7-ELEVEN’S FAILURE IN INDONESIA

I. Introduction:
II. Reasons for 7-Eleven’s failure in Indonesia:
1. External Factors:
a. Strict government regulations:
- In 2006, the local Jakarta government had stopped issuing convenience store licenses
because they feared that modern retailers would displace traditional markets.
How did this affect 7-Eleven?
In order to obtain a license to officially operate in Indonesia, 7-Eleven decided to
combine a restaurant with a convenience store. Therefore, the 7-Eleven stores initially
operated under a restaurant license. As a result, 7-Eleven had to face with strong
competition from convenience stores, small warungs, restaurants and fast-food chains.

- In the first quarter of 2015, the Indonesian government prohibited the sale of beer
and other alcoholic beverages in convenience stores.
How did the ban affect 7- Eleven?
+ In 7-Eleven, alcoholic beverages contribute to around 15-20% of total sales.
Moreover, those who purchase beers or other light alcoholic beverages also
tend to buy various snacks in the store. Snacks contribute around 10-15% to
total sales => The ban caused the loss on sale of alcoholic drinks and the knock
on effect on the sale of snacks => 7-Eleven’s reduced revenue.
 + Introduce new items to the non-alcoholic beverage such as 7-Select and
Welch’s Juice (with sales growth around 15-20% every month since the
introduction).

- 2013 franchise regulation limited convenience stores to owning no more than 150
outlets. This was in contrast to restaurant chains, which were only capped at 250
wholly owned outlets. Competitors such as Indomaret already owned thousands of
stores, and the Indonesian government introduced compromises that allowed those
exceeding the limit to submit plans to shift towards franchisees.
How did this affect 7-Eleven?
As of 2015, there was no official deadline for the execution of these plans. Therefore,
operating with a restaurant license, 7-Eleven was approaching the limit of wholly 250
owned stores that were allowed by the existing regulations. → It was impossible for
7-Eleven to increase the number of stores like their competitors: Indomaret and
Alfamart.
b. Competitors:
- Small warungs: Small warungs had a long-established presence in Indonesia and
commanded a dominant position in the grocery retail industry. Even in larger cities,
some consumers preferred to frequent traditional retailers because they were more
conveniently located and usually near places of residence or work. Also, these vendors
typically sold food and beverages at very low price points that were customized to
meet local tastes and preferences. In addition, these small warungs also provided a
good place for nongkrong.
- Formal restaurants and regular fast-food chains.
- Convenience stores:
+ Alfamart and Indomaret:
● In 2016, there were more than 10,000 Alfamarts and roughly 15,000
Indomarets.
● Offer a wider range of products and services.
● Offer a cheaper price.

+ New entrants: Familymart, Lawson, Ministop.

c. Economic slowdown:
- In 2014, Indonesia’s GDP growth was the lowest rate in 5 years from 2010 to 2014.
This led to the movement of rupiah currency, liquidity, and interest rates →
considerable influence on 7-Eleven because one of the company’s financing is through
the banking sector.
- Lessen purchasing power → Indonesian consumers would be very careful about their
spending → tend to buy cheaper products.
 d. Consumer’s behavioral change:
- They no longer stock up on groceries and only buy goods when they need them.
- Shoppers rely on only delivery services, reducing the chances of in-store impulsive
buying.
2. Internal Factors:
a. Premium Price:
7-Eleven provided a higher price than their competitors.
b. Poorly Executed Concept:
7-Eleven was very popular with university students, in particular, 18-25 range. It was
positioned as a place to hang out at all hours of the day, all hours of the night. Before
the alcohol ban that was imposed in 2015, this was a very popular spot to hang out,
have a beer after class or after work, have free Wi-Fi, have a bite to eat. The stores
remained crowded but there was one problem: People weren’t spending as much as
money. They just bought one drink or one item and sat there for hours to take
advantage of free Wi-Fi and air-conditioning. In addition, some people saw the crowd
as something that would disturb the comfort during shopping. As a result, they move
to other convenience stores for shopping.
c. High operational cost
To accommodate the nongkrong customers, 7-Eleven had to go for a much bigger
outlet with a larger sitting area. Some outlets even had a second floor devoted solely
for sit in. Plus, 7-Eleven is mainly located in Jakarta - a strategic area. Therefore, the
fee for hiring and equipping amenities must be high.
d. Less product:
In the third quarter of 2015, an average outlet carried 2,537 SKUs, according to
Modern Internasional’s data. In comparison, Alfamart carried 4,000 SKUs → higher
number of SKUs means the stores have more products catering to the needs of
consumers.
III. Evaluation and better solutions:
IV. Implications for business: