WHY WAL-MART

FAIL & CARREFOUR

SUCCEED

IN

INDONESIA
ROIKE TAMBENGI
BLEMBA 5
SBM ITB

WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA

Chapter 1
Background
Indonesia Retail Market
The Indonesian government opened the retail industry to foreign investment
in 1998 following the letter of intent, which the Indonesian government
signed with the International Monetary Fund (IMF) to revive the Indonesias
ailing economy. Soon after the 1998 liberalization, many big foreign retailers
began to invest in Indonesia. Foreign retailers have been particularly active
in the hypermarket sector. While many business sectors are slowly
recovering from the economic crisis, the retail sector is on a rebound. The
rapid recovery of the retail industry has been driven mostly by strong
domestic consumption, serving as a primary factor to improve Indonesias
economy.
Competition in the Indonesian retail industry has been very sharp, especially
after the entrance of foreign retailers. While some foreign retailers failed and
closed down their outlets, many are successful and expanding their business.
In Indonesia, there is no regulation governing where a retailer can establish
outlets. As a result, many large retailers are strategically located in the heart
of Indonesias big cities and compete directly with smaller retailers.
In Indonesia, most hypermarkets are

located strategically in heavily

populated areas in many big cities. Consequently, hypermarkets attract many

customers every day and compete directly with supermarkets and minimarkets. In the near future, the hypermarket business is expected to expand
significantly as many major players are planning to open more outlets all over
Indonesia.
In terms of total sales turnover, mini-markets do not contribute significantly to
the Indonesian retail industry. However, franchised mini-markets have
enjoyed substantial growth in recent years. With a comfortable shopping
ambience, a complete range of products, competitive prices, and easy

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accessibility, the mini-markets have been gaining popularity and establishing
a solid presence in residential and business areas.
Specialty shops have also been gaining popularity in Indonesia as they
provide opportunities for customers to compare products from many different
suppliers prior to making a purchase. They usually attract serious customers,
display their products in an attractive fashion and maintain reasonable prices.
Most specialty shops also employ an ample, knowledgeable sales promotion
staff that is ready to assist customers. With the proliferation of malls into
Indonesias secondary markets, specialty shops are expected to expand
rapidly and gain market share from other retail competitors. In Indonesia,
specialty shops are available in many product lines. Examples are Electronic
City (electronic products), Toys R Us (toys), Guardian (pharmaceutical
products), and many others.
Wal Mart
Wal-mart was founded by Sam Walton and his brother, James Bud Walton, in
1962. The Walton boys revolutionized discount retailing, with the result that
by 1989 Walmart was the worlds largest retailer. The Waltons proposition
was simple, deliver a wide array of merchandise at discount prices topped up
by a friendly service. Sam Walton led the company until 1988, being a
powerful CEO whose philosophy drove every aspect of the business. He
believed in empowering yet controlling employees, maintaining Wal-marts
costs and prices below everybody elses, and aimed at logistics excellence by
maintaining technological superiority.
In 1996, Wal-Mart entered Indonesia with Lippo Group, the most powerful
Indonesian conglomerate outside of the almost royal Suharto family. Through
a license with Lippo's Multipolar unit, Wal-Mart got its first supercenter up and
running in August 1996. The license is a very close working arrangement,
with Wal-Mart paid by Multipolar on a fee for services basis.
Research estimates there is 18 million sq. ft. of shopping center and mall
space in Megamal. Wal-Mart is getting in on the ground floor of mass
merchandising in Indonesia, where the local newspapers regularly debate the
size and shape of the emerging middle class as though it were a delightful but
puzzling new life form. As in most of Asia, nearly all shopping is done in the

