7-Eleven collapse sends warning to investors

JAKARTA: Indonesia’s large consumer market may be a jewel in the eyes of foreign businesses, but in the retail sector, that jewel can quickly become kryptonite for companies.

There will be no more 7-Elevens for Indonesians starting this Friday. Business had become too difficult for the US convenience store chain, which opened its first outlet in Bulungan, South Jakarta, in 2009.

PT Modern Internasional – the holder of the 7-Eleven franchise licence – had opened more than 160 outlets before June 2017, but it has now fallen victim to Indonesia’s notorious bureaucracy, University of Indonesia management professor Rhenald Kasali told The Jakarta Post on Friday.

“The ‘convenience store’ terminology was new for regulators back then. New things often cause regulators to make their own interpretations,” Rhenald said.

Modern Internasional operated the chain using a restaurant licence – riding high on the “hang out” habits of Indonesians – issued by the Tourism Ministry until the operation was questioned by the Trade Ministry because 7-Eleven also sold consumer goods.

In 2012, the Trade Ministry sent warning letters to Modern Internasional, urging the firm to comply with prevailing regulations as a retailer.

It did not help that Modern Internasional was running a franchise, since the nature of the business required the company to report any changes to the franchise owners abroad, a process that Rhenald said was both time consuming and confusing.

Indonesian Retailers Association chairman Roy N. Mandey said 7-Eleven’s failure would set a bad precedent for foreign investors.

“7-Eleven is a global company that has existed for more than 90 years. It is expanding rapidly in other countries. However, the fact that it has failed in Indonesia will bring up questions, primarily from foreign investors,” he said.