Fitch Ratings-Jakarta-10 December 2018: Indonesian mini-market operator PT Sumber Alfaria Trijaya Tbk (Alfamart; AA-(idn)/Stable) is likely to continue to make inroads in the Philippines as the two markets have similar features, the mini-market sector is less mature and the company has a strong partner, Fitch Ratings says.

Alfamart plans to open more than 200 new stores in the Philippines in 2019. In 2018, Alfamart opened 180 new stores there through a 35% stake in a joint-venture with partner SM Group, a local conglomerate involved in banking, retail and real estate. Alfamart first opened stores in the Philippines in 2014 and has around 400 stores today.

Both Indonesia and the Philippines are consumer-driven markets with young populations and expanding middle classes. Both economies have similar income levels of GDP per capita of USD3,000-USD4,000. Consumers in both markets also prefer to buy small amounts of bundled products rather than filling grocery carts.

Fitch also sees the mini-market sector in the Philippines as untapped and having limited competition. The existing players mostly operate convenience stores that carry more limited products. Alfamart’s stores offer additional products, such as fresh and frozen food, personal care and small household appliances, giving the company some competitive advantage in grabbing market share.

Alfamart’s investment risk for its Philippine expansion is mitigated by the strong presence of SM Group in the country. SM Group is among the four largest retailers that dominate the Philippines industry. SM Group operates more than 70 shopping malls and more than 2,000 supermarket and mini-market stores (including Alfamart) in the largest cities in the Philippines. Fitch expects Alfamart to have access to SM Group’s large business network and tap its widely known brand.

Alfamart chose to expand in the Philippines as it believes it has more potential than other south-east Asian markets, such as Thailand and Vietnam. Fitch expects Alfamart’s Philippine expansion to partly offset the slower growth in Indonesia. Alfamart had net store openings of 75 in the year to October 2018. Based on gross store openings, the company opened more than 500 stores in that period, and is likely to fall short of its target of 800 new stores for the year. Alfamart also closed stores that underperformed, resulting in only a modest number of net store openings.

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