WHILE 7-Eleven convenience stores have been flourishing in many parts of the world including in Japan, the US and Thailand, the business has failed miserably in Indonesia as all 7-Eleven stores there will be closing down at the end of this month.
The decision to close down the business in Indonesia on June 30 was announced last week by Modern Internasional, the parent company of Indonesia’s 7-Eleven franchise operator, Modern Sevel Indonesia, after talks to sell its convenience store unit to an affiliate of Thai conglomerate Charoen Pokphand Group collapsed.
Retail operator PT Modern Sevel Indonesia less than a month earlier announced its plan to sell its 7-Eleven convenience stores for US$75.24 million to PT Charoen Pokphand Restu Indonesia (CPRI), a business entity of PT Charoen Pokphand Indonesia (CPI).
Charoen Pokphand Indonesia’s plan to acquire the local operator of 7-Eleven convenience stores, Modern Sevel Indonesia, had ended “due to non-agreement of the parties concerned.” When Charoen Pokphand Indonesia announced the plan back in April, it was seen as a new lease of life for Modern Sevel that has suffered losses in recent years due to high market competition.
On top of that, in 2015, Jakarta decided to ban alcohol sales at small retail stores, which at the time was one of the key driving sales for the retail store operator. The sales of alcohol contributed roughly 10 percent of the total sales of 7-Eleven stores. Modern Sevel, starting the convenience store business in 2009, had only a total of 175 7-Eleven outlets as of September 2016, mostly in Jakarta. After closing a number of stores, it has now 161 stores to close at the end of the month. In Thailand, Charoen’s affiliate Charoen Pokphand Group already operates the 7-Eleven trade mark, with more than 9,500 outlets.
Apart from the ban on alcohol sales, 7-Eleven stores there have faced fierce competition from local food vendors and the rapidly growing networks of Alfamart and Indomaret, the country’s top two local convenience store chains.
A source close to the deal told Thai Residents that after a careful consideration, CP decided to back down from taking over the operation of 7-Eleven convenience stores in Indonesia as the mission to expand the outlet network there is extremely difficult. Also, said the source, the price quoted by the Indonesian side was considered too expensive.
The source said aside from fierce competition, the operator of 7-Eleven in Indonesia has also faced with qualified human resources and that’s why new 7-Eleven outlets could not be launched easily during the past several years. In Thailand CP has established its own Panyapiwat Institute of Management or PIM to train students to serve its business and industrial conglomerates as well as its 7-Eleven outlet expansion.
Also 7-Eleven outlets in Thailand sell a lot of food items produced by CP’s affiliate, Charoen Pokphand Foods (CPF) resulting in much lower costs and higher profit margin.
After June 30, it is up to 7-Eleven Inc., the owner of the brand in Japan, to decide what to do with its franchise in Indonesia.
The closing down of 7-Eleven stores in Indonesia is also believed to affect CIMB Group of Malaysia. According to DealStreetAsia, in October 2014, CIMB Private Equity Sdn Bhd, the wholly-owned investment arm of Malaysia’s CIMB Group, decided to buy a 10% stake, valued at $25 million, in PT Modern Internasional Tbk, the parent firm of 7-Eleven convenience stores in Indonesia.
The deal was for CIMB Private Equity to subscribe to the newly issued shares in Modern Internasional with the latter using the proceeds to upgrade its infrastructure and set up between 60 to 70 additional 7-Eleven outlets. The partnership was also aimed at enabling small and medium enterprises to distribute their products through 7-Eleven stores, as well as obtaining financial advice and support from CIMB.
Modern Internasional’s share price remained at a near all-time low of 50 rupiah ($0.004) per share on Thursday with a market capitalization of 228 billion rupiah.
Top: A 7-Eleven sign. Photos: Mike Mozart #7Eleven (CC-BY-2.0)
By Kowit Sanandang