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tiny stores that dot every street. But the middle class, fond of status symbols,
broad selection and good values, flocks on weekends to the shiny new malls
that are rising all around Jakarta, a city of 8 million, with a metro census of 20
million.
Carrefour
The second largest retailer in the world after Wal-mart, Carrefour had humble
beginnings. The first store, was opened by Marcel Fournier and Louis Defforey
in the summer of 1960. This was followed quite quickly by the first Carrefour
hypermarket, which was established at the intersection of five roads
(Carrefour means crossroads) in Sainte-Genevieve-des-Bois outside Paris.
The store was a first of its kind, an initial test of the one-stop shop formula
where consumers could get almost all of their shopping needs satisfied at one
location. The store provided selfservice grocery shopping at discount prices
and stocked items such as clothing, sporting equipment, auto accessories,
and consumer electronics.
Carrefour hypermarket concept and the company grew rapidly. Between 1965
and 1971, sales growth exceeded 50 percent per annum with non-food items
accounting for about 40 percent of the total volume. Starting in 1970,
Carrefour opened the first of its commercial centers, colossal operations
with piling areas as large as 25,000 sq. mt. By the end of 1971, the company
was operating 16 wholly owned stores, had an equity interest in 5 stores
operated as joint ventures, and had franchise agreements with 7 additional
stores. Carrefour began its internationalization and by 1999, after the merger
with Promodes, it had 681 hypermarkets, 2,259 supermarkets, 3,124 hard
discount stores, and 1,921 convenience stores and other formats selling
under its banner. The stores were located mostly in France but also
throughout Europe, Asia, and Latin America.
PT. Carrefour Indonesia (Carrefour), since its establishment in 1998, Carrefour
of France has been expanding its business rapidly in Greater Jakarta and other
big cities. When French retailer Carrefour entered the Indonesian market
also in 1998 its aim was to organically increase a network of hypermarkets
in collaboration with its joint venture partner Tigaraksa. Carrefour, as a major
player in the hypermarket sector, currently operates 29 outlets throughout
the country. The company markets more than 50,000 product items and
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WHY WAL-MART FAIL & CARREFOUR SUCCEED IN INDONESIA

employs more than 10,000 employees. In 2006, Carrefour recorded sales of
$656 million. In 2008, the company booked 893 million in total sales.

Chapter 2
Company Strategy

Wal-Mart
A key strategy of Wal-Mart is to dominate the retail market.

Company

founder Sam Walton put in place a retail philosophy the company still follows.
Wal-Mart is primarily a discount retailer because they sell their products at
the lowest possible prices. By selling at the "lowest price" outlines that the
essence of successful discount retailing to cut the price on an item as much
as possible, lowering the markup, and earn profit on the increased volume of
sales.
If there is one competitive element that differentiates Wal-Mart from its
competitors, it is EDLP, every day low pricing. While simple in its
conceptualization, EDLP is probably one of the most difficult pricing strategies
for any retail business to execute. It requires a level of discipline that most
retailers do not have. To successfully execute EDLP, retailers must go against
the competitive tide of using promotional activity to drive traffic. Trust has to
be built with the consumer over a period of years convincing them that the
business will not promote and that the consumer is actually better off, day-in,
day-out, receiving the lowest price for a basket of goods. In order to deliver
on this promise of low price, an EDLP retailer also has to be every day low
cost retailer in the market. Wal-Mart achieves this objective by having an all
encompassing passion for driving down costs in all aspects of their business.
Their goal is to be the low cost provider in the market. Their basic business
model is probably best illustrated by the productivity loop.

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EDLP offers many operational advantages as well. EDLP allows for more
accurateforecasting and combined with POS data sharing with suppliers,
helps reduce inventory throughout Wal-Marts supply chain, improving
inventory efficiency for both Wal-Mart and their suppliers. A second cost
advantage of EDLP is that it does not require the kind of continuous priceitem advertising that hi-lo pricing retailers must do.

Wal-Marts advertising strategy also provides a competitive cost advantage.

The company spends less than one percent of sales on advertising. This
strategy derives from the companys every day low pricing philosophy and
its no deal merchandising strategy. This reduces costs in other ways.
Promotions put an enormous strain on logistical and distribution systems, and
Wal-Mart doesnt have that, reducing complexity and taking cost out of the
business.
Wal-Marts advertising is image-oriented, national, and focused on reenforcing a low-price image. It does no store specific ads or promotions. You
will not find an item specific flyer in your local Sunday newspaper for WalMart as is the common practice for most of their competitors.
Wal-Mart not only works closely with suppliers, it focuses on its best suppliers.
The goal in all cases is to significantly reduce supply chain complexity. Wal Mart does this by running a best price, no deal business: no markdowns, no
allowances, no promotional money. This reduction in supply chain complexity
is a critical component in Wal-Marts focus on reducing the cost of doing
business. Inventory never has to be built up for a special promotion. Store
layout need not be changed for the same reason.
The Retail Link system enables Wal-Mart to share information with their
suppliers on a real-time basis. Everyone the company, its merchandisers,
its inventory managers, its sales people, and its suppliers are looking at the
same data, at the same time. Suppliers know their inventory position in every

