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7-ELEVEN CASE STUDY

Mid Exam
Business Ethics, Law, and Sustainability
Mokhamad Zafar Nur Hakim
218190090
BLEMBA-24
HISTORY OF 7 ELEVEN IN INDONESIA

HOW IT GROW

SUDDENLY DISAPPEAR

ANALYSIS

CONCLUSION
HISTORY OF 7 ELEVEN IN INDONESIA

7-Eleven is known in the United States as a convenience


store chain where customers can grab snacks, drinks and
other everyday products on the go. In most parts of the
world, it is a no-frills store with little emphasis on decor.
When 7-Eleven entered the Indonesian market in 2008, the
question was: what was the Indonesian customer looking
for and where should the retailer position itself?

Indonesia had some typical Sixty-five percent of the franchise’s customers are
traits not found in other younger than 30, and to reach them, it relies on another
markets. For one, just hanging defining feature in Indonesia: a love of SOCIAL
out and doing nothing is so NETWORKING. Many of them spend hours surfing the
deeply embedded in Internet at 7-Eleven, which never closes, allowing young
Indonesian culture, the local people to gather late into the night. When the store
language has a special word for plays host to local bands, customers update their social
it: NONGKRONG. networking statuses and help draw bigger crowds.
HOW IT GROW

When 7-Eleven finally opened its first 20 Indonesian stores in


2009, its first expansion into a new country in 16 years, he found
his knowledge of the market paid off.
Since then, Modern Putra, which is also the national distributor
for Fujifilm, has seen its sales jump fivefold, reaching 320 billion
rupiah, or about $35 million, in 2011. The company recorded a
net profit of 57 billion rupiah in 2011.

For young Indonesians, 7-Elevens offered a hip


With 69 stores in Indonesia at 2011, all of them in recreational space. Their street-side locations and
Jakarta, 7-Eleven lags behind its closest affordable hot meals give them the feel of a traditional
competitors, including McDonald’s, Dunkin’ Donuts eatery while comfortable seating areas, air-conditioning
and KFC, which together have more than 600 and free Wi-Fi resembled the facilities of a modern cafe.
outlets. When it came to pricing strategy, the local About half the average store's space was dedicated to
franchise followed the company's traditional providing fresh food and drink.
model. It leveraged the fact that its stores are open Revenues reached a peak in 2014 of 971.77 billion rupiah
24/7, even when other food retail competitors are as the store network count hit a high of 190.
closed, and priced products at the upper end.
SUDDENLY DISAPPEAR

Modern began closing 7-Eleven amid the sales slump, shuttering 27


outlets in 2016. Chain revenues slipped a further 23.9% to 675.28 billion
rupiah. Modern fell into the red on an operating level, with an operating
loss of 764.32 billion rupiah. Early this year, Modern closed about 30
more 7-Elevens.
On June 14, 2017, Modern is closing its remaining 130 or so outlets after
a 1 trillion rupiah ($75 million) deal to sell the chain to conglomerate
Charoen Pokphand came undone in early June, just six weeks after it
was first announced. The company last week cited “limited resources”
as a reason for the closure.
Modern officials could not be reached for comment. The company's shares, which peaked four years ago at
1,050 rupiah, now trade for 50 rupiah. Without 7-Eleven, the company will be left with a small imaging
business, the vestige of its old Fujifilm chain. At 228.7 billion rupiah, Modern's market capitalization is barely a
quarter of what Charoen Pokphand was to pay for the 7-Eleven stores. In My opinion, there are some aspect
that make this happen.
SUDDENLY DISAPPEAR

1. Wrong Concept
The sudden turn of events is no big surprise, "The stores were always crowded, but the customers never
bought much. They came to hang out and to enjoy the Wi-Fi. They would bring their laptops and stay for hours
but only buy a single drink.“ “The concept is interesting, but is it profitable?” said Tutum Rahanta, deputy
chairman of the Indonesian Retailers Association. “The crowd is created by people who just hang out, but those
who want to shop and who can really generate profits don’t go there.” Alfamart and Indomaret had long
operated as minimarkets, a format in Indonesia with a greater emphasis on fresh groceries than convenience
stores and less stress on serving food or selling alcohol.
"The income from [7-Eleven] sales does not cover operational costs like
electricity, lights, Wi-Fi and overhead," said Reza Priyambada, a retail
analyst at Bina Artha Securities in Jakarta.
ANALYSIS

2. Easy to Imitated
Ultimately, that was not enough for Modern, especially in the face of fierce competition on one side from
Alfamart and Indomaret. Both had initially reacted to 7-Eleven's early outward success with imitation. The two
had long operated as minimarkets, a format in Indonesia with a greater emphasis on fresh groceries than
convenience stores and less stress on serving food or selling alcohol.
“It is proven that 7-Eleven’s business model can be
adapted by other [convenience operators] and that it
could help them expand their business,” Roy Mandey,
chairman of trade group Indonesian Retailers
Association, said.
ANALYSIS

