United States 

Department of 

Agriculture

Economic

Research

Service

Economic

Information

Bulletin

Number 97

June 2012

Indonesia’s Modern Retail Sector

Interaction With Changing Food 

Consumption and Trade Patterns

John Dyck, Andrea E. Woolverton, 

and Fahwani Yuliati Rangkuti
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Recommended citation format for this publication:

Dyck, John, Andrea E. Woolverton, and Fahwani Yuliati Rangkuti. 

Indonesia’s Modern Food Retail Sector: Interaction With Changing Food 

Consumption and Trade Patterns, EIB-97, U.S. Department of Agriculture, 

Economic Research Service, June 2012.
United States

Department

of Agriculture

www.ers.usda.gov

A Report from the Economic Research Service

Abstract

Indonesia’s food market has changed in response to a changing and growing economy. 

The report examines changes in the food consumption pattern and measures the growth 

of modern food retail chains, packaged food purchases, and food imports in the world’s 

fourth-most-populous country. The evidence suggests that Indonesians are moving 

toward modern global purchasing and consumption patterns, but more slowly than in 

some comparable countries. Barriers to foreign and domestic commerce, affecting the 

development of modern food retail supply chains, are important constraints on food 

market change in Indonesia. Further change in Indonesia’s retail food sector will help 

determine future growth in imports, including from the United States. 

Keywords: Indonesia, Indonesian retail food sector, Indonesian food demand, supply 

chain, trade barriers, supermarkets

Authors

John Dyck is an economist with the Markets and Trade Economics Division, Economic 

Research Service, USDA. Andrea Woolverton is an economist with the Food and 

Agriculture Organization, United Nations. Fahwani Yuliati Rangkuti is an analyst with 

the Foreign Agricultural Service, USDA. 

Acknowledgments

The authors are grateful to Economic Research Service (ERS) reviewers, including 

Maurice Landes, Suchada Langley, Mary Anne Normile, Daniel Pick, Donna Roberts, 

Sharad Tandon, and Sarahelen Thompson; to Foreign Agricultural Service (FAS) 

reviewers, including Suzanne Balsam and Dennis Voboril; and to Liesbeth Dries of 

Wageningen University, the Netherlands, and two anonymous reviewers, who provided 

valuable comments. Elise Wagner of FAS and Professor Ronnie Natawidjaja of 

Padjadjaran University provided many substantive suggestions and participated in interviews in Indonesia. We are grateful to David Marquardt of ERS, who provided the map; 

to Priscilla Smith of ERS, who edited the report; and to Cynthia A. Ray of ERS, who 

designed the report.

John Dyck, Andrea E. Woolverton, 

and Fahwani Yuliati Rangkuti

Indonesia’s Modern Food Retail Sector: 

Interaction With Changing Food 

Consumption and Trade Patterns

Economic

Information

Bulletin

Number 97 

June 2012
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Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Indonesia’s Agricultural Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Agricultural Imports From the United States . . . . . . . . . . . . . . . . . . . . . . 5

Changing Dietary Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Traditional Food Retailing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Growth of Modern Food Retailing in Indonesia . . . . . . . . . . . . . . . . . . 11

Consumer Motivations for Shopping in Modern Stores . . . . . . . . . . . . 14

Differences Between Modern and Traditional Retail Formats . . . . . . . 16

Development of Modern Food Supply Chains . . . . . . . . . . . . . . . . . . . . 18

Constraints on Future Growth of Modern Food Retailing . . . . . . . . . 22

Prospects and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Data and Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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Summary

What Is the Issue?

The economic growth and urbanization in Indonesia over the past decade 

has been accompanied by a fast-growing modern retail food sector and by 

changes in food consumption patterns. As the world’s fourth most populous country, Indonesia provides a case study of the relationships among 

food consumption, sales, trade, and investment. In this report, we examine 

changes in food consumption patterns and measure the growth of modern 

food retail chains, packaged food purchases, and food imports in Indonesia 

during the past decade. 

What Did the Study Find?

Indonesian food consumption patterns have changed since the late 1990s, 

with dairy and meat consumption growing and grain consumption falling on 

a per-person basis. Packaged and prepared food sales have grown strongly. 

Growth in household incomes and a sustained shift of population from rural 

to urban areas have contributed to these changes. Indonesia’s food consumption changes are consistent with evidence that global food consumption 

patterns have been moving toward more meats, dairy products, and sugar. 

However, animal product consumption per person remains below the level 

of neighboring countries, and calorie intake has changed little over the last 

decade of strong economic growth. 

While most Indonesians purchase their food from traditional retail outlets, 

modern food retail stores sell an increasing share of food products, 

particularly packaged goods, to urban consumers. Sales from modern food 

retailers increased from about US$1.5 billion in 1999 to over US$5.6 billion 

in 2009, and their share of total retail food sales rose from 5 to 11 percent 

over that period. Efficiencies in the modern chains do not appear to be 

forcing retail food prices down. However, if the modern stores can match 

traditional shops on product price, they can attract shoppers by offering 

additional value through these attributes. Modern stores offer refrigeration, 

air conditioning, and quality assurance that are usually not found in 

traditional shops. Refrigeration, especially for meats and dairy products, 

helps expand consumption and address consumers’ food safety concerns. 

Food imports have grown, but not as a proportion of food spending. In part, 

this may be the result of regulations by the Indonesian Government, which 

has voiced support for free trade in goods but often encourages food selfsufficiency in practice. Farmers sometimes wish to slow or stop competition 

from imports. At the border, imports of some products are effectively banned 

and many other foods face slow and uncertain import procedures. Indonesia’s 

requirements for Government-issued registration numbers for each import 

can be a particularly serious impediment. Current plans to restrict the number 

of ports through which horticultural imports are allowed to pass could lead to 

lower imports in the future. Other regulations limit the location of new large 

stores. As a result, modern food retailing in Indonesia faces constraints in 

procuring products efficiently from both international and domestic sources 

and in obtaining sites for expansion. 
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Growth in Indonesia’s modern retail food sector and ongoing changes in food 

consumption patterns are expected to continue. U.S. agricultural exports to 

this important market, which already obtains 20 percent of its food imports 

from the United States, stand to benefit from this growth. However, changes 

in food retailing and in food consumption patterns in Indonesia have been 

slower than in some comparable countries and might occur more quickly if 

economic barriers and constraints were removed.

How Was the Study Conducted?

We relied on market information collected by USDA’s Foreign Agricultural 

Service in Indonesia through May 2012 and additional interviews by the 

authors in the cities of Jakarta and Bandung. We used detailed, recent 

Indonesian Government data on foreign trade and data from the marketresearch firm Euromonitor on the food retail environment to identify trends 

and shares. In our report, we draw on and update previous literature on 

Indonesia’s food sector.
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Introduction 

Food consumption patterns across the globe have changed significantly in 

the last century. Economies and cities have grown, and global linkages have 

become more important. The extent, pace, and nature of change vary widely 

among regions and countries. Indonesia’s experience exposes some of the 

constraints on food consumption change, as a newly urbanized, increasingly 

well-off population confronts the challenge of securing safe, affordable, convenient, and tasty foods in a changing environment (Tandon et al., 2011a). 

The world’s fourth-largest country by population size, Indonesia has experienced relatively rapid economic growth that has brought changes to food 

consumption patterns and to retailing. Modern food retailing through supermarkets, hypermarkets, mini-markets, and convenience stores has increased 

in Indonesia over the last few decades. Much of this increase has been organized by large chain merchandising firms. This report examines the growth 

of modern food retailing in Indonesia; its implications for Indonesia’s food 

sector, including its domestic and international suppliers; and constraints that 

could possibly challenge further growth. Developments in food marketing 

in Indonesia, the eighth-largest foreign market for U.S. agricultural exports, 

are of interest to U.S. agriculture, which supplies both consumer-ready food 

products and feed inputs to animal-based foods in Indonesia. 
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Background 

Indonesia is sometimes grouped with the BRIC nations (Brazil, Russia, 

India, China) because of its large size (in population, area, and economic 

output) and because it is regarded as a fast-growing economy that will play 

an increasingly important global role in the future. In income per person, 

Indonesia lies between India and China when compared to the BRICs, and 

its population exceeds that of Brazil and Russia (fig. 1). Indonesia is the 

largest country and the largest economy in the Association of Southeast 

Asian Nations (ASEAN), a bloc of 10 countries with a global reputation for 

economic dynamism. 

