Walmart’s inflation woes could creep up on Indonesia’s warungs

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Hello reader,

The bells are ringing, but they’re not the kind we want to hear. These don’t signal Christmas being around the corner, but rather that inflation is surging to the highest levels in decades around the world and beginning to eat into profits for businesses.

Last week, Walmart (WMT, NYSE), the world’s biggest retailer, sounded the alarm on its profit for a second time in two months. The US-based giant slashed its profit forecast as rising food and fuel prices led customers to cut back on big-ticket purchases and non-essential spending.

Even though the firm caters to cost-conscious shoppers and is a retail bellwether with an annual revenue of US$572.8 billion, it hasn’t been able to shield itself from the effects of a 9.1% uptick in inflation that the US recorded in June.

Luckily, Indonesia-based fast-moving consumer brands like Sido Muncul (SIDO, IDX) and Unilever Indonesia (UNVR, IDX) do not have to contend with worryingly high inflation just yet. Thanks to government gas subsidies, inflation in the archipelago has been kept at 4.35% – though it is the highest the nation has witnessed since 2017.

So far, the stock market has rewarded large producers for absorbing some of the rising costs, with shares of Sido Muncul and Unilever Indonesia comfortably outpacing gains made by the broader Indonesian index.

See also: Recession Run: Sequoia’s $850m plan during a downturn

But as using government gas subsidies to keep inflation at bay may be an unsustainable option over the long run, could Walmart’s current woes be a marker for what is in store for Indonesia’s retailers? Will they also soon be faced with a reckoning too if inflation continues to rise? In today’s feature piece, Tech in Asia attempts to tackle these questions.

With customers preferring low-priced essentials to manage economic woes, my colleague Adithya also delves into what that could potentially mean for Indonesia’s iconic warungs, which share a similar target audience as giants like Walmart, i.e., lower-income customers, who feel the strain of high inflation more than most.

The premium story also highlights how inflation trickles through every layer of the sector’s supply chain to even affect the growth of middlemen tech firms such as Bukalapak (BUKA, IDX) that work closely with these warungs (mom and pop stores) through its Mitra business.

— Shravanth

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