3. Change of Regulation
The good times were not to last. In April 2015, the government banned alcohol sales in convenience stores and
minimarkets. At the time, alcohol accounted for about 15% of 7-Eleven's revenues. Although the national
government relaxed the policy five months later, allowing local authorities to decide on implementation,
Jakarta, among other big cities, kept the sale restrictions in place.
Meanwhile, 7-Eleven might have been constrained in reorienting its focus by permitting issues, according to
Tutum Rahanta, deputy chairman of the Indonesian Retailers Association. The trade department in 2012 issued
a warning letter to 7-Eleven for selling retail goods without appropriate business permits, according to local
media reports at the time.
Amid the alcohol ban, 7-Eleven's sales for 2015 dipped 8.8% to
886.84 billion rupiah and Modern itself dropped into the red with a
net loss of 54.76 billion rupiah. Modern began closing 7-Eleven amid
the sales slump, shuttering 27 outlets in 2016. Chain revenues
slipped a further 23.9% to 675.28 billion rupiah. Modern fell into the
red on an operating level, with an operating loss of 764.32 billion
rupiah. Early this year, Modern closed about 30 more 7-Elevens.
ANALYSIS

4. Change of Consumers Behaviour


The chain’s glory days in the country didn’t last long. In the past two years, industry players noted Indonesians
got thriftier as a sluggish economy and an oversupply of low-wage labourers lessened purchasing power. “The
consumers’ behavioural change affected the overall retail industry. Many customers no longer stock up on
groceries and only buy goods when they need them,” Mandey said. Indonesian shoppers also increasingly rely
on online delivery services, reducing the chances of in-store impulse buying, he added.
Amid the alcohol ban, 7- Chain revenues slipped a
Eleven's sales for 2015 dipped further 23.9% to 675.28 billion
8.8% to 886.84 billion rupiah rupiah. Modern fell into the red
and Modern itself dropped into on an operating level, with an
the red with a net loss of 54.76 operating loss of 764.32 billion
billion rupiah. Modern began rupiah. Early this year, Modern
closing 7-Eleven amid the sales closed about 30 more 7-
slump, shuttering 27 outlets in Elevens.
2016.
ANALYSIS

5. Less Dynamic Expansion


The placement strategy of 7-Eleven Indonesia was also the same as the US. The stores are located in
commercial and office areas, but not public transport stations because they are not seen as premium
locations. But unlike the US, the archipelago of around 17,000 islands does not have a 7-Eleven literally at
every corner; instead it focuses on big hubs in Indonesia.
To stay above the competition, 7-Eleven maintained its
locations in prime areas of Jakarta, and that meant high
rents. The country issues two different permits for retailers
and restaurants or cafes. This limited 7-Eleven’s expansion to
Jakarta and its surrounding cities, as it only had a permit to
operate as a restaurant from Jakarta’s tourism agency. To
earn the retail permit, which would allow it to expand to
other regions, 7-Eleven needed to operate at least 250
outlets in the capital, a goal it considered far from
achievable.
ANALYSIS

In this case, I think Modern is neglect their competitor, such as Alfamart and Indomaret, and too focus with
their own business. Without them recognize, their competitor has already reach more variative segment of
market in other city, not only low to upper middle class in big city like Jakarta.
Daniel Kahneman said in his book “Thinking, Fast and Slow”, The consequence of competition neglect is excess
entry: more competitors enter the market than the market can profitably sustain, so their average outcome is a
loss. The outcome is disappointing for the typical entrant in the market, but the effect on the economy as a
whole could well be positive.

Strength Oportunities
- Urban market segment - Growing middle class
- Brand - Big City

Weakness Threats
- Limited Number of Store - Regulation
- Limited Location - Economic Change
- High Rent
CONCLUSION

7-eleven cannot reach their competitor because they slow response with change of customers
behavior. In Globalization era, Indonesian shoppers also increasingly rely on online delivery services,
reducing the chances of in-store impulse buying.
Focus on one big city can be a threats, because they cannot reach another segment of market, such
Urban people in growing city like Bandung or Surabaya. Their competitor focus to spread out their
store until to the village, to make customer easier to reach.
Why is global mass retailing so challenging? The products/brands sold by mass retailers are not
unique - and are already widely available in the country. As a later entrant, a global retailer is
unlikely to find the best locations available and it is unlikely to have a lower cost of operations than
local mom-and-pop stores. To succeed, the global retailer has to offer better customer experience
while hoping that savings from state-of-the-art global systems will more than compensate for the
higher real estate and operating cost disadvantages.
REFERENCES

Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

https://www.reuters.com/article/us-seven-i-hldgs-indonesia/7-eleven-indonesia-where-popularity-
wasnt-enough-idUSKBN19L1ZE

https://www.scmp.com/week-asia/business/article/2102307/why-did-all-7-elevens-jakarta-
suddenly-disappear