Indonesia is a vast tropical archipelago, but about half of its population is 

packed densely onto Java (fig. 2). Historically, Indonesia’s economy has 

relied on agriculture, including small-scale rice farming, large-scale plantations (rubber, palm oil, etc.), and fishing. In recent decades, new industries 

extracting fuel sources (oil, natural gas, and coal) and manufacturing products such as textiles and computer components have driven economic growth 

and contributed new job opportunities, increasing average incomes. 

Industrialization, increased trade, and income growth have helped bring 

Indonesians to the cities. The rural population has been shrinking gradually 

since 1994.1 In 2007, the estimated share of urban residents in the total population exceeded 50 percent for the first time (World Bank, 2010). Household 

income has also been growing: in 2007, one-third of Indonesia’s 60 million 

households had incomes above $5,000, up from fewer than 3 million households in 2000 (Euromonitor, 2009). Between 2000 and 2007, the proportion 

of households with disposable income under US$2,500 declined from twothirds of the population to one quarter (Euromonitor, 2009). Women’s labor 

force participation has shown little change in the last two decades (fig. 3). 

1All years cited in the report are 

calendar years, January-December.
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Figure 2

Indonesia population density, 2005

Java

Medan

Jakarta

Surabaya

Makassar

Other countries

Major ports

0 1,100 Kilometers

Province

25,000

Equator

Persons per square kilometer

0

550

Sources: Badan Pusat Statistik (BPS-Statistics Indonesia); Center for International Earth Science Information 

Network (CIESIN), Columbia University, New York, NY. 
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Despite economic growth, income is unevenly distributed between middle 

and upper classes living in Jakarta and other cities and a large population 

in urban and rural areas that has substantially less household income. Food 

expenditures still consume half of average household budgets.

Indonesia’s agricultural imports grew quickly in 2007 to 2010, more than 

recovering from the setback they suffered in the Asian financial crisis 

of 1997-98. Growth was most pronounced in the categories of packaged 

foods, dairy and meat products, beverages, fruits and vegetables, and food 

processing inputs. Most of these categories are sold directly to consumers, 

or lightly processed or reconstituted for retail sale. Thus, they are linked to 

Indonesia’s food retail structure and the changes that it is experiencing. The 

U.S. share of these import categories is lower than its share of Indonesia’s 

agricultural imports in general. Increasing this share will involve the 

Indonesian retail sector. In addition, other imports from the United States are 

determined indirectly by retail food sales, because they are crucial ingredients in bakery products (wheat) or meat production (soymeal). Understanding 

dietary and retail food changes in Indonesia is important for U.S. exporters 

interested in the Indonesian market.

Indonesia’s Agricultural Trade 

Indonesia imports products that serve as inputs to industry (e.g., cotton for 

textile production), as well as food and animal-feed products. Over half of 

Indonesia’s import value is in commodities, such as cotton, wheat, soybeans, 

soymeal, corn, and rice, which are often shipped in bulk and often require 

further processing in Indonesia.2 In figure 4, these commodities are represented by the categories: 

•	traditional food (soybeans and rice) 

•	nonfood products (chiefly cotton)

•	feed and live animals (soymeal, corn, and feeder cattle)

•	wheat and sugar

However, a growing share of imports (“other food, beverage, and foodrelated” in figure 4) consists of a diverse set of imports that are generally 

higher valued per kilogram and include: 

•	packaged foods

•	dairy and meat products

•	beverages

•	fresh and frozen fruits and vegetables

•	raw ingredients and other inputs to food processing (e.g., textured soy

protein)

As Indonesia’s food system continues to evolve, a larger modern food retail 

sector and changing consumer tastes and preferences are likely to increase the 

market for the higher value foods, beverages, and food processing inputs. Some 

of this market increase will be supplied by imports. In particular, improvements to the cold chain store system, often implemented by the modern food 

2Indonesia has no soybean crushing 

industry. All soybeans are for food uses, 

with most processed for tofu and tempe.
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retail companies, would enable wider sales of chilled and frozen meat and 

dairy products. While much of dairy product consumption needs will continue 

to be met by imports, chilled/frozen meat demand is supplied both by imports 

and by domestic production. Greater domestic meat production (mostly 

broilers) would require greater imports of feeds like soymeal and corn (Rada 

and Regmi, 2010). Thus, prospects for imports of the higher valued foods and 

of feeds are linked to expansion of the cold chain and to the continued modernization of food retailing.

Agricultural Imports From the United States

The United States was Indonesia’s largest source of imported agricultural 

products in 2010, supplying about 20 percent of the total value of agricultural 

imports. The U.S. trade profile (fig. 5) in Indonesia is different from the total 

trade profile (see figure 4). Imports of traditional foods (chiefly soybeans)

are more important in the U.S. profile, and imports of wheat/sugar and other 

food, beverage, and food-related products are a smaller share than in the 

total profile. The U.S. dominance of Indonesia’s soybean imports should be 

considered a long-term strength. Even though soybean food consumption 

will not grow rapidly in the future, Indonesian soybean production has been 

declining, and imported soybeans will remain important in traditional foods 

such as tofu and tempe, and also in newer products like soymilk. 

The relatively low U.S. share of the “other food, beverage, and food-related 

products” trade is to some extent caused by the great geographic distance 

between Indonesia and the United States, in contrast to nearby Australia and 

the ASEAN countries. Transport costs from the United States are higher 

than from the competing sources. Another major factor is Indonesia’s 

barriers to U.S. meat exports. Because of the size of its animal production, 

the United States can ship almost any meat cut or part in volume. For meat 

Figure 4

Indonesia’s agricultural imports

Source: USDA, Economic Research Service calculations using official Indonesian trade data in Global Trade Information Services, 

World Trade Atlas.

Trillion rupiah, deflated to 2007 base

1996 97 98 99 2000 01 02 03 04 05 06 07 08 09 10

0

20

40

60

80

100

Traditional food

Nonfood products

Feed and live animals

Wheat and sugar

Other food, beverage,

and food-related
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cuts/parts that are lower priced in the U.S. market than in foreign markets, 

this creates the opportunity for large-scale trade. For instance, many Asian 

consumers prefer dark meat from broilers, while U.S. consumers prefer 

white meat. Thus, broiler leg quarters can receive a higher return in Asian 

markets, including Indonesia, than they can in U.S. markets. However, no 

import permits were granted for U.S. broiler meat imports in 2010 and 2011.3

Relaxation of Indonesia’s current barrier to broiler meat imports could open 

the door to large imports from the United States, provided that the capacity to 

store, distribute, and retail frozen poultry meat exists in Indonesia. Expansion 

of such a cold chain system in Indonesia depends in part on the growth of the 

modern retail food sector.

3Indonesia has imported minor 

quantities of U.S. frozen turkey meat in 

recent years (Global Trade Information 

Services, 2011).

Figure 5

Indonesia’s agricultural imports from the United States

Source: USDA, Economic Research Service calculations using official Indonesian trade data in Global Trade Information Services, 

World Trade Atlas.

Trillion rupiah, deflated to 2007 base

1996 97 98 99 2000 01 02 03 04 05 06 07 08 09 10

0

5

10

15

20

25

Traditional food

Nonfood products

Feed and live animals

Wheat and sugar

Other food, beverage,

and food-related
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Changing Dietary Patterns 

Regmi et al. (2008) presented evidence that food consumption patterns 

around the globe were moving toward more meats, dairy products, sugar, 

and caffeinated beverages. Indonesian dietary data reveal the same tendency 

to converge, but from a base that is quite different from North American, 

Chinese, or European dietary patterns. Indonesia’s traditional diet is based 

on rice. Protein is provided by soybeans, fish, and eggs, rather than meat and 

dairy products. Most of the fat in the traditional diet is provided by vegetable 

oil. Fresh vegetables are an integral part of the diet, and fruits are added as 

seasonally available. 

