Jakarta’s Traffic Jams Drive Higher Earnings at Minimarts

Traffic in Jakarta has gotten so bad that Rooslain Wiharyanti waits two hours after work for the jams to subside before heading home. She spends most of that time at PT Modern Internasional (MDRN)’s 7-Eleven minimarts.

“This place has become my best option for killing time,” Wiharyanti, 33, said in an interview at the outlet in South Jakarta as heavy rains brought traffic to a standstill. “It’s nearby my office, comfortable enough. I can get free Wi-Fi, so I can freely surf and browse articles on my tablet.”

Worsening congestion on Indonesia’s roads has turned into a source of growth for Indonesian minimarket operators including Modern, which offers Internet access, taxi services and a convenient place to buy everything from ice cream to batteries. Profit at the Jakarta-based company will jump 28 percent next year while earnings at rival PT Sumber Alfaria Trijaya (AMRT) are projected to rise 19 percent, versus 16 percent for the Jakarta Composite Index, analyst estimates compiled by Bloomberg show.

“For many Indonesians it may make more sense to shop in minimarkets after considering factors such as time and travel costs,” said Reggy Susanto, an equity analyst at Deutsche Bank AG in Jakarta who has a buy rating on Sumber Alfaria’s shares.

Photographer: Dimas Ardian/Bloomberg

Traffic moves along a road in Jakarta. Close

Traffic moves along a road in Jakarta.

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Photographer: Dimas Ardian/Bloomberg

Traffic moves along a road in Jakarta.

Indonesian minimarts’ share of grocery sales rose almost fivefold to 24.8 percent in the 10 years through 2012, Nielsen data show. Average vehicle speed in Jakarta has slowed to as little as 10 kilometers (6.2 miles) per hour from 16.8 km/h last year, according to the city’s transportation agency. That compares with about 17 km/h in Bangkok during rush hour and 29 km/h for roads in Singapore.

Stock Valuations

Modern shares are valued at 42 times projected earnings for the next 12 months after climbing 5.3 percent this year through yesterday. Sumber Alfaria, the operator of Alfamarts, has a multiple of 27 times after falling 14 percent. CP All Pcl (CPALL), which runs 7-Eleven stores in neighboring Thailand, trades at 28 times. The Jakarta Composite Index has dropped 3.1 percent this year and is valued at 13 times estimated earnings.

Modern shares fell 1.3 percent at 3:20 p.m. local time today. Sumber Alfaria shares gained 1.1 percent, while the benchmark stock index rose 0.2 percent.

Rising costs may weigh on earnings growth at Indonesia’s minimart operators, said Andy Ferdinand, the head of research at PT Batavia Prosperindo Sekuritas in Jakarta.

Consumer-price growth has been faster than 8 percent for the last five months, while the Jakarta city administration plans an 11 percent increase in minimum monthly wages next year after lifting them 44 percent in 2013. The government boosted nationwide fuel prices in June for the first time since 2008.

Economic Slowdown

“For retailers like these minimarts, the challenges ahead would be cost pressures from the rise in logistics, rental and labor costs,” Ferdinand said by phone. “The rise in minimum wages for labor would only compensate for higher living costs and would not improve their disposable income.”

Indonesia’s economy grew 5.6 percent in the three months to September from a year earlier, the slowest pace since the fourth quarter of 2009. The rupiah’s 21 percent slide against the dollar to the weakest level since March 2009 has restrained investment in Southeast Asia’s largest economy and spurred the central bank to lift its benchmark rate five times this year.

Modern will reduce the pace of new shop openings next year as higher prices cap consumer spending, Henri Honoris, Modern’s director of sales and marketing, said in an interview from Jakarta.

The economic slowdown hasn’t deterred spending. Private consumption expanded 5.5 percent last quarter, the fastest pace in a year. Bank Indonesia’s consumer-confidence index increased to a five-month high in November, while motorcycle sales climbed 5.7 percent in October from the previous month. Exports were a bright spot for the economy in October, rising for the first time in 19 months and helping the nation post an unexpected trade surplus.

Biking Boost

The growing middle class among Indonesia’s 249 million population is also boosting sales for minimarts as hobbies including cycling and running become more popular, said Agus Yanuar, the President Director of PT Samuel Aset Manajemen, which oversees about 3.6 trillion rupiah ($311 million) and owns both Alfaria and Modern shares.

On a typical Saturday, Jeffrey Darmawan and his fellow cyclists spend between 20,000 rupiah and 50,000 rupiah each on bottles of water, bananas, coffee and sports drinks at 7-Eleven stores before riding as much as 200 kilometers. Modern is considering the addition of secure parking areas for customers who use bikes, Honoris said.

Metro Lines

“It’s a good spot to rendezvous,” said Darmawan, who rides a 2012 Cento1 Superleggera cycle by Wilier Triestina SpA that costs more than $4,400.

Congestion in Jakarta, where the population has grown to 9.6 million in 2010 from 8.4 million in 2000, is unlikely to subside any time soon, according to Batavia’s Ferdinand. There were 1.2 million new cars and motorcycles registered in the city in the first 10 months of the year, Kompas newspaper said Nov. 14, citing Jakarta Governor Joko Widodo. Construction for the city’s first metro and monorail system began in October, with the first lines not expected to be ready until at least 2016.

“The traffic situation in Jakarta isn’t going to be fixed for some time,” Ferdinand said. “That will continue to support growth of some minimart shops for years to come.”

To contact the reporters on this story: Harry Suhartono in Jakarta at hsuhartono@bloomberg.net; Widya Utami in Jakarta at wutami@bloomberg.net

To contact the editor responsible for this story: Richard Frost at rfrost4@bloomberg.net

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