Amol Titus
The residents of Puri Sakti, a narrow winding residential corridor in south Jakarta, have a range of retail options to consider if they want to purchase an average household item such as detergent, cooking oil or even ice cream. Within a radius of a few kilometer they can encounter a range of traditional stores (typical "mom & pop" variety, some still stuck in the 1970s, others quite smartly appointed) as well as modern trade outlets ( hypermarkets, supermarkets, convenience stores, drugstores, personal care specialists, department stores, etc.). Large wholesale stores and specialist stores focusing on electronics are also within reach.
A similar profusion of channel choices is being increasingly accessed by customers across the archipelago as traditional and modern outlets battle with growing intensity. Based on an AC Nielson census in 2006, there are over 1.8 million traditional grocery stores, 105 hypermarkets, around 7,300 mini markets and 1,300 super markets. Hypermarkets and mini markets are recording rapid growth rates in excess of 20 percent per annum in terms of new stores opened. This pattern is consistent with the country's consistent GDP growth and new economic drivers centered in resource-rich provinces. Sumatra, which accounts for around 22 percent of national GDP, is seeing significant traction in retail channels with Riau, Kalimantan and Sulawesi showing strong promise.
It is well known that Indonesian's are among the world's biggest "shopaholics" with shopping extending from a must-do chore to an elaborate outing with a recreational dimension. Yongky Surya Susilo, director retailer service at PT AC Nielson Indonesia, high lights three interesting trends. First, is what he calls an increasing preference for "cross format shopping". Just like the residents of Puri Sakti, average consumers are hopping from traditional markets to wet markets to mini markets to super markets and so on. Different appeals – pricing, convenience, discounts, product range, freshness, privacy and ambience – draw them to different outlets. To assume and associate certain segments with certain channels only is a fallacy marketers would do well to avoid.
Linked to this trend is what Yongky calls "channel blurring" with gasoline stations adding on convenience outlets, pharmacies offering a wide variety of personal care products and super markets having entire sections devoted to fashion items and electronics. The third trend is the growth in private label products as retailers themselves compete with manufacturers to sell products like cooking oil, frozen food or tissues to price sensitive consumers that are not averse to rapid brand switching. As inflation bites and disposable incomes are impacted by soaring cost of basic necessities, medical treatment and education, expect private label products to increase in range, quality and packaging appeal.
When the multiplicities of delivery channels and peculiarities of consumer buying habits are juxtaposed against the geographical complexities of the Indonesian archipelago, the important of the distribution activity within companies become clear.
Farquhar Stirling, managing director of PT AC Nielsen, believes CEOs in Indonesia need to give distribution "one of the top most strategic and implementation priorities". This requires a thorough understanding of consumer buying patterns, emergence of new pockets of demand and the development of distribution models that are both long term in orientation yet flexible enough to adapt to dynamic market realities.
Traditionally, in Indonesia there have been three commonly adopted approaches; an in-house distribution company, outsourcing of distribution to specialist third parties and the conventional regional distributor-sub distributor chain.
Over the years, rigidities have developed in these models that have been slow to change and innovative. Some distributors have tended to remain too regionally focused while others have accumulated "principals" to the point that they cannot do justice to any particular brand or company. The inevitable margin squeeze has forced some to consider other business alternatives with distribution activities neglected.
Business MIS, consumer behavior tracking, trend analysis and market intelligence have suffered as a consequence.
On the other hand, companies have tended to get too obsessed with their own brands, believing, erroneously, that advertising or promotions induced brand pull is sufficient to gain market share. As a consequence, they have tended to underestimate three threats that confront them – first, the growing clout of the domineering practitioners of modern trade like supermarkets, hypermarkets and in certain locations even mini markets. They now command sizable bargaining power and the ability to "profitably auction" shelf space. Second, the growth opportunities outside Jabodetabek – note how even in Bali modern trade outlets lag behind Jakarta in terms of network, choice and sophistication. Third, the significant challenges posed by infrastructure, especially transportation bottlenecks that are driving costs upward, delaying deliveries and at times creating shortages.
Support is on hand from logistic companies that have a crucial role to play given the country's export and domestic consumption oriented economy. David Ng, country manager of DHL, believes that successful distribution and logistics in Indonesia requires "innovation and an ability to customize solutions for the challenging local environment where an astonishing range of products are being distributed or exported – from bird's nest exported to Hong Kong to mineral samples (packed in dry ice) sent to labs for testing to spare part imports for excavators operating in remote locations.
From furniture to milk, vitamins to garments, cement to magazines – each sector and products category is severely tested as it tries to reach out to prospective customers.
DHL itself has introduced various innovations emanating from its "six major gateways" – Jakarta, Surabaya, Medan, Batam, Balikpapan and Denpasar. These innovations relate to solutions for specific product categories (e.g. commodities), security of goods in transit, MIS and monitoring (under a system called "track and trace"), dedicated quality control centers that try to proactively anticipate bottlenecks and a variety of electronic commerce tolls. Logistic companies are enhancing their advisory capabilities as they become increasingly important partners for companies seeking to convert demographic attractiveness into hard fought market share.
Electronic commerce and Internet-based shopping are forecasted to be game changing trends over the next decade. Thought Internet purchases in Indonesia are lower than in other ASEAN countries like Singapore, Malaysia or Thailand there is an unmistakable preference among consumers to obtain information over the Net and use it to narrow choices. While Internet-based purchases are increasing for toys, software, books and music the big area of projected growth is in the services sector. Already, in major cities consumers are surfing sites in search of discounted or special promotional offers related to hotels, airlines, banking, services, telecom packages and educational programs.
Usage is especially forecasted to increase among the net savvy generasi baru for many of whom brand information comes not from neon signs, billboards, poster, promotional literature or packaging but rather from eye catching informative and easy to navigate website pitching their products or services. AirAsia has already shown how Internet-based channels can work successfully to drive its budgets offers by enabling customers to bypass traditional agents. This follows the trend of companies like Avon (direct to home selling of personal care and beauty products) and Dell (customization and direct sales of PCs) that turned conventional models on their heads and made distribution their competitive advantage.
A good way to keep the distributions challenge center stage in companies is for managements to keep raising the question "what constitutes our current and future shelf space for customers?" The answer is not easy and is likely to keep changing. Just like the selves themselves that are multiplying, enlarging, converging, crowding and becoming more expensive and virtual.
The columnist is a management professional and writer based in Jakarta. Insight appears on the second (Wednesday of each month.
No comments:
Post a Comment