In recent decades, Indonesia’s food-grain consumption has been declining 

on a per-person basis. Increased wheat consumption has not made up for 

declining consumption of rice and white corn. Per-person food consumption 

of cassava and other tubers has also fallen. As starch-based calories have 

declined, meat, dairy, and egg consumption has grown strongly (Rada and 

Regmi, 2010). The prepared food and miscellaneous food categories have 

also grown very quickly; much of this consists of packaged foods. Both the 

decline in starch consumption and increase in packaged food consumption 

are consistent with global trends. Growth in consumption of fish, vegetables, 

fruits, and oils has been modest, and total caloric intake per person has 

shown little growth (table 1). Indonesia’s level of animal product consumpTable 1

Indonesia: Calories consumed per person, per day

1999 2002 2003 2004 2005 2006 2007 2008 2009 2010

Index: Level in 1999 = 100

Commodity

Decreasing, 2010 compared to 1999

Tubers 100 91 92 110 92 84 86 87 66 61

Cereals 100 98 97 96 95 93 89 91 88 87

Beverages 100 116 112 111 107 100 110 106 98 97

Rising by up to 100 percent

Spices 100 119 103 106 125 122 116 111 101 104

Legumes 100 137 122 119 134 123 139 116 107 107

Oil and fats 100 120 117 115 117 114 120 116 111 113

Vegetables 100 116 127 120 120 125 144 141 121 120

Fruits 100 125 131 127 122 113 150 147 119 125

Fish 100 118 130 125 132 124 130 132 121 126

Prepared food 100 116 124 128 136 127 144 170 163 160

More than doubling

Meat 100 174 208 198 207 156 209 192 178 205

Miscellaneous food items 100 145 138 140 184 167 247 233 204 206

Eggs and milk 100 162 155 166 193 178 234 220 212 230

Total kilocalories per day 100 107 108 107 109 104 109 110 104 104

Note: Original data in kilocalories/person/day are divided by the 1999 level and multiplied by 100 to form an index.

Source: USDA, Economic Research Service calculations using data from Badan Pusat Statistik (BPS-Statistics Indonesia).
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tion (meat, fish, dairy, eggs, etc.) per person is quite low when compared to 

other rapidly developing countries. Animal product consumption is at the 

same level as in India, but at a lower level than in the rest of Southeast Asia 

or in Brazil, Russia, and China (fig. 6). 

Consistent with the growth of prepared and miscellaneous categories in the 

food consumption data, retail sales of packaged food have grown rapidly 

(table 1). Indonesia’s consumers purchase a wide range of packaged foods 

(figs. 7 & 8). Among the packaged-food market segments, sales of baby 

food, confectionery, and dairy products have grown the most over the last 

decade, while sales of packaged noodles and rice have grown more slowly. 

(Euromonitor, 2009; see Data and Interviews section for more information). 

The increase in packaged-food purchases likely responds in part to urban 

consumers’ need for time-saving convenience and desire for variety (Rada 

and Regmi, 2010). Packaging acts as a partial guarantor of food safety and 

allows storage for some time. 

Prepared, but unpackaged, foods are also popular in Indonesia. They are 

often prepared and sold by street vendors, but modern chains, especially the 

larger ones, have increasingly offered prepared foods within their stores. As 

with packaged foods, greater convenience is a likely reason for the growth in 

sales of prepared foods.
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Traditional Food Retailing

Despite the rise of the packaged and prepared foods segment of the food 

retail market, the traditional Indonesian diet still is the main source of food 

consumption. Similarly, long-established food systems continue to dominate food retailing, although growth has been mostly in new retail venues. 

Traditionally, urban food purchases, both ready-to-eat and for in-home 

preparation, have been made at pasars (traditional wet markets), warungs

(small shops, often stalls), and kaki limas (street carts). These outlets carry 

fresh produce, staple foods such as bulk rice and locally produced packaged 

foods, and sometimes imported packaged foods. Like U.S. general- and 

grocery-store shopkeepers in the early 20th century, food vendors in the 

traditional markets are usually self-employed, focusing on customer service. 

Consumers—typically repeat customers—may have built longstanding relationships with the food vendors, and rely on these relationships to assure 

food quality and safety. Sales in traditional outlets are cash and carry, with 

other individual arrangements, such as credit, sometimes made for long-time 

customers.4

Pasars are the largest of the traditional outlets, housing many independent 

vendors who offer freshly butchered meat, fruits, vegetables, rice, unpackaged snack products, and other items. Pasars are predominantly owned 

and maintained by municipalities. In such cases, the local Office of Market 

Management (OMM) appoints a market manager (Suryadarma et al., 2007). 

The OMM sets an annual market service fee based on an income target for 

the market. The market manager is held accountable for vendors collectively 

reaching this income target as measured by service fee collection. In this 

organizational structure, there is a strong incentive for the manager to focus 

efforts on fee collection. However, recently, management of a few pasars has 

been privatized in an effort to increase efficiency. 

Warungs and kaki limas are privately owned and have a much smaller selection than pasars, focusing on fruits, vegetables, fish, meat, chicken, and snack 

products. Warungs are small shops and kaki limas are mobile carts that sell 

within and around neighborhoods. Owners may lease out warungs and kaki 

limas and provide small-scale operating capital to individual lessees. Kaki 

limas historically provide convenience for household servants charged with 

meal preparation; such servants are common in middle- and upper-class 

households in Indonesia.

4Indonesia interviews (see Data 

and Interviews section for more 

information).
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Growth of Modern Food Retailing in Indonesia 

The first modern retail formats in Indonesia were supermarkets built in the 

1970s. Hypermarkets entered in the late 1990s (see box “Definitions of Retail 

Formats”).

Foreign investment in Indonesia’s food retailing also began in the 1990s, 

and in 1998 Indonesia enacted legislation allowing foreign investors to 

fully own retail companies (Smith and Dawson; Natawidjaja et al., October 

2007). Within the modern retail food sector, the fastest growth in recent 

years has been among hypermarkets, linked to car use, and minimarkets, or 

“minimarts,” which serve a neighborhood, usually catering to foot traffic, 

rather than shoppers with cars. Across the three modern formats (hypermarket, supermarket, and minimart/convenience store), sales per outlet fell 

between 2004 and 2009 (table 2). (For information on supermarkets/1970s, 

see: Natawidjaja, 2005; Chowdhury et al.; Smith and Dawson; and 

Suryadarma et al. For information on hypermarkets/1990s, see: Suryadarma 

et al.; and Natawidjaja et al., October 2007.) 

In 1977, there was only one supermarket in Indonesia (Natawidjaja, 2005). 

In 2009, with 1,300 supermarkets and hypermarkets, and 10,000 minimarts 

and convenience stores, the modern grocery retail segment was a US$5.6-

billion market in terms of retail sales (Euromonitor data, 2009). By 2009, 

the share of the modern sector (supermarkets, hypermarkets, convenience 

stores, and minimarts) in total grocery retail sales had reached 11 percent, 

up from 5 percent in 1999. Within urban areas, modern grocery retailers of 

various kinds have become quite visible, and are no longer patronized only 

by upscale households. 

However, in a global context, modern-format penetration of Indonesia’s food 

retailing has been rather modest. Although it is difficult to measure food 

retail sales, and data should be treated with caution, the international marketresearch firm Euromonitor has made estimates. According to these estimates, 

the relative importance of modern food outlets is much greater in China, 

Russia, and Brazil than in Indonesia, and, within ASEAN, Indonesia lags 

behind the Philippines and is close to the level of Vietnam, a poorer country 

(fig. 9). (See Tandon et al. (2011b) for a discussion of the status of modern 

food retailing in Brazil, China, India, and Russia.)

Definitions of Retail Formats

Modern grocery retail formats are primarily categorized by physical size and 

products offered. 

Hypermarkets are chain or independent retail outlets that are larger than 27,000 

square feet and primarily focus on selling food, beverages, tobacco, and other 

groceries. Hypermarkets also sell nongrocery items such as clothing and household 

goods.

Supermarkets are outlets that are between 4,300 and 27,000 square feet that focus 

on grocery sales, but may carry a limited amount of nongrocery items.

