Convenience Store 7-Eleven to Close its Doors in Indonesia
After the deal between Modern Internasional and Charoen Pokphand Indonesia to acquire convenience store 7-Eleven from Modern Putra Indonesia, a subsidiary of Modern Internasional, was scrapped earlier this month, Modern Internasional has now announced it will terminate all operations of the existing 120 7-Eleven stores per June 30, 2017.
The once very popular 7-Eleven convenience stores had already been plagued by rapidly sliding sales over the past two years in Indonesia, hence putting more pressure on Modern Internasional's widening losses. Since the end of 2016 the company already closed 46 of its 175 7-Eleven outlets. Although the Indonesia Stock Exchange is closed for the long Idul Fitri holiday, shares of Modern Internasional have already fallen 54.55 percent so far this year. This latest news will most likely add more downward pressure on the company's shares once trading resumes on 3 July 2017.
The 7-Eleven stores struggled to compete with other convenience stores around the country (specifically sector leaders Indomaret and Alfamart), while 7-Eleven's ready-to-eat snacks and drinks segment (a concept that was introduced about seven years ago) struggled to compete with the many local food vendors on the streets of the bigger Indonesian cities.
It is assumed the government's ban on sales of alcohol in the nation's smaller retail stores was a major setback for 7-Eleven. In fact, this ban may have been the decisive factor. Through Trade Regulation No. 06/M-DAG/PER/1/2015 on the Control and Supervision of Procurement, Distribution, and Sale of Alcoholic Beverages, implemented in April 2015, the Indonesian government banned sales of alcohol in convenience stores (such as 7-Eleven, Indomaret and Alfamart). Considering sales of alcohol contributed about 10 percent to total sales of the 7-Eleven stores, it implied a big blow for the company. Moreover, those who purchase beers or other light alcoholic beverages also tend to buy various snacks in the store, therefore the company saw its overall sales decline from IDR 1.2 trillion in 2015 to IDR 891 billion in 2016.
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