June 30, 2017 / 2:02 PM / 2 years ago

7-Eleven Indonesia - where popularity wasn't enough

JAKARTA (Reuters) - When 7-Eleven opened its first Indonesian outlets in 2009, it made a bet that hip cafe-like versions of its globally recognized convenience stores would pull in hordes of young, urban consumers.

Chains are used to lock the front door of a 7-Eleven convenience store in Jakarta, Indonesia June 27, 2017. The signs say "Shop Closed". REUTERS/Agoes Rudianto

The strategy worked: the franchise quickly became known as a hot place to hang out, drink signature Slurpees and use free wifi. What failed was a plan to attract repeat customers willing to spend money.

Eight years after the chain’s first Jakarta store opened, PT Modern Internasional Tbk, the owner of the 7-Eleven master franchise in Indonesia, is closing all its domestic outlets, which totaled 161 at the end of 2016. The company last week cited “limited resources” as a reason for the closure.

Japan’s Seven & i Holdings Co Ltd, the ultimate parent of the global 7-Eleven chain, said it would “search for someone to take on the franchise and hope to restart business soon.”

“Indonesia is an important country for us. This is not the end for 7-Eleven’s business,” a spokesman said by phone, adding the closure had “almost no impact” on its results.

In addition to thrifty Indonesian consumers, industry participants also blame intense competition and a 2015 nationwide ban on alcohol sales at minimarkets for the franchise’s struggles.

“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.”

Consumers also tend to associate 7-Eleven’s competitors such as Indomaret and Alfamart with daily necessities, which serve as a buffer against the alcohol sales ban, Rahanta said, adding 7-Eleven’s reach was limited to Jakarta.

Last year, Indomaret and Alfamart accounted for 51.2 percent and 38.5 percent of the retail value for Indonesian convenience stores, respectively, according to research firm Euromonitor International. 7-Eleven had a 0.7 percent share.

Modern reported a nearly 24 percent fall in its net sales for 7-Eleven to 675.3 billion rupiah ($50.7 million) in 2016 from a year earlier. Modern also has other businesses in medical image and photocopy equipments.

Modern’s attempt to sell the 7-Eleven franchise and other assets to a unit of PT Charoen Pokphand Indonesia Tbk for 1 trillion rupiah also failed last week.

While 7-Eleven’s local demise is a product of commercial realities, its closure has still come as a shock to fans.

“It was always full of people,” said Amanda Viega, a 20-year-old university student who would frequently catch up with friends at 7-Eleven and is now looking for alternative venues.

Reporting by Eveline Danubrata and Cindy Silviana; Additional reporting by Sam Nussey in TOKYO, Jessica Damiana and Gayatri Suroyo in JAKARTA and Chayut Setboonsarng in BANGKOK; Writing by Eveline Danubrata; Editing by Mark Potter

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