By Nicholas Minot, Randy Stringer, C. Wendy J. Umberger, and Wahilda Maghraby
Bulletin of Indonesian Economic Studies vol. 51 No. 3, December 2015
Indonesia is one of the emerging countriest with the largest middle income growth right after China and India. While it means that more people have higher income, it also cause many challenges. Urbanization has become a focus on demographic and also economics studies. This new wave has altered urban dwellers behavior particularly on purchasing channels to modern markets. These channels offer better buying experience, more hygienic products, and some retailers even have large networks whereas it is more accessible.
This study investigate on how the effect of Indonesia's modern retailer emergence on traditional channels and also sellers. A household survey was conducted in several cities and the result is regressed to know the factors affecting urban household buying behavior. Based on the research, people with high expenditure will prefer modern channels. Products which are famous in the modern market are industrial products, whilst perishable products are more commonly buy in traditional channels. Additionally, it also forecast the portion of modern channels like supermarket, mini-market, and wholesale sellers using the dominant factors, that was expenditure per capita.
It would be more resourceful if the paper compared the survey result with a similar survey conducted by Statistics Agency (Badan Pusat Statistik, BPS) Indonesia. BPS conducted a survey of consumption behavior every 5 years, called Survei Biaya Hidup (SBH). The respondents are urban dwellers living in more than 50 big cities across Indonesia. Respondents are told to write their every-day consumption and where they bought it in a log book. After several weeks, the survey officer would collect and aggregate the logbook to become the baseline of consumption to count inflation. The latest survey in 2012 covered a wide range of products, more than 400 commodities nation-wide, in traditional and modern market. For this reason, by incorporating this big scale of data, the analysis on urban consumer behavior in the paper would be more accurate.
Several variables in the equation may have multi-collinearity such as expenditure to education, and also having refrigerator with distance. People with higher education may have high income and resulting to higher expenditure. The latter variables can also relates to one another since people with refrigerator wouldn't mind to buy in further location, while those who don't have it will prefer closer location for frequent shopping.
An important variable should have been added in the research, which is price. The research have estimated the expenditure in modern channels to
several variables like expenditure per capita, household
characteristics, and travel time. However, comparing price of a product in traditional to modern market is crucial. Many competition theories, or even supply-demand interaction view price as an important variable. Middle income people who are dominant in the cities are price sensitive. Moreover, the result of the survey also indicated that price should have been an important factor, since in Indonesia dairy products, industrial products like eggs, or import products are usually cheaper in the modern market due to it's efficiency in handling and inventory cost. In addition, modern retailers often subsidize those products to attract buyers. While perishable products, such as vegetables, fruits, and spices are cheaper in traditional markets since it's packaging cost and contract barrier are lower.
Lastly, to forecast consumer behavior, it should have include farmer's capacity on supplying the perishable products to the modern channels. Supply continuity and product quality are barriers that farmers must solved to increase their sales and could make a structural changes in consumer behaviors in the future. That is why, to predict modern contribution, the study firstly must answer 'Why it is cheaper to buy products in traditional market?' By answering this question will give accurate prediction of the future of supermarket.
The research can be downloaded here
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