Minimarkets, a store that sells food and sometimes other goods, in Indonesia have been hailed as the “killer” of supermarkets since 2012. Its rapid growth has been largely driven by the increasing numbers of Indonesia’s middle class, where the demands for products and convenience have steadily grow hand-in-hand.
Despite the slight slowing down of the country’s economy in 2015, minimarkets’ growth didn’t show any signs of the same nature. According to the latest report by Fitch Ratings, about 1,200 additional new stores—from Indonesia’s two largest minimarket operators; Alfamart and Indomaret—opened their doors in 2015 for business throughout the archipelago, and the rating agency also expects an additional 1,000 stores to be open this year.
Such significant growth and performance for the retail format are not at all surprising given that the high demands are matched with the low operational capital commitment that the minimarket format has. They can penetrate areas that are of lower traffic with more ease than its hyper and supermarket counterparts.
Moreover, the substantial rise in the number of minimarkets might also hint at a change in customer shopping behavior within the field of modern retail formats.
Looking at the current trend, is it possible that Indonesians are shifting their grocery shopping habits from the bulk-purchase at hyper and supermarkets to smaller but more frequent buys at minimarkets?
To answer this, we pulled information from our single-source panel and receipts data to see if a shift in Indonesians’ shopping behavior is really happening. To provide a more current and up-to-date information, all data are based on real-time receipt figures taken from January 2016 to August 2016.
Mini is Big!
To look at purchase patterns across the different retail formats, we decided to look at the customers’ share of wallet where it shows which portion of their spending goes. The graph below is the total Indonesian share of wallet starting from January 2016 to August 2016.
It shows that not only do minimarkets dominate the shoppers’ spending, its size is also growing from below 50% to hitting the 60% mark in August. So, as minimarket’s percentage rises, supermarkets and hypermarkets have steadily been losing its share when it comes to their fraction within Indonesian shoppers’ wallets. Hypermarkets and supermarkets lost over 10% total market share in just 8 months.
From the data above, it can be concluded that there is a shift in purchase behavior in Indonesia. Has the shift in shopping habits of Indonesians spread throughout the country? Or is it only focused in just one part of the archipelago?
Looking at the number of minimarket chains in and outside Java as recorded in our data, Java has more chains. This number also corresponds with the fact that Java is home to about 140 million Indonesians, which is significantly more than half of the entire population of the country.
With this fact at hand, we look at the same data sets while adding Java and ‘outside Java’ lists as new variables. Shown on the graphs below, share of minimart wallets in Java has risen from 45% in January to just below 60% in May, then falling to 55% in June but rising again to 59% in August. It’s surprising that the share of wallet of minimarket outside Java is in fact higher than the ones in Java, despite having a lower number of minimarkets.
Looking at the share of wallet outside Java, it shows that people outside Java are spending more at minimarkets than Java residents, as its share of wallet never falls under the 50% mark. In fact, minimarkets’ share of wallet outside Java has significantly risen to around 66% in August.
What drives the shift?
There is a shift in consumer spending from the supermarkets and hypermarkets to minimarkets, but why? Is the shift of purchase to minimarkets driven by convenience? Or do other factors play a role in the rise of minimarket share? We look into the discount rates and the price perception of minimarkets.
Among all the modern market formats, minimarkets claim the deepest discount rate.
Taken from the receipt data, the graph below shows that the discount rates in minimarkets never falls under the 20% mark throughout January to August 2016.
At the same time, hypermarkets have the lowest rates with discounts reaching the 20% mark for their products only around February, March, and June, and supermarkets reaching above 20% average discount rate only around the first three months of 2016.
When looking at the percentage of promoted products to total basket size, Value on Deal (graph below), it shows that a good amount of items within the hypermarket and supermarkets shoppers’ baskets (above 10% of the total number of items) are filled with discounted products.
About 10% or less of the minimarket shoppers’ baskets are filled with promotional items. This could mean shoppers buy in minimarkets because of a cheaper price perception due to the depth of discount rate but once they have made a purchase, they actually buy products that aren’t discounted due to either product affinity or impulsive purchases.
With these facts in mind, could price perception really drive the rise of minimarket shopping? To find out, we conducted a survey comparing 14 different product categories for each retail format on the price perception of each category.
The 14 product categories we are looking at include; baby care, baby food, beverage, breads and pastries, cereals and grains, confectionary, cooking needs/condiments, dairy, health, household care, personal care, preserved food, snacks, and spread.
We asked over 3,000 respondents about the average price of each category in minimarkets in comparison to super and hypermarkets. The results showed that respondents agreed that the prices in minimarkets for most categories are identical with super and hypermarkets, with the exception for baby care and baby food categories.
The main driver for the shift of Indonesian shoppers from hyper and supermarkets to minimarkets may simply be due to the convenience factor. Minimarkets’ low capital requirements allow it to penetrate and exist in rural areas, making it the only viable choice for customers in such environments.
While price perception might not play an important role in the behavioral shift, minimarkets’ deep discount rates may be important bait for shoppers to make purchases at their stores. Furthermore, when looking at the percentage of promoted products to total basket size, only 10% are discounted while the other 90% of the content within the minimarket baskets are filled with products that are not discounted.
This proves that minimarkets could be a more effective outlet for your brands’ product categories, whether to include it as a key channel or to continue with this strategy.