Convenience stores and minimarts are smaller outlets of less than 4,300 square 

feet. They carry a variety of staple foods and prepared foods, as well as nonfood 

items such as newspapers and household goods.
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Supermarkets were at first primarily one-store businesses owned by 

Indonesians or Indonesian companies (Natawidjaja, 2005; Chowdhury et al., 

2005). Today, chains are important in the supermarket segment. The top two 

supermarket chains are joint ventures of multinational companies (Delhaize 

and Dairy Farm) and Indonesian companies, and the third is owned by a large 

domestic firm (Matahari) (table 3). However, the supermarket segment is still 

Table 2

Indonesia’s food retail sales

Retail sector

1999 2004 2009

Sales Outlets Sales Outlets Sales Outlets

Million US$ Number Million US$ Number Million US$ Number

Total food retail 31,905 2,138,217 46,238 2,353,134 53,049 2,573,573

Modern grocery retail

Hypermarkets 256 18 940 34 1,897 141

Supermarkets 1,235 636 1,852 695 2,068 1,162

Convenience stores and minimarts 69 522 520 1,435 1,676 10,039

Modern total 1,560 1,176 3,312 2,164 5,640 11,342

Modern share of total sales (percent) 5 7 11

Traditional grocery retail 

Traditional markets 13,350 88,700 17,173 93,525 16,756 106,038

Warungs/kiosks 16,556 2,045,016 25,200 2,112,050 29,987 2,451,099

Traditional total 29,906 2,133,716 42,374 2,205,575 46,743 2,557,137

Traditional share of total sales (percent) 94 92 88

Other specialized stores (food sales only) 439 3,325 552 3,475 666 5,094

Source: USDA, Economic Research Service calculations using Euromonitor data.
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not highly concentrated, with the top 5 companies holding only a 21-percent 

market share of supermarket sales. 

In the last 10 years, hypermarket and convenience stores, rather than supermarkets, have driven the modern food-retail industry’s growth in Indonesia. 

Overall, hypermarkets had US$1.9 billion in 2009 total sales, double the 

level in 2004 (see table 2). French-owned Carrefour and Continent opened 

their first hypermarkets in 1998. Continent’s operation was taken over by 

Carrefour in 2000 (Suryadarma et al., 2007). The Carrefour brand continues 

to be the leader among hypermarkets, with 54.3 percent of the segment’s 

retail turnover value in 2009. Subsequently, Carrefour announced a sale of 

40 percent of its Indonesian business to the Para Group, an Indonesian firm 

(Carrefour, 2010). 

Hypermart, owned by Indonesian investors, and Giant, part-owned by 

Southeast Asia’s Dairy Farm group (headquartered in Hong Kong), follow 

Carrefour in market share. The U.S. retailer Wal-Mart entered into a franchise agreement with an Indonesian firm that led to the establishment of a 

hypermart in 1996. The franchise agreement was ended in 1998. Wal-Mart 

has not returned to Indonesia (Businessweek, 1998). Over time, Indonesian 

capital investment appears to have surpassed foreign investment in the sector. 

Romo et al., 2009, note that foreign investment in the Philippine food retail 

sector was largely absent even after liberalization of investment rules in 2000. 

Table 3

Indonesia market share concentration across modern retail outlets, 2009

Hypermarket Supermarket Convenience store

Brand Company

Market 

share Brand Company

Market 

share Brand Company

Market 

share

Percent Percent Percent

1) Carrefour Carrefour 54.3 1) Super Indo Delhaize 

Group 

8.3 1) Alfamart Sigman-tara 

Alfindo

40.3

2) Hypermart Matahari 

Putra Prima 

25.8 2) Giant Dairy Farm 

International 

Holdings Ltd.

6.6 2) Indomaret Indofood 

Sukses 

Makmur 

34

3) Giant Dairy Farm 

International 

Holdings Ltd

19.4 3) Foodmart Matahari 

Putra Prima 

2.7 3) Alfa Midi Midi Utama 

Indonesia 

4.7

4) Grand 

Lucky

Lucky 

Strategies

0.5 4) Macan 

Yaohan 

Supermarket

Macan 

Yaohan 

Indonesia 

1.9 4) Circle K Alimentation 

Couche-Tard 

Inc.

2

5) Carrefour 

Express

Carrefour 1 5) Yomart Yomart 0.8

5)

Hero

Dairy Farm 

International 

Holdings Ltd.

1

Top 5 total market share 

(CR5*) 100 21.5 81.8

*CR5 is the percentage of market share held by the five largest firms in the sector. 

Source: USDA, Economic Research Service calculations using Euromonitor data, 2009.
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They speculate that lack of “access of retail space by foreign retailers” may 

be “an important constraint” (p. 41). Philippine income levels and geographic 

circumstances are similar to those in Indonesia. Reardon et al., 2003, posited 

that “the supermarket sector in these regions [Africa, Asia, and Latin America] 

is increasingly and overwhelmingly multinationalized (foreign-owned) and 

consolidated.” Indonesia’s situation no longer reflects this.

Since 1999, the minimart/convenience store presence has grown rapidly. In 

2009, sales in the modern small-format store market were US$1.7 billion (see 

table 2). This segment is highly concentrated, dominated by the domestically 

owned firms Alfamart and Indomaret (see table 3). About the size of a convenience store, the minimart concentrates on a broad selection of food items. 

From 1999 to 2009, the number of convenience stores and minimarts grew 

from 522 to 10,039, according to Euromonitor estimates, while sales per outlet 

fell from $362,000 per year in 2004 to $167,000 in 2009. In smaller formats, 

it may be easier to blend the traditional and modern stores. Existing traditional 

or independent merchants have opportunities to transform themselves into 

managers or franchisees of small, modern-format stores. Some traditional 

merchants may also be able to invest in refrigeration and air conditioning, 

updating their stores into independently owned modern formats. 

Consumer Motivations for Shopping in Modern Stores

In the cities studied for this project—Jakarta and Bandung (both in western 

Java)—modern retail food outlets do not necessarily offer the lowest prices 

for foods, according to industry observers. 

This was the consensus expressed by market experts, retail firm representatives, and wholesale suppliers during interviews conducted in Jakarta and 

Bandung, September 2008 (see “Data and Interviews” section for more 

information). Further anecdotal evidence is found in Suryadarma et al., 

2007. Using detailed surveys conducted in 2006 of various marketing chains, 

Natawidjaja et al. (June 2007) found that supermarkets sold tomatoes for 

4,900-5,200 rupiah per kilogram (kg), while traditional retailers sold tomatoes for 3,100-3,400 rupiah/kg. However, supermarket tomatoes were graded, 

and traditional ones were not, so that the produce was not strictly comparable. A 2007 study reported on a survey of 1,300 urban housewives, finding 

that, for packaged foods, equal numbers of housewives expected to find the 

lowest prices in modern-format stores and in traditional stores. However, 

for fresh and staple goods (e.g., rice) most housewives expected to find the 

lowest prices in traditional stores (ACNielsen, 2007). Tandon et al. (2011a, 

2011b) examined cross-country Euromonitor data for 103 countries, and 

their results suggest that consumers’ demand for convenience may be a more 

important driver for modern retail growth than cost-saving efficiencies that 

lead to lower prices. Monteiro et al. (2012) find that smaller stores charge 

lower prices than large ones in Brazil.

Modern stores in Indonesia can offer consistent prices that are competitive 

with the traditional sector, although not necessarily lower. The modern stores 

can bundle products together with a number of services that the traditional 

sector usually cannot include. In this way, customers may get more value 

for their money (Timmer, 2009). In other words, Indonesia’s modern retail 
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formats compete with the traditional sector primarily on services. These 

services include:

•	Food safety assurance. Because of refrigeration throughout their supply 

chain, modern outlets can protect perishable foods from deterioration better 

than the unintegrated supply chains of the traditional sector. Take-away 

foods are likely to be kept at a constant temperature and in a sanitary, 

brightly lit setting in the modern outlets, in contrast to some traditional 

outlets. Additionally, modern integrated supply chains facilitate traceability 

by reducing the number of times the product is bought and sold and by 

requiring documentation of those transactions and products’ origins. This 

practice likely discourages suppliers from slipping unsafe food into such 

chains. Receipt in hand, shoppers at modern outlets are able to show where 

a food was bought, perhaps providing an incentive to the retailers to give 

greater attention to food safety. In a survey for the World Bank, the most 

frequent disadvantage of shopping in traditional outlets cited by Indonesian 

housewives was that shops were dirty (ACNielsen, 2007).

