunities in the middle class segment in secondary and tertiary cities, but with a smaller land area”.