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store, on any day. Over 70% of this inventory is owned by the supplier, which
gives them an added incentive to improve productivity and sell-through. The
benefit to the suppliers is that they get paid as soon as the product gets
scanned. Invoices, purchase orders and other documentation are processed
through a more commonly used Electronic Data Interchange system.
All this requires a substantial investment in technology technology to
enable both Wal-Mart and their suppliers to capture, process, understand and
act upon information. At the end of the day, Retail Link is the key to WalMarts success. Without Retail Link, there would be no Wal-Mart as we know it
today. Wal-Marts competitive position in the marketplace does not depend on
them squeezing their suppliers ever harder, for more and more concessions.
Wal-Mart relationship with their best suppliers is a win-win for both Wal-Mart
and the supplier. By conforming to Wal-Marts standards for doing business,
suppliers increase their market share and become better suppliers.
Carrefour
Carrefour strategy is being the preferred retailer, which has many meaning. It
means having stores where customers are naturally drawn to shop, and to
which they are loyal. It means having the trust of customers, trust in product
quality, price and service. It means being able to satisfy and anticipate
customer needs and giving customers the best special offers. It means
respecting producers and the environment. It means earning customer
preference through social commitment and action. It means making their staff
proud to work. Being the preferred retailer means making customers want to
visit, and keep visiting. It means making customers happy by making lives
easier.
Client-oriented culture,

getting to know the customers better in order to

serve them better. As a multi-format retailer, Carrefour can offer solutions

addressing a wide variety of shopping habits. Carrefour try to enhance its
knowledge of customers, with the aim of serving them better and improving
its brand image. In stores, the Carrefour brand will be conveyed in a way that
is closer to the customer and more emotionally involving. By being more
competitive, the brand will again become a tool for winning customers,
enhancing customer loyalty and distinguishing Carrefour from the pack. In
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towns and villages, as convergence accelerates, the Carrefour brand will
provide its best stores to more customers. In this way, Carrefour will make
customers want to come, and keep coming, to its stores, regardless of the
format or product offering. By focusing on retailing, Carrefour will become
customers' preferred retailer
Carrefour's success is based on the talent and motivation of its staff. To
increase efficiency and competitiveness, and in order to improve as a retailer.
Carrefour enhances synergies between sales and purchasing, and creates
new relationships between head offices and stores. Sharing of knowledge and
best practice will form the heart of this transformation process, which will be
carried out by, and for the benefit of their staff.
While most of the global retailers and consumer product companies
considered Indonesia to be a single huge market, Carrefour adopted a
different approach. It considered the country to be comprised of several
markets. The company approached these markets with flexible procurement,
store management, marketing, and service strategies. Since the initial years
of its operations in Indonesia, Carrefour concentrated on keeping the prices
low, keeping in mind the fact that for Indonesian consumers, price was the
main consideration. This made Carrefours hypermarkets very popular among
the Indonesian consumers.
Carrefour sold a wide variety of goods, which attracted consumers to the
stores. Convenience was another factor that the company promoted. The
Indonesian consumers had to visit several places like wet markets for
purchasing fish, grain markets to pick up grocery items, and small specialty
stores to obtain other items. Carrefour provided the convenience of obtaining
all these items under one roof.
Carrefour chose the store location based on the available space and the
purchasing power of the people in that location. Before opening new stores, a
team conduct a detailed study of the store location followed by a study on the
culture, customs, and traditions of that region. As a part of the study, the
team also assessed the purchasing potential of the local people and assessed
their purchasing habits. Carrefour was careful in choosing the locations and
opened stores in highly populated areas.

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Carrefour procured most of the goods from within Indonesia to cater to its
local operations. Since its initial years of operation in Indonesia, about 85% of
the stock sold was procured locally. This helped Carrefour maintain lower
prices compared to other foreign retailers, who sold imported products.
Buying and stocking local products was part of Carrefours strategy to cater to
the needs of the local customers. However, the items stacked were also
different depending on the location of the store.
Carrefour sold its own label of products that were of good quality. As of 2006,
there were over 2000 products that Carrefour sold under its own label which
included food, grocery, daily necessities, and clothes. These products were
priced 20-40% below the market price of competing branded products for the
private label products sold by Carrefour.

