Heng Hong Tan
Heng Hong is Mintel's APAC Food and Drink analyst based in Kuala Lumpur. He comes with over a decade's worth of experience identifying emerging food and drink trends.

Indonesia is seeing the emergence of retailers operating according to sharia law or Islamic precepts. Sharia-based retailing is one of many manifestations of social change driven by the growing position of Islam in society.

Sharia-based mini-market chains the likes of 212 Mart, Kita Mart, Sodaqo Mart, LEU Mart and Umat Mart differentiate themselves from mainstream retailers, particularly by their strict adherence to selling only halal-certified products. Taking things a step further, 212 Mart, LEU Mart and Sadaqo Mart are vocal about not selling products that are seen as going against the teachings of Islam, such as cigarettes, contraceptives and alcoholic drinks.

In some instances, staff are trained to greet patrons using the Islamic greeting. In addition, as Muslims are obligated to perform prayers five times a day, some of the retailers facilitate this religious custom by closing their shop at these timings to allow staff and customers to observe the adzan (call to prayer).

Sharia-based retailers have a mission to support Muslim entrepreneurs and the Muslim economy. These retailers provide Muslim-owned small- and medium-sized enterprises with preferential access to shelf space. The support given by sharia-based retailers helps to incubate smaller brands and provide them the chance to grow alongside the retailers’ store network expansion.

The halal-only policy also gives sharia-based retailers an added advantage when competing with other stronger mainstream mini-markets. Shopping at sharia-based retailers can help Muslim consumers feel they have a better assurance and higher confidence in the halal status of the food and beverages sold. In fact, Mintel research reveals that over half of urban Indonesians associate halal-certified food with being healthy.

Retail giants will need to respond

Indomaret and Alfamart are well entrenched in Indonesia’s fast-growing mini-market sector, both collectively owning a total of 28,832 stores at the end of 2017, according to the companies. However, they are at risk of losing some of their existing clients to sharia-based retailers, specifically if they become disconnected with the move towards products and services that are more attuned to the needs of Muslim consumers.

Even though sharia-based retailers are currently small in the market, they do have ambitious store expansion plans. PT Hydro Perdana Retailindo, the operator of Sodaqo Mart and some of the 212 Mart, said it had around 160 outlets as of March 2018 and aims to grow the store network to 500 by the end of 2018. The fact that nearly 60% of the 192 stores of 212 Mart are in the greater Jakarta area as of August 2018 shows there remain pockets of opportunities in other parts of the country to fuel the growth of sharia retailers.

Small-format retail, usually in stores no larger than the size of a mini-market, are the preferred choice for many sharia-based retailers due to their low entry barrier and investment. This store format is also growing in popularity, tapping into the rise of proximity shopping; Mintel research highlights that almost half of urban Indonesians tend to shop closer to home or work due to a lack of time.

The growth of neighbourhood shopping is set to see continuity and this trend will benefit smaller-sized retailers such as mini-markets, including sharia-based retailers and convenience stores, as consumers upgrade to a more modern shopping experience.

What we think

Sharia retailers are evolving and growing, fuelled by the deepening Islamisation of Indonesia’s society. This, combined with competition from sharia retailers, may put pressure on secular retailers to rethink their range of products and marketing messages to possibly include more Islamic-inspired products or organise activities centred around Islamic forms of charity.

Sharia retailers can serve as a conduit for small Muslim-owned brands to go national in Indonesia. Before that can happen, however, these retail chains will need to overcome barriers such as distribution and logistics. Sharia retailing still has a ways to go before becoming mainstream, but it provides a group of consumers with an option that matches their lifestyle.