The closure of global convenience chain 7-Eleven in Indonesia underlines the tough economic and regulatory landscape that could deter future investors from taking over the iconic brand’s franchise in Southeast Asia’s biggest economy.
The publicly listed PT Modern Internasional, 7-Eleven’s franchise holder in the country, said in its statement to Jakarta’s bourse that a lack of resources was the main reason it ceased operations at all 7-Eleven outlets permanently as of June 30. The company also cited its failed deal to sell the franchise and other assets to Charoen Pokphand Indonesia, an affiliate of Thai conglomerate Charoen Pokphand Group, for 1 trillion rupiah (HK$585 million).
But the debate over why 7-Eleven, widely known as “sevel” in Indonesia, closed down its stores continues to swirl. Analysts and industry watchers said that a combination of strong competition, an economic downturn and regulatory hurdles, including a 2015 nationwide ban on the sale of alcoholic drinks in mini markets, led to the brand’s closure.
The company didn’t respond to repeated requests for comment.
“On June 14, 2017, 7-Eleven Inc. terminated its master franchise agreements with PT Modern Sevel, a wholly owned subsidiary of PT Modern Internasional,” Dallas-based 7-Eleven, franchiser to Modern Internasional, saidin a statement. “The termination came after 23 months of negotiations between 7-Eleven and PT Modern Sevel to bring it back into operational and financial compliance with the master franchise agreements.”
The termination affects approximately 110 stores in and around Jakarta, and both parties are in talks to wind down the 7-Eleven business in all of Indonesia, including the de-branding of 7-Eleven stores, the American franchiser said.
In 2009, Modern Internasional opened its first 7-Eleven in Jakarta and introduced a new business model that wove cafes and restaurants into traditional convenience stores. Unlike local mini markets back then, most 7-Eleven stores offered hot meals and a spacious seating area open 24 hours, alongside typical retail items such as cold drinks and snacks. They also provided free Wi-fi and even live bands to entice customers to stay late into the night.
For years, the strategy worked. Students and young professionals flocked to the nearest 7-Eleven store and sat for hours with their groups of friends, drinking Slurpees or beers while working on their laptops. Modern Internasional, which in its heyday in 2014 posted peak performance of 1.4 trillion rupiah in overall sales from 190 outlets, had transformed 7-Eleven’s traditional grab-and-go stores into popular night spots.
“My friends and I used to hang out for hours at 7-Eleven,” Rifadha Fairuz, a regular customer, said. “We liked the hot meals there. The other mini markets didn’t have them.”
7-Eleven also had a role in developing Indonesia’s digital payment ecosystem by facilitating online transactions and utilities payments through clerks. Competitors, such as the country’s biggest mini market operators Indomaret and Alfamart, eventually followed 7-Eleven’s business concept by providing hot meals and small seating areas at some stores.
They also now accept payment for utilities and an array of digital services, including e-commerce. Combined, Indomaret and Alfamart had nearly 90 per cent of the nation’s convenience store market last year, while 7-Eleven only had a 0.7 per cent share, according to researcher Euromonitor International.
“It is proven that 7-Eleven’s business model can be adapted by other [convenience operators] and that it could help them expand their business,” Roy Mandey, chairman of trade group Indonesian Retailers Association, said.
The chain’s glory days in the country didn’t last long. In the past two years, industry players noted Indonesians got thriftier as a sluggish economy and an oversupply of low-wage labourers lessened purchasing power.
“The consumers’ behavioural change affected the overall retail industry. Many customers no longer stock up on groceries and only buy goods when they need them,” Mandey said. Indonesian shoppers also increasingly rely on online delivery services, reducing the chances of in-store impulse buying, he added.
Modern Internasional shut down 45 stores over the past two years due to dwindling sales. According to its annual report, the struggling company recorded more than 630 billion rupiah in net losses last year, an increase from around 58 billion rupiah in 2015. Net sales for
7-Eleven, which contributed 75 per cent of the company’s total revenue, was 675 billion rupiah last year, a nearly 24 per cent drop year on year.
“The problem was exacerbated by the lack of clear differentiation between the 7-Eleven convenience stores and fast-food and medium-sized restaurants in Indonesia,” Olly Prayudi, associate director at credit ratings agency Fitch in Indonesia, said in a recent research note.
“The business model and risks of the 7-Eleven stores were similar to that of restaurants, as the chain offered ready-to-eat food and beverages with seating and free Wi-fi. As a result, the chain faced strong competition from fast-food restaurants and traditional food vendors, which are still highly popular among Indonesian consumers.”
To stay above the competition, 7-Eleven maintained its locations in prime areas of Jakarta, and that meant high rents.
Unfavourable regulations also added to the company’s woes. In 2015, a ban on the sale of alcoholic drinks in mini markets and convenience stores across Indonesia was a blow to company performance, as alcoholic drinks made up about 15 per cent of Modern Internasional’s sales, according to Fitch.
Regulators also didn’t recognise
7-Eleven’s business model. The country issues two different permits for retailers and restaurants or cafes. This limited 7-Eleven’s expansion to Jakarta and its surrounding cities, as it only had a permit to operate as a restaurant from Jakarta’s tourism agency. To earn the retail permit, which would allow it to expand to other regions, 7-Eleven needed to operate at least 250 outlets in the capital, a goal it considered far from achievable.
Japan’s Seven & i Holdings, the global parent of the 7-Eleven chain, told Reuters it would search for another partner to revive the franchise in Indonesia.
“Indonesia is an important country for us. This is not the end of 7-Eleven’s business,” a spokesman said, as quoted by Reuters.
On Twitter, sevel became a trending topic in Indonesia after many users reminisced about their favourite 7-Eleven moments. “Sevel is a historical place for me,” Twitter user Maria Wijaya said. “I will never forget how fun it was to hang out there.” ■