Chapter 3
Failure & Success
Wal-Mart in Indonesia
The biggest failure Wal-Mart has suffered in expanding internationally was in
Indonesia. The company did not understand the local market. In a Wal-Mart
store, merchandise was presented in a very orderly way, but the Indonesian
consumers think order means high price. They like merchandise thrown out
on tables, not the Wal-Mart way.
The company also had a lot of disagreements with local partners about
ownership and direct competition; and in 1998, when civil unrest broke out as
a result of the Asian currency crisis; one of the Wal-Mart stores was burned
down. Thats when the retailer decided to leave the Indonesian market. While
trying to establish itself in Indonesia, Wal-Mart was shut down by rioting
during the Asian financial crisis at this time.

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Wal-Mart claims that Lippo violated the franchise agreement when, without
Wal-Mart's prior knowledge, it bought a controlling stake in rival discounter
Matahari. One of Matahari's Mega M stores is in the same mall as a Wal-Mart
supercenter in Jakarta. Wal-Mart feared that the acquisition would give its
rival access to proprietary information.
"There was a clear noncompete clause" in the franchise agreement, says WalMart spokesman Dale Ingram. Plus, he claims that Lippo owes Wal-Mart
millions of dollars in franchise fees. The world's largest retailer is seeking
arbitration in U.S. District Court in San Francisco to settle the dispute.
Lippo, meanwhile, has sued Wal-Mart in West Jakarta District Court. It's
accusing the retailing giant of financial misrepresentations and is seeking to
prevent

Wal-Mart

from

abandoning

allegations "completely fiction."

Lippo has figured prominently

in

the

business.

ongoing

federal

Wal-Mart
and

calls

the

congressional

investigations of finance abuses during the 1996 U.S. Presidential campaign.

The Riady family -- founders of Lippo Group -- is close to President Clinton,
and almost $1 million in campaign contributions from Riady family members
and employees had to be returned by the Democratic National Committee
because of their foreign origin.
Lippo signed a flurry of ambitious joint-venture agreements with U.S.
companies in the early 1990s. Many have unraveled, with Wal-Mart being the
latest. The two partners opened their first store in August, 1996, and a second
in January, 1997.
Before Wal-Mart entering Indonesia, one of the largest retail chain,
department store operator Matahari, has been preparing for the openings for
more than a year, and had sent teams around the world to gain first-hand
knowledge of its American nemesis. When the first Wal-Mart Supercenter
opened, Matahari was waiting directly across the sub-urban Supermal atrium
with its own new supercenter concept, dubbed Mega M. Mega M is waiting at
the Megamal too, where it operates a four-level store, open since November,
at the opposite end from the new Wal-Mart.
Mega M shouts its stance with a new slogan, "Garansi: harga termurah setiap
hari," which means "Guaranteed: lower prices every day."
Wal-Mart's slogan, "Harga murah selalu" translates as "Cheap prices always."
To win over the consumer, Wal-Mart is hammering away at the value and
price messages, because most consumers in developing countries at first

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glance think Wal-Mart looks too upscale. In Indonesia, Wal-Mart and Mega M
first squared off to do battle in dueling three-level, 180,000-sq.-ft. stores at
one end of the Supermal Karawaci. This is the 2 million-sq.-ft. retail showcase
of Lippo Karawaci, a completely new suburban community about one hour
from downtown Jakarta. To Indonesian shoppers, the Wal-Mart Supercenter's
bright and colorful cornucopia of domestic and imported products can seem
overwhelming.
In Indonesia, the second Mega M is showing new signage, upgraded fixtures,
better merchandising discipline on endcaps, friendly store greeters and visible
loss prevention personnel , all innovations borrowed from Wal-Mart.
After the first few months of operation, the Wal-Mart team has reacted too,
offering special promotions on items from paper towels to plush animals to TV
sets, altering the mix in some product categories and changing the
presentation priorities in others. In the second Jakarta supercenter, many
shoppers entering the main mall will do so through Wal-Mart's ground floor,
which is devoted to deli, bakery and fresh floral departments.