•	Convenience. Large, modern-format stores offer more hours of operation 

than do traditional outlets, especially the pasars. In addition, the modern 

stores offer secure, free customer parking for cars and motorbikes, and 

the option of using credit cards; such services save urban, middle-class 

shoppers time. Hypermarts in Jakarta and Bandung are surrounded by 

large parking areas and lanes for cars to pick up shoppers and their 

purchases. Shopping with a car and shopping in the larger modern outlets 

are phenomena that mutually strengthen each other. The rise of car 

ownership in the urban middle class enables large-scale food purchases 

that can take place once a week, replacing frequent, even daily shopping 

trips on foot to a traditional or smaller modern outlet.5

•	Information. In modern stores, all items are labeled with fixed prices, 

and shoppers themselves select the food items. In traditional markets, 

vendors sometimes select the item to be purchased, and price bargaining 

is common. Modern chain advertising provides information on sale prices 

and product variety (Rangkuti and Slette, 2010).

•	Variety. While a large traditional outlet, such as a pasar, offers a large 

variety of products, large modern outlets can match or surpass this 

variety, while also offering the convenience of buying from only one 

vendor. Modern chains may have particular strength in maximizing 

variety because of their national and international linkages, which 

provide them with information about and access to items previously unfamiliar in the marketplace. Since modern outlets use scanner technology, 

it is also likely that modern outlets can more easily track sales to match 

variety with demand (ACNielsen, 2007; Timmer, 2009; Rangkuti and 

Slette, 2010). 

•	Comfort. An enclosed environment and air conditioning are important attributes in Indonesia’s moist, warm climate (ACNielsen, 2007). 

Modern outlets also provide security precautions, which, together with 

lighting and less crowded passageways, add to customers’ feeling of 

comfort (Rangkuti and Slette, 2010).

5Euromonitor reports over 7 percent 

(i.e., about 5 million) of Indonesian 

households owned a car in 2010. “Convenience is cited as the most important 

factor in determining shopping place” 

according to survey results (ACNielsen, 

2007, p. ix).
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Differences Between Modern and 

Traditional Retail Formats

The amenities provided by the modern format stores come at a cost, and some 

costs associated with the larger modern formats are lower for the traditional 

sector. Real estate in major urban centers is often very expensive (Natawidjaja 

et al., June 2007). Businesses occupying prime locations must generate rents 

that pay for the owners’ land investments. In contrast, rents for traditional 

outlets are much lower. The spacious, clean, air-conditioned buildings housing 

the supermarkets and hypermarkets, and the parking associated with them, 

are costly to construct and maintain. Smaller modern-format stores (convenience stores and minimarts) have more modest land rents, lower construction costs, and less need for parking. However, they still require refrigeration 

and good lighting, which depend on a constant electric supply. This need is a 

constraint in Indonesia, where the demands on the electric system often overwhelm supply (Pekerti and Slette, 2010). A uniformed, educated staff of hired 

employees, even in the convenience stores and minimarts, also may be more 

expensive than the labor hired in the traditional formats. Thus, a number of 

extra costs facing modern food stores are lower or nonexistent for traditional 

stores. These costs must be covered by cost-saving efficiencies in other parts of 

the modern operations, or by higher prices to consumers.

Modern food retail establishments have advantages over traditional 

establishments in selling the food categories that have shown strong 

consumption growth in recent years (such as packaged goods and dairy 

and meat products). Few traditional-format stores can stock the variety of 

prepared foods and packaged foods and beverages that a supermarket or 

hypermarket can. Modern chains may also have advantages in accessing 

supplies of these products, whether from foreign or domestic sources. 

Modern food stores provide an increasing share of the packaged foods sold in 

Indonesia (fig. 10).6 6A 2007 World Bank study, using 

Nielsen data, also reported a high share 

of packaged food spending taking place 

in the modern format stores: 29 percent 

(World Bank, Jakarta, July 2007).
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Refrigeration is available in all modern formats, but it can be unavailable or 

unreliable in traditional formats. Refrigeration allows longer shelf life and 

greater food safety for fresh, chilled, and frozen meats; dairy products; and 

eggs. Modern retail markets generally are more consistent than traditional 

markets in keeping raw meats and vegetables separate to avoid bacterial 

contamination. In traditional markets, slaughtering may occur onsite close to 

retail offerings (see box, “Indonesia Poultry Meat: How Retail Structure Can 

Affect Food Consumption”) (Indonesia interviews). 

Traditional sources of protein in Indonesia have been soy 

foods (tofu, tempe) and fish. The country’s large Muslim 

population shuns pork (although non-Muslim minorities 

raise pigs and eat pork). Indonesians enjoy beef, but consume more poultry meat than beef. As in the rest of Asia, 

traditional chickens, often raised on a small scale in back 

yards, then sold alive or freshly killed to consumers, are the 

preferred poultry meat. However, modern broiler production can provide chilled and frozen whole broilers and cuts 

at prices below those of traditional chickens. Indonesia has 

several large broiler integrators that provide feed and chicks 

to farmers, and then process and market the broiler meat, 

some owned by investors from Thailand and Taiwan (Rangkuti, 2003). Demand for broilers and broiler parts produced 

and marketed through modern production and sales channels is expected to grow with rising income and increased 

urbanization. However, Indonesia’s poultry meat consumption per person is among the lowest in Asia, and meat consumption in general is much lower than in the country’s 

closest neighbors, Malaysia and the Philippines. Philippine 

consumers, with income per person comparable to that in 

Indonesia, buy more meat than Indonesians do. Consumers 

in Southeast Asia’s other Muslim-majority country, Malaysia, purchase much more meat (chiefly poultry meat) than

Indonesians.

The difficulties of delivering chilled or frozen broiler meat 

to consumers appear to be a major constraint to higher 

consumption. Lack of a cold chain from production site to 

the household is likely to continue to be a major factor in 

limiting purchases. Indonesia has serious deficiencies in its 

transport grid, which makes travel by truck slow, and in its 

electrical grid, which makes cold storage at all points in the 

supply chain either uncertain, expensive (if using gas generators), or both (Perry, 2004; Rangkuti and Slette, 2011). 

Modern retail chains can help resolve cold chain issues in 

their stores and in the distribution centers that supply the 

stores. The retail chains, together with the large integrators, are well-positioned to solve the linkage problems between rural broiler production and urban consumers. These 

large firms can use generators to back up electric supply 

and can plan how to deliver and store large shipments most 

efficiently. But the deficient road network and inadequate 

refrigeration in urban households remain major problems.1

Even more difficult is creating efficient means of access to 

the country’s large rural population, which may have the 

income to purchase broilers but not the opportunity. Nevertheless, the main way in which Indonesian meat consumption will grow is likely to be through chilled and frozen 

broiler sales in the modern retail stores.

Indonesia Poultry Meat: How Retail Structure Can Affect Food Consumption

Meat and fish food supply in Indonesia and its 

neighbors; average for 2005-07

Dollar values = average gross domestic product (GDP) per person, 

in 2005 U.S. dollars, at purchasing power parity.

Source: USDA, Economic Research Service calculations using food supply 

data from United Nations, Food and Agriculture Organization, FAOSTAT.

Kilocalories per person, per day

Indonesia $3,363 Philippines $3,045 Malaysia $12,244

11

26

20

48

13

176

28

67

23

78

137

91

Beef

Pork

Poultry meat

Fish and shellfish

1Rangkuti and Slette, 2011, report that only 33.7 percent of urban 

households and 8.1 percent of rural households had a refrigerator in 2005.
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Development of Modern Food Supply Chains

Food has long moved from Indonesian farms to urban consumers via diverse 

and sometimes intricate routes that involve rural middlemen, wholesale 

markets, and traditional urban merchants. This supply network remains 

very important, especially to the traditional retail sector (see, for example, 

Natawidjaja et al., June 2007). However, largely because of the rise of 

modern retail firms, other systems have been developed that simplify the 

supply chain. Modern chains have established corporate distribution centers, 

where food arrives from the countryside or from food manufacturers to be 

readied for distribution to the chain’s retail outlets (Natawidjaja et al., June 

2007). When necessary, the supply chains of the modern firms provide refrigeration from the farmgate through the retail store. Although the distribution 

centers (and individual modern stores) sometimes purchase from wholesale 

markets or from traditional traders, they focus on building efficient, simple 

links to farmers. Supply contracts with wholesale firms, farmer groups, or 

even individual farmers spell out agreements on pricing and specify delivery 

details and quality standards. This is especially common for vegetables and 

fruits (Natawidjaja et al., June 2007). 

Chowdhury et al. (2005) found that vegetable farmers received a lower 

share of the retail value of vegetables in the modern supply chain than in the 

traditional supply chain. However, absolute prices that farmers received for 

the vegetables were higher in the modern chain, possibly because of higher 

quality of the produce being traded (Chowdhury et al., 2005). A World Bank 

study found that farmers participating in a modern supply chain obtained a 

higher profit on their produce than those in traditional chains, but also found 

evidence that the share of retail value captured by farmers could be lower in 

modern channels (Natawidjaja et al., June 2007).

The large-scale wholesale cash-and-carry store has also emerged in 

Indonesia, as elsewhere, as a bridge between small, traditional retailers and 

a modern, efficient supply chain from domestic and international sources. 

The Makro chain developed large centers in which merchants could shop in 

a modern environment for supplies to resell in their retail stores and restaurants. Makro (now Lotte) has its own distribution center and contracts with 

suppliers, but differs from other modern formats by serving as a wholesaler, 

rather than a retailer (Natawidjaja et al., June 2007).

Food manufacturers in Indonesia sell both to modern and traditional sectors. 

Frozen foods and food products requiring refrigeration, such as some dairy 

products, are easy to place in modern outlets, but often cannot be sold in 

traditional markets. The expansion of the modern outlets thus has expanded 

the sales potential of products needing a cold chain. As in the rest of the 

world, modern retail chains in Indonesia have been increasing their offerings 

of own-label (private label) manufactured foods (Euromonitor, 2009). These 

own-label products are only available in the modern chains, in contrast to the 

brands produced by food manufacturers for the general market. 

In addition to domestic farm and food processing output, Indonesia’s food 

retailers purchase imported agricultural products. Imports of all foods (not 

just higher valued items) have grown in value, but not as a proportion of food 

spending. According to Euromonitor and Global Trade Information Service 
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data, food import value as a share of consumer expenditures on food from 

1996-2009 has stayed between 3 and 6 percent, exhibiting a slight upward 

trend since 2000.7

Indonesia, with its large internal market and geographic isolation from some 

major food-exporting regions, may be an advantageous site for domestic 

production of goods that substitute for imports. Regmi and Gehlhar, 2005, 

suggest that “a global market may only exist for limited food products” and 

that “growth in food trade may not keep pace with growth in global food 

demand.” The existence of local preferences, the cost savings that can sometimes be achieved from local manufacturing, and the effects of trade barriers 

are among the reasons they cite. All may apply to the Indonesian case.

Nevertheless, imports of higher valued foods (chiefly meats, fish, dairy

products, vegetables, fruits, oils, and highly processed foods [i.e., chapters 

2, 3, 4, 7, 8, 15, and 21 of the Harmonized System]) grew by 150 percent in 

value in the last decade, adjusted for inflation (table 4).

Highly processed food imports have increased relatively quickly, quadrupling in real value since 1996 (highly processed foods are defined as products 

in chapter 21 of the Harmonized System). Some of the highly processed food 

imports are packaged foods, which is consistent with the growth in packaged 

food sales in Indonesia. The growth suggests that Indonesia’s urban population increasingly seeks a greater variety of convenient food sources. The 

international market offers varieties not produced domestically. 

Indonesia’s climate makes production of fruits normally grown in temperate 

areas difficult (e.g., apples and pears). Dairy and meat production is not 

adequate, even for the low level of demand. Therefore, Indonesia imports 

large quantities of such products. There are also large imports of some unprocessed foods that compete on price with domestic production (e.g., onions 

and garlic). In part, this is because internal transport in Indonesia is often 

7Food imports were defined as HS 

chapters 2-21, less chapters 3 and 5, 

and not including agriculturally derived 

nonfood products such as waxes. 

(The Harmonized System (HS) is an 

international product nomenclature 

developed by the intergovernmental 

World Customs Organization. The HS 

comprises about 5,000 commodity 

groups, each identified by a 6-digit 

code.)

Table 4

Indonesia’s high-value food product imports: growth in average value, 

2008-10 compared to 1998-2000

From World From United States

Percent growth

Vegetables 94 33

Other 111 77

Dairy 128 634

Fruits 253 48

Meat 273 -18

Highly processed 362 339

Total, high-value 157 154

Note: Gain, 2008-10 over 1998-2000, divided by 1998-2000 value. All values deflated to 2007 

rupiah levels.

Source: USDA, Economic Research Service calculations based on Government of Indonesia, 

official import data (Global Trade Information Services) and International Monetary Fund, 

World Economic Outlook Database consumer price indexes.
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slow, and sometimes perishable foods can be obtained more cheaply through 

imports than domestically (Natawidjaja et al., June 2007). 

A modern food retail chain has an interest in exploiting global supplies of 

foods unavailable in Indonesia or lower priced than domestic production, 

and has the advantage of being able to place large orders, which can often be 

filled at a lower per-unit price. Traditional food merchants are at a disadvantage when dealing with global markets. They have less experience in finding 

foreign supplies and less ability to place large orders. 

Food imports have grown from all major sources, with the shares of the 

largest exporting countries showing no significant trend since 2000 (fig. 11).8

The EU share fell despite this being a period when the French-based firm 

Carrefour dominated hypermarket retailing, the Belgian-based Delhaize firm 

owned a large stake in the largest operator of supermarkets, and the Germanowned firm, Makro, was the dominant cash-and-carry firm (Smith and 

Dawson, 2004). Ownership of the modern retail chains does not appear to 

have translated into an increased tendency to source from the home market in 

this case. Similarly, the share from ASEAN did not rise, despite the activity 

of the Southeast Asia-oriented Dairy Farm group in Indonesia.

Food imports from the United States grew over the last 15 years, but not 

faster than from other sources. Imports of U.S. meats have been hurt by 

Indonesia’s de facto ban on imports of frozen chicken legs and leg quarters, 

so that imports actually declined between 1998-2000 and 2008-10 (table 

4). Imports require import permits from the Ministry of Trade, which were 

not issued for chicken meat in 2010 and 2011 (USDA/FAS, 2011; GTIS, 

2011). Imports of U.S. poultry meat peaked in 2000, at over 12,000 tons 

(GTIS, 2011). Imports of U.S. vegetables and fruits grew relatively slowly, 

as Indonesia increasingly imported these commodities from China. However, 

8There have been important changes 

within more narrowly defined import 

groups. For instance, the U.S. share of 

Indonesia’s concentrated milk imports 

(HS 0402) grew from 6 percent in 

1998-2000 to 21 percent in 2008-10.
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imports of U.S. dairy products soared, exceeding import growth from traditional suppliers in Oceania and Europe—a phenomenon observed throughout 

Asia as high world prices made U.S. exports competitive. In the market for 

highly processed foods, the United States almost held its share as imports in 

general quadrupled. 

Regional trade agreements involving Indonesia and the rest of ASEAN, 

China, Australia, New Zealand, and India have lowered tariff barriers to 

imports from those areas while leaving barriers intact for the remaining 

major competitors, the United States and the EU. ASEAN, China, and 

Oceania have obvious advantages in shipping to Indonesia in a more timely 

way than can U.S. exporters. On the other hand, U.S. advantages include 

the strength of its branded products in the eyes of consumers and the vast 

size and diversity of U.S. food production. Despite the distance separating 

the United States from Indonesia, modern Indonesian food retail firms can 

benefit from accessing U.S. products, especially processed and packaged 

foods and meats. However, several difficulties constrain such access.
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Constraints on Future Growth of 

Modern Food Retailing 

Modern food retail sales are likely to continue to grow in Indonesia, and 

could one day dominate the urban markets. However, constraints are 

apparent that may slow the future pace of growth. Weak infrastructure—

especially in transportation and power supply—and traffic congestion are 

major constraints (Smith and Dawson, 2004). Other challenges to growth in 

the modern retail sector center are political and institutional reactions to the 

modern retail supply chain and to the competition that modern retail brings to 

traditional markets and that food imports bring to domestic production. 

Efforts to boost efficiency and cut costs in modern supply chains have met 

some resistance from suppliers. Wholesalers have protested when their role 

has been supplanted by distribution centers and the purchasing networks of 

the modern chains, or when they have been instructed to cut prices in return 

for continued business from the chains (Jakarta Post, April 9 and 13, 2005; 

Jakarta Globe, 2009; Suryadarma et al., 2007).

Suppliers to the modern firms usually are not paid immediately for their sales 

but required to wait, often up to 20 days, for payment (Indonesia interviews; 

Natawidjaja (2005) writes of a 10-20 day wait). Opposition from such groups 

to increased buying power of modern retailers and to efforts to streamline the 

marketing chain is likely felt both at the commercial and the political level, 

and can hurt the image of the modern chains.

The Jakarta Post quoted Haniwar Syarif, executive director of the National 

Meat Processor Association as saying: “Aside from listing fees and promotion discounts, some retailers have added new product support to the trading 

terms ... It’s a mandatory cost every time we introduce a new product ... 

Some of my members have complained they’re paying rupiah (Rp) 10 

million for trading term costs, up from the Rp 3 million they were paying 

last year.” The Jakarta Post further quoted, “Susanto, president of the 

Indonesian Modern Retailers Suppliers Association, said Carrefour, which 

bought local retail chain Alfa Mart last year, for example, had been charging 

Alfa’s existing suppliers a “grand-opening” fee every time they placed 

their goods in a new Alfa store.” Further, the Post cited Gunaryo, the Trade 

Ministry’s director for market management, as saying these “reports were 

true” (Jakarta Post, 6/24/2008). Subsequently, the Indonesian Government’s 

business Competition Supervisory Commission (KPPU) held hearings on 

a Commission report that “alleged [Carrefour’s] dominant position [was] 

leading to monopolistic practices and unfair bargaining power vis a vis 

suppliers” (Jakarta Post, 4/14/2009).

Global supply chains may be quick to bring out new products and can have 

a large scale of operation with low unit costs. However, it can be difficult for Indonesian retail firms to take advantage of global supply chains.9

Indonesia has often voiced support for free trade in goods, and in the wake 

of the financial crisis in 1997-98, it removed many formal barriers to trade. 

Nevertheless, the Government often encourages food self-sufficiency, and 

agricultural producers and food manufacturers sometimes wish to slow or 

stop competition from imports. Sofjan Wanandi, chairman of the Indonesian 

9While the Organization for Economic Cooperation and Development 

(OECD) characterizes Indonesia’s 

tariffs as low compared to other major 

developing countries, the OECD scores 

Indonesia worse than other major 

developing countries for discriminatory 

procedures affecting trade and investment (OECD, 2011).
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Employers Union, was quoted by the Jakarta Post: “The import of agricultural products such as rice...has affected millions of farmers and companies 

in Indonesia, and we are now facing a disaster because the value of imports 

is higher than that of exports” (Jakarta Post, 10/13/2011). Trade Minister 

Gita Wirjawan has advocated reduced rice consumption in Indonesia as 

a way to achieve self-sufficiency (Jakarta Post, 12/14/2011). Rusman 

Heriawan, Deputy Agriculture Minister, spoke of his Government’s target to 

produce a 10-million ton surplus of rice in Indonesia by 2014 (Jakarta Post, 

12/13/2011).

One of the main requirements confronting foods imported into Indonesia 

(whether the ultimate retailer is a modern chain or a traditional dealer) is 

registration with the National Agency for Drug and Food Control (Badan 

Pengawas Obat dan Makanan, or BPOM). Importing agents and modern 

retail management characterize this registration as a “long process” that 

needs to be done in advance of a shipment (Indonesia interviews). Each 

imported product receives a registration number (ML) from BPOM. For 

any goods packaged for sale to consumers, a label, in Indonesian, must be 

attached that displays the ML number as well as information about the product’s ingredients, country of origin, and shelf life (Rangkuti, 2009). BPOM 

registration prior to distribution also applies to domestically processed foods 

(USDA/FAS, Jakarta, 2011).

Firms exporting to Indonesia cannot register a product with the BPOM; only 

an importing firm can do so (Ibid). Successful registration is not always 

achieved, even after the often lengthy BPOM review (Rangkuti, 2009; 

Rangkuti and Slette, 2011; USDA/FAS Jakarta, 2011). This complicates, or 

prevents, the ability of multinational firms to bring products into Indonesia 

efficiently. For example, a multinational food retail company cannot quickly 

decide to bring in a food procured by that company’s global supply chain; 

before unloading, prior approval and labeling, in Indonesian are needed 

(Ibid). Because of Indonesia’s import labeling procedures, a foreign manufacturer of food products is also limited in its ability to quickly bring in even 

“globally” labeled and packaged items, designed to satisfy language and 

regulatory requirements in many countries. If importing company services 

are retained, transaction costs are added. Importing also entails other costs. 

Indonesia’s tariffs, while relatively low compared to many developing countries, are usually 5 to 10 percent of imported value. All imported goods are 

charged a 10-percent value-added tax (VAT; this also applies to domestically produced goods). The VAT is applied at port to the landed value of the 

imported product, including the tariff (Rangkuti, 2008).10

In December 2007, Indonesia began to implement the National Single 

Window (NSW), requiring “all related government institutions to coordinate the process to clear exported and imported goods through an electronic system.” Thus, BPOM registration and other regulations would all 

be included within the NSW framework. The NSW was supposed to link to 

the ASEAN Single Window in 2009 (Rangkuti, 2008). The NSW is meant 

to increase transparency and efficiency in trade at the border. However, 

according to a recent report, this initiative has yet to improve trade efficiency 

(Rangkuti and Slette, 2011).

10For example, if the tariff on an item 

is 5 percent, then the total levy at the 

port would be 15.5 percent of the value 

(5 plus 10 plus .5).
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The BPOM has also tightened its control over many imported foods. “In 

March 2008...BPOM released a regulation that stated all imported processed 

food, food raw materials, food additives, processing aids, food ingredients, 

and other must obtain import approval from the head of BPOM for every 

shipment” (USDA/FAS Jakarta, 2011). 

All meat imports require an import permit from Indonesia’s Ministry of 

Trade, which requires an import recommendation approval from Directorate 

General for Livestock Animal Health Service (DGLAHS) in the Ministry of 

Agriculture. Under this system, recent imports from the United States have 

been largely restricted to frozen beef hearts. Foreign meat manufacturing 

plants must be certified both by the DGLAHS and Islamic authorities. For 

meat and poultry products, halal precertification is required. Halal certification is a declaration by Islamic authorities that a product has been produced 

in accordance with Islamic dietary rules.11 These foods must come “from 

slaughterhouses that have been approved by Indonesian veterinary and religious authorities” (Rangkuti and Slette, 2011). In addition, the Ministry of 

Agriculture must also give prior approval to a shipment of imported meat 

(Ibid). These requirements have severely limited imports of poultry meat cuts 

into Indonesia (Ibid). Satisfying the import requirements also adds costs. 

Recent Indonesian Government decisions appear to put new restrictions on 

imports of fresh fruits and vegetables. A new regulation of the Ministry of 

Agriculture, to take effect in March 2012, restricts import of fresh fruits and 

vegetables to four Indonesian ports, rather than eight as in the past. The only 

port allowed in Jakarta, the largest city, is the Jakarta airport. Air freight is 

typically more expensive than freight using refrigerated containers. Other 

new regulations increase the number of horticultural items that must undergo 

phytosanitary inspection and the number of diseases that will be monitored, 

while reducing the number of sites where inspection can occur (Government 

of Indonesia, 2011). These regulations could reduce current import levels. 

