News

7-Eleven continues expansion despite uncertainties

PT Modern Internasional (MDRN), 7-Eleven’s franchise holder in Indonesia, says it will forge ahead with plans to expand the convenience store despite uncertainties facing the company’s operating permits.

Modern finance director Donny Sutanto said the company would open 60 new 7-Eleven outlets this year, increasing the number of the outlets to 117 by the year end, as part of the company’s short-term expansion plans.

As many as 15 new outlets were opened in the first semester and another 45 would be opened in the second half, he said.

According to Donny, Modern Internasional, through its subsidiary PT Modern Putra Indonesia, will focus for the next three years on opening new 7-Eleven stores in the capital.

“Jakarta is our biggest market at the moment. So, it is in our best interest to focus on the business here before expanding elsewhere,” Donny said in a telephone interview.

Modern’s aggressive expansion plans came amid the highly anticipated government’s rule to limit franchise operations in the country.

The new rule, currently being finalized by the Trade Ministry, will limit the number of company-owned units each franchisor operated 100 outlets in order to encourage the development of franchise ownership and to expand business opportunities in the country. The ministry is also expected to support another regulation which was issued earlier to create a favorable business climate for franchise businesses in Indonesia.

Commenting on the issue, Donny said his company would comply with the future regulation, adding that Modern did not plan on running all stores by itself. “Yes, we do aim to open 117 stores by the end of this year, but we will let third-party franchisors run some of them. What we are doing at the moment is preparing the infrastructure,” he said.

A new outlet, covering some 180–200 square meters, requires about US$300,000 in investment, excluding rent for the land it is built on, according to Donny. 

However, while the company is gearing up to open new stores, it is also facing another problem as the Trade Ministry sent a warning letter to Modern Putra Indonesia last month, saying it had violated the terms of its business permits.

According to the ministry, the 7-Eleven outlets were registered as restaurants, but they also operated as convenience stores. 

Trade Minister Gita Wirjawan said earlier this week that instead of obtaining a retailer license from the ministry, Modern Putra Indonesia held a restaurant license from the Tourism Ministry. “This must be clarified,” the minister added.

Donny reaffirmed his company’s willingness to adhere to the government’s rules, saying it would come up with a new plan soon.

Modern Internasional, established in 1971, marked its business debut as a company offering printing, color processing and photography services. It gained popularity and success when it became the sole distributor of Japanese film brand Fujifilm in Indonesia.

But Modern’s film division began to suffer setbacks along with the arrival of digital technology.

In 2008, the company underwent a drastic expansion when subsidiary Modern Putra Indonesia signed an agreement with US-based 7-Eleven Inc. to operate the latter’s brand of convenience stores in Indonesia. Modern Putra Indonesia also paid $1.5 million in initial franchise fees to 7-Eleven Inc.

Modern currently runs four main business segments, which cover 7-Eleven, industrial products, telecommunications and photography. In the first half of this year, its net profits grew by 25.2 percent to Rp 27.68 billion (US$2.89 million) from 2011.

The company attributed the growth in profits to higher net sales, Donny said. Net sales increased to Rp 484.04 billion between January and June 2012, up 16.1 percent from the same period last year. (tas)