Carrefour in Indonesia
The success of Carrefours hypermarket concept in France soon drew
international attention as other retailers in other countries sought to learn and
duplicate the process. Carrefours international expansion was begun initially
through joint venturing with local partners. These partnerships were seen as
the best way of merging the companys format and systems with the local
knowledge of merchandise preferences, vendor relationships and human
resources possessed by their local partner.
The year of 1998 was the time of the Indonesian government opened the
retail industry to foreign investors. It was following the letter of intent, which
the Indonesian government signed with the International Monetary Fund (IMF)
to revive the ailing economy due to financial crisis. The letter of intent stated
that the Indonesian government should revoke the ban on foreign investors to
enter the wholesale and retail businesses. The decision to open the
Indonesian retail industry to foreign investors was later legalized by a
Presidential Decision No.99/1998 and a Decision Letter of the State Minister of

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Investment (Head of Capital Investment Coordinating Board) No.29/SK/1998.
The regulations stipulated that licensing procedures and all other requisitions
that a foreign retailer has to fulfill are the same with those applicable to local
large-scale retailers.
Reformation of economy by International Monetary Fund (IMF) in 1998,
Indonesia had to open the market for retail industry. In 1999 Carrefour
entered Indonesia in many strategic places.
Localization Strategies.
Carrefour believed that its stores should reflect the local environment and
complement the local culture. The western style hypermarket was customized
by Carrefour to effectively cater to the needs and preferences of Indonesia
consumers. Most of Carrefours stores in Indonesia were spread across several
floors and ramp escalators were provided to move shopping carts between
the floors.
Carrefour stocked products preferred by the local population, in a manner
they demanded. In some of the companys stores in Indonesia, the
department selling fresh food and groceries was designed to resemble the
local outdoor markets.

Carrefour also acquire Alfa Retailindo, a listed company on the Jakarta Stock
Exchange, a major operator in Indonesia, operating 29 stores (Alfa Super
Market) across the country (with sales area comprised between 1000m2 and
4000m2), of which 13 are located in Jakarta. Alfa Retailindo reported net sales
in 2006 of IDR 3624bn (265m).
With this acquisition, Carrefour Indonesia consolidates its position as a
leading food retailer in the country. This acquisition forms part of Carrefours
strategy to reinforce its presence in key growth markets through a locally
adapted multi format approach. Carrefours operations in Indonesia today
consist of 37 hypermarkets (vs. 29 hypermarkets in 2006). Carrefour in
Indonesia recorded 627m sales in 2006, and sales were up 14.4% over the
first nine months of 2007.
Carrefour give franchise services in Indonesia, As the No 1 retailer in Europe
and No 2 worldwide, Carrefour aims to set the benchmark in modern retailing
for the protection of health, consumer safety and the environment. This

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company mission is expressed by seven core values: freedom, Responsibility,
Sharing, Respect, Integrity, Solidarity, Progress.
Quality is one of the main source of competitive differentiation and is part of
the fundamental policies defining the implementation of the Groups strategy.
It always corresponds to what the customer explicitly or implicitly wants and
must be clearly perceived as such. The value for money must be the best.
Controlled products whether banner brands or own brands, offer exemplary
quality and safety. A product must demonstrate the required quality level
before it can be approved for purchase.
The best possible value for money is offered at every price level (first price
products/ own brand and banner brand products). For own brand and banner
brand products, the quality process includes signing a set of specifications,
approving production sites and product control plan, processing and archiving
any con-compliant products and following up of customers claims.
To complete this system, Carrefour has deployed in 2005 a Quality Scorecard
available on the groups intranet site, which enable all the countries to track
products at every stage of their marketing and to react more efficiently in
case of a crisis.
To guarantee the quality of its food products and its own brand and banner
brand products, Carrefour systematically conducts audits on its suppliers
production sites, which are audited health and safety conditions.

Chapter 4
Conclusions
Increasingly, the world of retailing is becoming Wal-Marts world. It is one of
the most global retailers in the world, operating in 11 different countries
around the world, with multiple formats, all tied together by a state-of-the-art
retail distribution system known as Retail Link. Wal-Mart has had both
successes and failures in foreign expansion, but it is important to note that
Wal-Mart is a learning organization. When Wal-Mart has problems, they solve
them by learning and adapting.
Carrefour has learned how to enter foreign market and try to be succeeding in
the market they are trying to enter.
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So, in sum, the common attributes of the countries in which Carrefour are as
follows:
(1) Small-scale retail rationalization and reorganization has not progressed.
(2) Large-scale chain supermarkets are absent from the market.
(3) Potential competitors that carry specialty items, like household
electrical appliances and clothing, are absent from the market.
(4) Large amounts of retail space can be attained at low cost.
(5) Laws and regulations governing large-scale retail operations are
"developer-friendly."
Taken together, the combination of these attributes of the target market,
coupled with carrefour's strategy of sewing up suburban and metropolitan
areas in an effort to draw customers from both areas and thereby displace
local small-scale retailers, are key factors in the company's success overseas.

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