Adaptability and capacity building of traditional retailers


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Adaptability and capacity building of traditional retailers

  1. 1. Adaptability and Capacity building of traditional traders presented on The ASIAN FORUM on RETAIL and WHOLESALE BUSSINESS 8 th January 2008 Richmond Hotel , Nonthaburi Thailand By : Haniwar Syarif Representative of Indonesian Alliance of Consumer Goods Producers and Traditional Market Traders for fair trade on Retail Business
  2. 2. Background • In recent years.. , Indonesian Producers who supplies their products to Hypermarkets especially to Carrefour, has become aware that they have to give too big discount , which make them lose.. On the other side , traditional market traders can not compete , thus many of them have to close their store. • Forged by the feeling of having the same “big and strong enemy” , and the believe the problems faced by traditional traders and suppliers must be solved simultaneously and comprehensively, we formed an alliance . • These producers are from food, beverage, cosmetics, garment and electronics producers, the traders are from traditional market vendors association who have 12 million members throughout Indonesia, from.13.450 traditional markets • The first step is to push the government to make a regulation in which, the big retailer can not abuse their buying power to get unjust trading term. For traditional market, the regulation should make a clear zoning between every type of retail store , so there will be a fair playing field,. Also the government must help the small traders, by upgrading small traders’s competence and improving the traditional market facilities.
  4. 4. A. Challenges faced in the competition in retail and wholesale business • • • Indonesia actually already has some regulations on retail business. For instance Government of Jakarta, has a regulation, a hypermarket must at least have a 2.5 km distance from the nearest Traditional market. But in fact, not only one, but often more then two hypermarkets operate less then 2.5 km distance from a hypermarket. Indonesia Commission for Competition ( KPPU) also has made KPPU decision, KPPU No. 03/KPPU-L-I/2000, which stating indomaret ( a chain retail store) is forbidden to make an expansion across a tradisional markets. The management of Indomaret has said that they would obey the KPPU decision. But in the reality , until today they still open their store across the traditional market. Even more, in Cibinong and Ciledug , which is in Greater Area Jakarta, Carrefour last month opened their stores just across the Traditional market. On the other side Carrefour ask more fee/discount compare to hypermarket in Singapore and Malaysia.( sample from cosmetics products)
  5. 5. MODERN RETAIL GROWTH AND ITS IMPACT FOR SMALL TRADER AND SUPPLIER • Data shows modern retail grow very fast. More then 30 percent per year , while some of the traditional market must be closed. • If a traditional market is renovated, then the old trader cannot buy kiosk at new renovated market, because the price becomes to high. • It is also often, perhaps once a week , we read in the newspaper, a traditional market burnt. We never know the real cause, but usually, after that, the market is renovated and again, the old trader can not buy a kiosk in the new market because the price is unfordable.
  6. 6. ITC Mangga Dua Hypermarket Traditional merket i Radius 2,5 km Mangga Dua Square Carrefour Megamall Pluit Carrefour Carrefour ITC Cempaka Mas Hypermart Lindeteves Carrefour Duta Merlin Carrefour Puri Indah Hypermart Kelapa Gading Carrefour Season City Hyperstore Waduk Melati Carrefour Achmad Yani ITC Kuningan Carrefour Alfa Cikini Giant Plasa Semanggi ITC Permata Hijau Carrefour Carrefour MT. Haryono ITC Cipulir Pusat Grosir Cililitan Alfa Rabat Kebayoran Lama Carrefour Kramat Jati Alfa Tendean Giant Kalibata Carrefour Lebakbulus Giant Points Square ITC Fatmawati FAKTA I : MODERN Retail VS TRADITIONAL
  7. 7. Total Fee/Discount on Hypermarket at INDONESIA, MALAYSIA, SINGAPURA (for Cosmetics) Carrefou r Indonesia Malaysia Singapura Giant 43,75 % 32% Tesco NTVC 42,25 % 30 % Dairy Farm 30 % 35 % 35 %
  8. 8. Traditional Market in Urban Centers in Indonesia • Most traditional markets are owned by city governments. • City governments in Indonesia usually have an Office of Market Management (OMM), which manages traditional markets. This office either entirely manages the markets on its own or cooperates with private companies. It is the norm of the OMM to set an annual income target for every market manager. The target usually increases year after year. Inability to meet the target usually results in the market manager being replaced.
