Major Indonesian convenience store chain Alfamart has prospered by meeting the daily needs of local consumers through its ubiquitous and well-stocked stores.
But now, as Southeast Asia’s largest economy is increasingly transformed by technology, Alfamart operator Sumber Alfaria Trijaya is seeking to seize opportunities by tapping into “new economy” growth areas such as remote working and take-away coffee in hopes of enhancing its mainstay operations.
As part of that, Sumber Alfaria Trijaya—widely referred to as Alfamart—last week won shareholder approval for a rights issue plan to finance investment in a “technology-based company,” as well as diversifying and expanding its business model.
“Whether we like it or not, Alfamart realizes that we can’t escape from the digital world,” Anggara Hans Prawira, its president director, told reporters after the shareholders met last Thursday.
“So we continue to explore possibilities of partnering with technology-based companies that can synergize with Alfamart,” Prawira said. “When we invest, it will be a strategic [investment] to strengthen our core business, which is retail.”
He declined to name a potential target, saying Alfamart was exploring candidates. And he denied speculation that it was planning to acquire Bank Aladin Syariah, a small Jakarta-based lender compliant with Shariah, or Islamic religious law, that has been branding itself as a digital bank.
Alfamart, however, has been in talks with Bank Aladin over a potential “strategic business partnership,” he said. Such an arrangement would explore opportunities including payments and financing to take advantage of Alfamart’s over 17,000 nationwide outlets, 4 million daily customers, and tens of thousands of micro, small and medium-scale business partners.
But Prawira said that investing in the lender was another matter, summing up the situation as “too early to tell.”
Bank Aladin—formerly Bank Net Syariah—is led by Dyota Marsudi, a son of Indonesian Foreign Minister Retno Marsudi, and went public in February. Last month it said it had been in talks with “some potential strategic partners” including big Southeast Asian e-commerce platform Shopee, run by Singapore-based Sea Group. Sea, however, has denied such talks.
Alfamart said it intended to expand its coworking spaces and coffee shops through its relatively new Alfa X and Bean Spot brands, respectively, with plans to open up to 50 new Alfa X outlets this year and set up Bean Spot corners in at least 1,500 existing Alfamart stores. It previously launched pilot runs for the two projects.
Alfa X is a coworking space adjoining Alfamart’s sleeker, more upscale convenience stores while Bean Spots are coffee corners inside its regular stores.
Coworking spaces have been popping up in some major Indonesian cities over the past several years, and the work-from-home trend, driven by the coronavirus pandemic, is expected to further boost demand. Similarly, grab-and-go affordable fresh coffee kiosks have shown fast growth.
One of Indonesia’s more popular coffee chains, Kopi Kenangan, has raised a total of USD 237 million in funding, with investors including US rapper Jay-Z and former world No. 1 tennis player Serena Williams since it opened its first booth in Jakarta in 2017.
“The Alfa X concept was developed to suit the characteristics of today’s young generation,” Alfamart said in a filing with the Indonesia Stock Exchange, IDX, on May 4. “Furthermore, the company sees that the development of the coffee shop industry has favorable business prospects, especially the trend of fresh coffee, which has become part of the modern lifestyle in everyday life.”
Prawira said Alfamart was targeting mainly college students as Alfa X customers, and was therefore seeking to open new Alfa X outlets near university campuses. He added that prior to the pandemic the company had thought about aggressively expanding Alfa X, but decided it would have to wait until after the global health crisis ends.
Alfamart, founded by businessman Djoko Susanto, is second in number of outlets to the Indomaret convenience store chain under local conglomerate Salim Group, which runs over 18,000 stores across the country.
With its core business barely affected by the pandemic, Alfamart opened 1,400 new outlets in 2020, posting a 3.95% increase in revenue to IDR 75.8 trillion and a 4.67% drop in net profit to IDR 1.06 trillion last year.
Fitch Ratings said in a note last month that improving consumer confidence was likely to support an increase in demand for Indonesia’s grocery retailers this year—and that “smaller-format modern retail stores proved more resilient during the pandemic.”
“This divergence is apparent when comparing Indonesia’s second-biggest mini-market operator, Sumber Alfaria Trijaya, with supermarket/hypermarket operators Hero Supermarket and Matahari Putra Prima,” Fitch said, citing Alfamart’s revenue growth last year versus Hero’s and Matahari’s double-digit declines—as well as the latter pair’s reduced store numbers.
The company said after the shareholders’ meeting that it was more upbeat about this year’s revenue prospects, citing the Indonesian government’s ongoing COVID-19 vaccination program and improving sales during the Islamic fasting month of Ramadan—commonly a peak consumption time in Indonesia—compared with Ramadan last year.
Alfamart further added that it was planning up to IDR 3 trillion in capital expenditure this year, including for the opening of up to 850 new outlets across the country.
It also said it would keep expanding in the Philippines, which it entered in 2014 in partnership with local conglomerate SM Investments. Alfamart currently runs over 1,000 outlets in the neighboring country after opening some 260 new stores last year. The company said it was planning to open 150-200 new stores in the Philippines this year.
“Movement restrictions are still quite tight this year in the Philippines, and [coronavirus] cases there continue to rise,” Prawira said. “But overall, we think our business prospects there are still very good… still very promising.”
This article first appeared on Nikkei Asia. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei.