New regulation restricts modern retail expansion

Andi Haswidi, The Jakarta Post, Jakarta

The government has issued a regulation to restrict the expansion of modern retailers including supermarkets, hypermarkets and convenience stores, which have been widely criticized for edging out traditional retailers.

During an impromptu encounter with reporters Friday, Trade Minister Mari Elka Pangestu confirmed that the President had already signed the regulation and that it had taken effect beginning Thursday.

"The main point is the zoning issue, how to better regulate the location of traditional markets and modern retailers," she said, adding that local governments would be responsible for the implementation of zoning laws.

According to Trade Ministry director for market development and distribution Gunaryo, the presidential regulation only serves as a guide, which will be supplemented by a more detailed ministerial-level regulation to be issued shortly.

He said the central government gave the authority to manage the location of modern retailers to the local governments down to the level of regencies so as to give a more accurate and context-based assessment of the zoning issue.

Aside from proximity, the ministerial regulation will take into account other variables such as regional economic growth, population and local consumers' purchasing power.

Taking Jakarta as an example, he said that hypermarkets could only be opened on the outskirts of the city.

On the issue of trading terms, which cover the crucial listing fees that have to be paid by suppliers to hypermarket operators, the presidential regulation does not impose restrictions, but demands transparency so as to avoid excessive charges and ensure fairness.

"Retailers do have expenses such as in sanitary and power maintenance, which should be shared with suppliers. However, they must be transparent in charging the listing fees," he said.

Last but not least, he said, the presidential regulation demanded local governments empower traditional markets through various programs that could be funded by the regional budget, the state budget or through cooperation with the private sector, particularly with modern retailers.

According to a study by AC Nielsen, the total value of the Indonesian grocery trade stood at Rp 63.5 trillion (about US$7 billion) in 2006, which was 14.3 percent higher than in 2005. Of this total, the value of groceries sold through traditional outlets grew by 9.6 percent, while the value of those sold through modern outlets increased by 23.8 percent.

However, the study also found that 99 percent of Indonesian people still do their shopping in traditional markets, and that the market share of modern markets in revenue terms stands at about only 16 percent.