A local 7-Eleven is now the cool place to see and be seen for youngsters
Most 7-Elevens around the world are typical convenience stores. Pop in, buy something and leave. In Indonesia, the chain has taken on an entirely new image, as a hip place for young people to hang out. With its cheap and tasty food, good locations and 24-hour convenience, teenagers have decided to make 7-Elevens a place to gather. They can choose variety of breads, snacks, café selections, have some ready to eat meal, Big Bite, Gulp, or Slurpee by self service and dine inside the stores.
To accommodate them, 7-Elevens here have been sprouting tables and chairs for its young patrons, and droves of them can now be spotted passing the time with friends at many of the 27 outlets around Jakarta. This innovation also as part of the solution for them to open the outlets with restaurants license since the Governor of Jakarta to delay the opening of any minimarket stores in the capital city since 2006. The management declined to confirm about the restaurant licenses, but they said their license is accordance to the regulation. “We just facilitate what people need—to eat, drink and hang out. That’s today’s trend,” says Henri Honoris, president director of PT Modern Putra Indonesia, which holds the license to operate 7-Eleven outlets in Java. The company’s eyeing Java for the retail business expansion, since the island contribute 95% of its consolidation revenue in 2009.
The success of the chain represents a rebirth for the venerable Modern group, started by Henri’s late grandfather Otje Honoris in the 1940s, now led by his father Sungkono Honoris. The family business start with photo industry, and then expanding into property and manufacture. While the group has several branches, it is best known as the sole distributor for Japanese multinational Fujifilm since 1971, and it used to gain around 80% market share nationally. The publicly traded Modern Internasional, however, has faced a challenge as consumers switched to digital cameras and stopped buying film and processing services. The photo imaging market declining. Some major companies close down its business worldwide to deal with the shrinking margin.
According to the company’s data, in 2009 they spend Rp 15.70 billion as benefit obligation to former employees. Modern Internasional used to have 6,000 employees while today it’s only 1,577, with 906 employee work in Modern Putra Indonesia. This subsidiary’s employee are the biggest compare its holding and its sister company PT Modern Photo Industry, photo paper and film producer, 593 and 78 employee. Even though the photo business is no longer lucrative, they still keep the business alive inside the 7-Eleven outlets.
The 7-Eleven franchise, obtained in October 2009, is providing new life for the group. “We have cut Fujifilm outlets from 2,000 into 1,200 over the last eight years. We have dismissed thousands of employees. That is why we have to change and quickly reorganize our business,” says Henri, 36 (who declined to be photographed for this article, citing privacy concerns). Investors like the story, with Modern Internasional stock up a staggering 600% in the 12 months to February 21 to Rp 2,225.
While 7-Eleven only contributed 7% of the listed company’s consolidated revenues of Rp 522 billion for the nine months to September last year, Henri expects the chain will eventually provide most of the revenues, given the rise of 7-Eleven and the decline of traditional photography. The family get some synergy between the two. Some of the Fujifilm locations can be converted into 7-Elevens, and Henri has installed Fujifilm processing machines into 7-Eleven outlets, prominently displayed to provide customers with self service photo processing.
Henri hopes to hit a target of 7,000 outlets, as exist in Thailand. Indonesia’s potential is even larger, given it has similar demographics to Thailand, but a much larger population of 240 million versus Thailand’s 70 million. All told, there are 32,537 outlets in 18 countries for the chain (including Indonesia), which operates out of Dallas, Texas, but is owned by the publicly traded Japanese firm Seven & I Holdings controlled by billionaire Masatoshi Ito.
To reach his growth targets, Henri will have to find three things: financing, since each outlet represents an investment of an estimated Rp 3 billion; second is locations, which are also be sought after by rivals such as Alfamart; and finally reliable suppliers who can deal in high volumes. CLSA analyst Jessica Irene highlights the last item: “They may face difficulties finding food producers that can supply their own brands such as breads. But they could get 50% to 60% gross margins for these kinds of products. The selling price for some of its products is also competitive, much cheaper when compared to J. Co [Donuts and Coffees] or Starbucks. It helps attract customers who have a different buying power [from those at J. Co and Starbucks].” Jessica estimates Henri can open at least 300 outlets in the next three years, that’s one store every four days, including weekends and holidays.To speed growth, Henri also plans to offer franchises, without giving details.
Henri is being savvy by using social media, especially Facebook and Twitter. “We monitor these accounts to get to know what the customers want,” says Henri. He also likes to stay close to his customers in other ways. “We encourage the management, including those at senior levels, to spend some time working in the stores and meet customers at least once a month,” says Henri, who has visited outlets wearing a bright red 7-Eleven employee shirt, even wiping the counters and drinking the chain’s signature Slurpees. He also served behind the counter at a 7-Eleven in Dallas, Texas, as part of his training to get the license.
To be sure, the Honoris family is in this for the long run. Just as its relationship with Fujifilm has already lasted 40 years, they expect a similar length with 7-Eleven, as the franchise signed with Seven & I Holdings lasts for 20 years, with an optional renewal clause for another 10. That term means Henri will be 66 by the time the contract potentially comes up for full renewal, just in time for him to pass the reins to a fourth generation.
* This story appears in March 2011 issue of Forbes Indonesia magazine. It is part of retail revolution report, theme for the month. The grey text is additional for the blog.