Korean supermarket corporations entering the Indonesian market, which is growing based on a population approaching 300 million, are facing difficulties. GS Retail is pushing for the sale of its local stores and is effectively preparing to withdraw. Lotte Shopping has also accumulated losses in its local retail subsidiaries in recent years. It is analyzed that they are struggling to compete with local companies due to a relatively small number of stores and other factors.
According to the industry on the 14th, GS Retail's Indonesian subsidiary 'GS Retail Indonesia' plans to operate all of its local supermarket stores only until the end of this month. A GS Retail official noted, "We are in discussions to sell the stores to local supermarket specialists."
GS Retail established its local subsidiary to enter the Indonesian market in 2016 and opened the first premium concept supermarket GS THE FRESH in Bogor, a high-end residential complex near the capital Jakarta, in October of the same year. The company aimed to expand its business by leveraging the demand for Korean products due to the Korean Wave, advanced marketing strategies, and shopping convenience, and had planned to increase the number of stores to 20 by this year. It also made an additional investment of 4.6 billion won in its Indonesian subsidiary last year.
However, as of the end of last year, GS Retail had only 8 local stores, and its recent performance has been on a decline. GS Retail Indonesia recorded sales of 18.5 billion won and a net loss of 11.5 billion won last year. Sales decreased by 8.7% year-on-year, while the loss widened by 163%. Over the past five years, sales have remained around 20 billion won, while cumulative losses reached 25.8 billion won.
Similarly, Lotte Shopping, which is operating in Indonesia, has accumulated losses in the retail supermarket sector. Lotte Shopping's Indonesian retail subsidiary Lotte Mart Indonesia (PT. LOTTE MART INDONESIA) has accumulated a net loss of 63.2 billion won over the past five years.
In 2008, Lotte Shopping entered the local distribution business for the first time in Korea by acquiring 19 stores of the Dutch chain Makro for about 360 billion won. As of the end of last year, it operates a total of 48 stores, including 12 retail stores and 12 wholesale stores.
Lotte Shopping primarily operates retail stores in densely populated metropolitan areas like Jakarta, while running wholesale stores in other regions. This is influenced by a distribution structure where retailers, who are active on the islands, purchase goods from wholesale stores and resell them on the islands. Unlike the retail stores that are accumulating losses, the wholesale subsidiary turned a profit with a net income of 12.3 billion won in 2023. It also recorded a net income of 9.7 billion won last year.
The background of the poor performance of Korean companies is attributed to the lack of store numbers. Budihardjo Iduansjah, president of the Indonesian Association of Mall Retailers and Tenants, said in a recent interview with local media regarding the withdrawal of GS Retail, "If the number of stores is small, operating costs (such as product distribution) rise significantly, so it will be impossible to compete with (local) companies that have a large number of stores."
In fact, local distribution giants such as Indomaret and Alfamart control over 80% of the retail market in Indonesia. They have tens of thousands of convenience stores and small supermarkets across Indonesia, with a solid presence in suburban, rural, and island regions.
Domestic distribution companies face restrictions when entering the Indonesian market in the form of small convenience stores. The Indonesian government mandates that 80% of the products sold in convenience stores must be domestically produced items to protect local small and medium enterprises. The share of private brand products is also limited to a maximum of 15%.
A source in the distribution industry noted, "To increase the number of stores overseas, a certain level of profitability must be maintained; however, with cumulative losses at the local subsidiaries and a decline in profitability at the headquarters due to domestic economic stagnation, it will be difficult to pursue an aggressive store expansion policy."