  9. 9. Total moderrn retail in Idnonesia Retail Type Convenience store 2003 2004 200 5* 102 154 Modern Retail growth 2003-2006 131 896 956 961 4,038 5,604 6,27 2 Hypermarket 43 68 24 22 23 5,103 6,804 33,3% 2,351,535 3% 8,868 22 % 2,342,667 3% 7,47 0 146 % % GROWTH VS 2005 83 Wholesalers 2006 Supermarket Minimarket TOTAL increase vs th 2003 TOTAL MODERN RETAILS TRADITIONAL RETAILS* )* The amount of traditional retailer is not included 12.650.00 trader on 13.450 traditional markets Source : AC Nielsen, * sampai dengan per Okt 2005 Total modern retail store year 2001 3,865 3,865 Increase (%) from yr 2001 132% 176% 3,865 193%
  10. 10. Modern Retail growth and it’s impact to traditional retail
  11. 11. Modern Retail growth and it’s impact to traditional retail Total Modern retail vs Traditional retail in Jakarta 449 500 80.00% 400 249 300 200 100 100.00% 156 159 78.79% 74.83% 61.03% 60.00% 151 42 40.00% 38.97% 25.17% 21.21% 20.00% 0.00% 0 1985 1995 TRADISIONAL 2004 MODERN 1985 1995 TRADISIONAL 2004 MODERN
  12. 12. FACT : Many traditional market burnt on fire       Friday, June 29 2007, Kupang – : East Indonesia : not less than 100 kiosks at Oeba tradisional market, burnt on fire Sunday, July 1 2007, Kediri : East Java : at least 250 kiosks burnt on fire Sunday, July 1 2007, Pacitan: Java, : fire at market tegalombo, pacitan happened. five kiosks in this market was burned. Wednesday,July 4 2007, Bogor: West Java: as much as 370 kiosks and store at market cigudeg, regency bogor, quite finished on fire Thursday, July 5 2007, Pekanbaru ;. Sumatra; Aarengka Market, pekanbaru, riau, on fire. at least 600 stores and burnt kiosk on fire Wednesday, July 11 2007, Maros ; Sulawesi at least 638 trader lose their place to trades follow a fire that destroy central market maros. as much as 626 kiosks, 12 store houses burnt 28 Juli 2007, Cianjur,west java at least 1.600 property kiosk tradesmans at market cipanas cianjurBurnt. 30 Juli 2007, Bekasi, west java 16 new market kiosks jatiwarna burnt on fire. 5 Agustus 2007, Barito Tengah,. , Kalimantan, Buntok market on fire. as much as 500 kiosks was engulfed on fire " 7 Agustus 2007,. , Lampung, Sumatra , gayabaru Market onfire , 58 kiosk burnt . Estimated loss is at 400 million rupiah (approximetly $40.000). 8 Agustus 2007, Balikpapan. , Kalimantan. Balikpapan Traditional Market on fire and about 20 kiosk burnt l 9 Agustus 2007, Semarang:, Central Java : great fire happens at Bandarharjo Traditional Market , , fire burnt almost 1.500 kiosk. ;the loss is estimated millions of rupiah.
  13. 13. B. The benefit of regulation in retail busines • • • • • • The alliance believe a good and workable regulation for retail business is a must. By bench marking regulation from other countries like from Japan Fair trade Commission, . Dutreil and Galland law from France, and regulation from other country like UK with their Code of Supermarket Practice, the alliance tries to give the regulator (government ) a draft which include not only about how to make sure that equal playing field between small trader and bigger retailer could be created, but also a regulation about prohibiting the big retailer to ask fee which has no direct relation with increasing the supplier sale. W e also feel the need to have an independent regulator established to monitor the relationships between big retailer and their suppliers, ensuring that big retailers do not abuse their dominant position. It should have the power to investigate complaints, and to impose sanctions on supermarkets that violate its standards In empowering traditional market, the local government must have a clear political will to help small traders in their area. We are very happy , on December 2007 , the Presidential Decree for regulating traditional market and modern store was signed . Below we will see some important article on this decree , which we believe if it could be carried out well , then the traditional market and suppliers can have a chance to still exist and even have a good growth.