While traditional retailers have lost share to the modern chains, they have 

not experienced an absolute loss of sales because Indonesia’s urban food 

market has grown in size (see table 2). Traditional retailers may not feel 

much competitive pressure from modern chains. A 2007 study found that 

traditional retailers ascribed weak sales first to economic conditions (especially high fuel prices) that kept their lower income customers from buying 

what they had in the past (World Bank, Jakarta, 2007). A second perceived 

cause of weaker sales was the increasing presence of street vendors around 

the perimeters of the pasars, where they competed for customers, hindered 

entry and exit, and took parking places. The rise of the modern retail stores 

was only the third-most important factor. The World Bank surveyed over 400 

traditional traders in a sampling procedure that allowed comparison of traditional markets close to and distant from modern food retail venues. Analysis 

did not reveal negative effects of proximity to modern stores on the sales 

and profitability of traditional retailers. The study did find that traditional 

merchants hired fewer assistants when modern stores were in the vicinity 

than when they were not (World Bank, Jakarta, 2007; see also Suryadarma et 

al., 2007).

Nevertheless, concern for the welfare of the traditional merchants and the 

political influence of merchants may be the reasons for Government regu11Indonesia has designated four approved certifiers for poultry meat and 

six for beef. Rules and institutions for 

halal certification differ among importing countries. Thus, satisfying Indonesia’s requirements does not facilitate 

entry into other markets. 
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lations that require special procedures for establishing new modern retail 

venues (Suryadarma et al., 2007). These regulations try to keep new modern 

stores a certain distance from traditional ones or require that investors in new 

stores consult with existing traditional storekeepers. In practice, these regulations may not always prevent expansion by the modern chains. New development in the cities changes the market environment and opens opportunities 

for new sites. Also, increasing traffic congestion may limit new locations 

more than regulations do—especially for hypermarkets and supermarkets.

In recent years, the modern retail sector has opened many small-format stores 

(see table 2). This may increase the potential for traditional storekeepers to 

switch to a modern franchise, or to invest in changing to a modern format 

independently. Even among the largest modern stores, space is sometimes 

rented to traditional-style merchants to operate at the margins of the store. 

Over time, such interchanges may soften the opposition of the traditional 

sector to new investments by modern chains.

Finally, Government concern about market concentration may also constrain 

opportunities for modern food retail firms. Indonesia’s antitrust agency 

protested the 2009 purchase by Carrefour, the largest hypermarket operator, 

of Alfamart, the largest minimart/convenience store chain.12 Although the 

Government decree that Carrefour divest itself of the purchase was successfully challenged in the first round of court hearings, Carrefour sold its stake 

in Alfamart to the Para group, which subsequently announced that it would 

acquire a large minority stake in Carrefour Indonesia (Carrefour, 2010; 

Bisnis Indonesia, May 14, 2010).

12According to one source, foreign 

firms are not allowed to invest in stores 

with less than 400 square meters (Bisnis Indonesia, May 14, 2010).
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Prospects and Conclusions

Indonesian food consumption patterns are likely to continue to change as 

incomes increase. In particular, consumption of animal products, now low 

compared to some other Asian countries, is likely to grow. Prospects for 

growth in broiler meat and dairy product consumption are strong if incomes 

continue to rise. These foods benefit from refrigeration, and large-scale 

supply chains may be able to offer such products at lower prices. Thus, 

further consumer shifts to animal products are likely to present an opportunity that modern food retail chains will pursue. 

Indonesia’s economic growth in the next decade is expected to be about 5 

percent per year, adjusted for inflation (USDA/ERS, 2012). Because such

growth is likely to spur further urbanization, the population and buying 

power of urban households will grow faster than the nation as a whole will 

grow. In this environment, it is likely that modern food retailers will gain 

additional market share and perhaps also compete effectively for retail sales 

now made by the traditional sector.

In Indonesia, as elsewhere, food safety concerns may continue to push 

consumers toward modern stores that promise greater accountability and 

traceability because they manage their stores and supply chains tightly. As 

Indonesia’s cities grow and lifestyles change, preferences and needs for timesaving convenience are expected to increase. This should bolster convenient 

shopping venues, preparation of food away from home—in stores as well as 

in restaurants—and sales of packaged and processed foods and beverages. 

Together with concerns about food safety, the desire for greater convenience and other amenities is likely to lead to continued modernization of 

Indonesia’s retail food sector in the future.

Global investment does not dominate Indonesia’s retail food sector. 

Indonesia has allowed full foreign ownership of supermarkets and hypermarkets since 1998. So far, this has not sustained a high level of foreign ownership. Only the cash-and-carry stores of the recently arrived Lotte group, from 

South Korea, remain wholly foreign-owned.13

In Indonesia, the modernization of food retailing has not been fully integrated with global food trade. In a very large country like Indonesia, the 

heavy reliance on domestic sources may be explained in part by the presence of domestic capital resources that can invest in food manufacturing and 

distribution. Rather than importing goods, it may be most cost-effective to 

produce them in-country, where large labor supplies and a huge local market 

both exist. Food imports continue to face slow, uncertain, and costly hurdles 

at the border. Indonesia’s National Single Window for imports may offer 

the promise of faster, more transparent trade in the future but has not yet 

streamlined importing. Resistance from traditional retailers, middlemen, and 

small-scale producers to large-scale, modern retailing and its drive to cut 

supply chain costs may have slowed the growth of modern retailing, which 

is a major driver of food imports. Expansion of the modern food retail sector 

and diminished border barriers may contribute to greater integration with 

global markets in the future and to increased agricultural imports, if current 

constraints are eased.

13A 2011 news article (“Retailers scramble for piece of Indonesia”) 

speculated that there is renewed interest 

in foreign investment in Indonesian 

food retailing (Nikkei Weekly, 2011).
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Indonesia’s large population and strong economic growth make its market 

important for U.S. goods in the coming decade. In recent years, Indonesia 

has ranked among the top ten U.S. agricultural markets. U.S. agricultural 

exports to Indonesia consist in part of bulk commodities, which are indirectly 

affected by changes in the retail structure. As Indonesia’s diet shifts toward 

animal products (regardless of what kind of store sells the animal products), import demand for feedstuffs will increase, benefitting U.S. corn and 

soymeal producers.

The United States is also a major producer and exporter of consumer-ready, 

high-valued agricultural products. If Indonesia allows imports, chicken meat 

could become a major U.S. export to Indonesia. Recent growth in U.S. dairy 

exports to Asia suggests that the United States may emerge as a long-term 

exporter of powdered milk and other dairy products. Indonesia could be 

a large, growing destination for these exports, if import regulations allow 

growing access. High-valued product exports will likely benefit from expansion of the modern retail sector, which has sold an increasing share of such 

goods in Indonesia, and is well-positioned to market greater volumes of 

existing products and to introduce new products. 

However, Indonesia’s food retail market has so far proved slower to embrace 

frozen broiler meat, dairy products, and modern stores than some of the countries with which it is logically compared. Border measures, infrastructure deficiencies, and domestic political concern for the traditional food system make 

dietary and retailing changes difficult. India also appears to be slower than 

other developing economies in shifting its diet and retailing to Western norms. 

India, the world’s second-largest country, and Indonesia, the fourth-largest 

country, may be studied further to see whether they should be regarded as 

outliers or as examples of a different path in food sector development.
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Data and Interviews

Euromonitor data

a) “Indonesia Fresh Food.” Accessed January 2010.

b) “Indonesia Packaged Food.” Accessed February 2011.

c) “Indonesia Country Profile.” Accessed January 2010.

d) “Indonesia Income and Expenditure.” Accessed February 2011.

The Euromonitor database is assembled by analysis using “National statistics 

offices; governmental and official sources; national and international trade 

press; national and international trade associations; industry study groups and 

other semi-official sources; company financials and annual reports; broker 

reports; online databases; and the financial, business and mainstream press.” 

Available at: http://www.euromonitor.com/.

Indonesia interviews

Interviews in Jakarta and Bandung (Dyck and Woolverton and FAS 

researchers Rangkuti and Elisa Wagner), September 2008. Interviews were 

conducted with three store managers; an official of a modern retail association; officials of a farmers’ wholesale cooperative; an official of a wholesale 

food association; senior officials of three large modern food retail firms; 

Government officials overseeing food retailing; a food importer; representatives of U.S. exporters; and a university researcher.