By Sara Schonhardt
JAKARTA, Indonesia--A prohibition on convenience stores selling
beer in the world's largest Muslim-majority country is threatening
to slash revenues for drinks makers and highlights a collision of
Islamic groups and the business interests that President Joko
Widodo has pledged to embrace.
More than half of all beer sales in Indonesia may be hit by the
decree since minimarkets and small retailers account for about 60%
of the market, which has traditionally been relatively liberal.
"We're very concerned," said John Galvin, managing director for
Diageo Indonesia, a beer and spirits maker that that distributes
the Guinness label in Indonesia. "We're talking about beer not
being available in wide swaths of the country."
The decree, which came into effect Thursday, is the latest among
dozens of regulations that makers and sellers of alcoholic drinks
must comply with. It prevents convenience stores from selling
beverages with an alcohol content of more than 1%, targeting beer
because wine and spirits aren't sold in such stores. Sales will
still be allowed in supermarkets and restaurants.
Retailers and beer distributors say the move will hurt revenues,
spur black-market sales of bootlegged alcohol and send the wrong
signal to investors already put off by regulatory uncertainties in
a country with a reputation for economic nationalism and quick
policy decisions.
Companies such as U.K.-based Diageo and Dutch brewer Heineken
are seeking to take advantage of rising incomes and a new zest for
spending in the world's fourth-most populous country, which has
large pockets dominated by Christians, Hindus and other religious
and ethnic groups. They say the new curbs run counter to President
Widodo's promise to welcome business and investors needed to inject
money into the country's slowing economy.
A Heineken spokesman cited a statement from the Indonesian
Brewers Association, which says the decree "creates huge legal
uncertainty for investors and local businesses" and is a "drastic
change" from policies that businesses have relied on for making
"significant investments."
Indonesians are among the most restrained tipplers in the world,
drinking less per capita than people in Iran and Afghanistan,
according to the World Health Organization. Per capita consumption
in Indonesia is 0.6 liters of alcohol, compared with 3.5 liters in
Southeast Asia as a whole.
While religious beliefs deter many from drinking, industry
representatives say they've seen demand growing, enough to whet
their appetites in a market of 250 million people.
The decree stems from the Ministry of Trade, which says it is
needed to crack down on underage drinking and protect youth.
Minimarkets are getting closer to residential neighborhoods and
school areas, and "could give the young generation access to buy
and consume alcoholic beverages easily," Srie Agustina, the
ministry's director general of domestic trade, said in an
email.
Across the country, chain minimarts such as 7-Eleven Indonesia
draw groups of young people who hang out on the stores' outdoor
patios--a common pastime in Indonesia known as nongkrong. 7-Eleven
says it isn't too worried about the ban because only 5% of its
sales come from alcohol--food and other beverages make up the
rest.
But some local retailers and small vendors oppose the decree,
particularly in the popular tourist island of Bali, which is mostly
Hindu. About 100 people gathered earlier this week to protest the
regulation. Indonesian Trade Minister Rachmat Gobel said later that
the rule might be eased to exempt foreigners on Bali and nearby
Lombok.
Some analysts see the ban as a signal of the growing influence
conservative Islamic groups hold over local politics. In the past,
hard-line Islamic groups have launched raids on bars and places
that sell beer during the Islamic holy month of Ramadan, calling
such sales "sinful" Western practices. Islamic parties in
Parliament are launching a draft bill to make sales and consumption
of alcohol a crime.
In many local communities, small traders and farmers complain
that the proliferation of minimarkets is destroying their
livelihoods, said Michael Buehler, a lecturer in comparative
politics at the University of London School of Oriental and African
Studies.
"I think a lot of local Islamic groups have capitalized on these
frustrations and used them for their own agendas," he said.
The Employers' Association of Indonesia estimates that sales of
alcohol in minimarts and convenience stores slumped 700 billion
rupiah ($55 million) in the first three months of the year after
convenience stores were told to start phasing out stock.
Diageo had called for the decree to be delayed a year so
companies can discuss initiatives with the government to curb
underage drinking. Mr. Galvin said it will constrain the company's
growth ambitions for a country where demand is projected to be
growing by 5-6% annually, according to IWSR, which researches the
beer, wine and spirits industry globally. Southeast Asia accounts
for around 3% of Diageo's business and Indonesia is an even smaller
slice of that.
Still, Indonesia counts as its fifth-biggest market for its
Guinness label, which is produced locally under license by PT Multi
Bintang Indonesia. Mr. Galvin says the company views the country as
one with significant growth opportunities.
Members of the Indonesian Brewers Association, which represents
four official beer producers, are all are worried by the ban, says
Charles Poluan Jr., the executive director of the group.
Low-alcohol beverages hadn't been under supervision until
recently. "It was almost comparable to soft drinks," he said.
Access Investor Kit for Heineken Holding NV
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=NL0000008977
Subscribe to WSJ: http://online.wsj.com?mod=djnwires