  14. 14. Zoning - base on Presidential Decree about Traditional Market and Modern Store arrangement • • • • • Wholesalers must be on artery road networks or primary collector roads or secondary artery Hypermarkets must be located on artery road networks or primary collector roads and are prohibited to domicile on local road networks and environment in local service areas or inner-city neighborhoods (housing) Supermarkets must at least be on local road networks and prohibited to domicile on environment in local service areas or inner-city neighborhoods (housing). Mini markets may be allowed to domicile on environment in local service areas or inner-city neighborhoods (housing), and ownership eligibility must be on local small entrepreneurs. Traditional markets could be on environment in local service areas or inner-city neighborhoods (housing).
  15. 15. Other article on Presidential decree about traditional market and modern • • • Management of minimarket chains must have top priority to be distributor for small traditional store using their network as distribution points for local small store nearby. Hypermarket and supermarket office hours should be as follows , Monday until Sunday open 12 hours starts at 10.00 until 22.00 local time New shopping centre and modern store opening must calculate society social economic condition, traditional market existence, small and medium vendors who exist in the surrounding area, and pay attention about distance between hypermarket with traditional market that already exist in the same area.
  16. 16. In order to Develop a Good Traditional Market , Regional Authority (local government is obliged to: • • • • Find alternative financing source for traditional market empowerment; Increase the competence of traditional trader and traditional market manager To give the first priority to get a kiosk in renovated traditional market to the traditional trader who already have a kiosk before the renovation Evaluate traditional market management;
  17. 17. C. The development and adaptation of small traditional store to compete with large scale retailer We think the small traditional store can exist and adapt if : a. b. c. d. e. f. g. Government makes a regulation about location for each type of store ( zoning) , where the equal playing field and fair trade is guaranteed The management of traditional market is improved The knowledge about retailing from the small trader improved by conducting a competence based training. Build awareness of every citizen to have more attention to small traders and preference to buy from a local retailer. It also a must make a regulation where the big retailer can not abuse their dominant buying power to ask a very big discount from supplier, because this will make the small trader in a very weak position. In case of Indonesia , though already have a Presidential Decree, it still have many question on how the implementation will be, since many points on the article can be debatable Some articles in Indonesian Presidential Decree about trading term between supplier and big retailer are :
  18. 18. Some article in Presidential decree about trading term • Trading terms must be clear, just , fair , give a mutual benefit and sign without any pressure, • The above point consisited only of : Regular discount,fixed rebate,conditional rebate,Promotion discount,Promotion Budget,Distibution Cost, Listing Fee • Costs that can be imposed is only those corresponding with supplier’s product sale. • Promotion cost and Listing fee should be set and used transparently • Suppliers can be fined if they failed to fulfill either quantity or delivery time, Modern store can be fined if they failed to pay to supplier timely.
  19. 19. D. How to survive in high competition market. • Alliance believes that we can not survive if the small company must compete with much bigger company without good regulation to make sure a fair trade is practiced, where the dominant market position and dominant buyer position is not abused, • Besides the regulation of course ,we need also the law enforcement., • The small traditional market traders need to be trained to get a higher competence on retail business and how to treat perishable goods. • Since abuse of dominant buying power by squeezing producer is one of the important problem , to solve it then we need to:
  20. 20. • • • • • • • Establish an independent supermarkets regulator that: monitors relationships between big retailers and suppliers along the whole food chain including overseas based suppliers enforces new rules to ensure fair competition between big retailers and their suppliers finds remedies for any breaches that are discovered, and has the power to enforce its rulings addresses issues as they arise, and has the power to review the rules on a regular basis to account for changes in buying practices operates a strictly confidential complaints procedure for suppliers operates a legally enforceable dispute procedure.
  21. 21. • In case like in Indonesia , with regional autonomy , then we must make sure every regional authority understand the regulation , and have a political will to support the weak such as traditional market trader • They are also responsible to carry out the rules as stated in the presidential decree ,namely : find alternative financing source for traditional market empowerment; increase the competence of traditional trader and traditional market manager, to give the first priority to get a kiosk in a renovated traditional market to the traditional trader who already have a kiosk before the renovation