Jakarta. Fitch Ratings, a global debt rating agency, said the closure of 7-Eleven convenience stores in Indonesia this month stemmed from the franchise holder's inability to adapt its business model to evolving regulations.
All 161 7-Eleven stores in Indonesia — once a popular hangout place for the country's urban youths as it offered ready-to-eat food and beverages with seating and free Wi-Fi — were closed down last week since the master franchiser, Modern Internasional, lacks the resources to continue operating the stores.
"The closure of 7-Eleven convenience stores in Indonesia is not evidence of industry-wide problems, but reflects circumstances peculiar to the franchise," Olly Prayudi, the director of Fitch Ratings Indonesia said in a statement on Sunday (02/07).
"Modern Internasional's business model for the 7-Eleven chain in Indonesia was undermined by unfavorable regulatory developments," he said.
The company had to close 45 stores between 2015 to 2016 after a government ban on sales of alcoholic drinks in convenience stores caused it to lose around 15 percent in total sales — that used to come from beer sales at the stores, Olly said.
The ban also caused 7-Eleven to lose the very point of difference that separates it from other fast-food restaurants and traditional food vendors.
"This business's risk profile is significantly different from that of other mini markets and convenience stores, such as Alfamart and Indomaret, which put greater emphasis on groceries and have a bigger network across the country," Olly said.
At the same time, Modern Internasional had to bear higher rents compared to its competitors, as 7-Eleven stores were often located on prime real estates that command higher rental prices, and occupied larger areas to accommodate seating.
"The closure... underscores the risk of evolving regulation and the importance of a solid business model for a retailer's credit profile," Olly said.