Hero Supermarket, a listed company on the Indonesia Stock Exchange that is primarily known for the operation of supermarkets and hypermarkets, is in need of overthinking its business model after recording a net loss of IDR 191.4 billion (approx. USD $14.0 million) in full-year 2017 (from a net profit of IDR 120.6 billion in the preceding year).
The key problem is that slightly over 83 percent of Hero Supermarket's total net sales originate from the food retail business segment. However, sales originating from this segment have been sliding over the past two years, a trend that should lead to some re-thinking. In 2016 the company's food sales slid 7.4 percent year-on-year (y/y) to IDR 11.7 trillion, while one year later these sales fell 7.1 percent (y/y) to IDR 10.9 trillion as Indonesian supermarkets and hypermarkets continued to be challenged by the rapid growth of smaller format store operators.
Tony Mampuk, General Manager Corporate Affairs of Hero Supermarket, said the company needs to come up with new business strategies to improve its corporate earnings. However, he added that Hero Supermarket's key focus will be on improving its food business segment, while encouraging spending efficiency. Improved corporate earnings are to stem from the expansion of its store network especially in the eastern part of Indonesia. For example, Hero Supermarket recently opened a Giant Ekstra in Gowa (South Sulawesi). Another hypermarket is planned to be opened in Makassar (South Sulawesi) soon.
Outside of the food business segment, Hero Supermarket plans to open a new IKEA store (which would become the company's second IKEA store in Indonesia). The new IKEA store is expected to be established before the end of 2018 in Cakung (East Jakarta). Without mentioning the exact figure, Hero Supermarket has indicated that sales from its existing IKEA store are growing significantly each year. The company opened its first - and (so far) only - IKEA store in Tangerang in 2014.
Hero Supermarket also plans to add new Guardian pharmacies and intends to develop its digital marketing in an effort to boost sales.
Shares of Hero Supermarket were up 1.10 percent to IDR 920 a piece by 11:25 am local Jakarta time on Thursday (15/03). So far this year, the company's shares have fallen 0.54 percent. However, compared to exactly one year ago, its shares have plunged slightly over 30 percent.
Stock Quote Hero Supermarket - HERO:
In our view it is positive that Hero Supermarket plans to add a new IKEA store. Contrary to the food business segment, the company's non-food business segment sales have been rising strongly over the past couple of years, hence this momentum should be maintained by a renewed focus on this segment. Meanwhile, in our view, the food business segment is currently challenging because competition in this sector intensified greatly as mini-market operators continued to invest significantly in network expansion, while offering competitive prices for daily staples. Meanwhile, retail sales have been bleak in Indonesia recently.
Opening new supermarkets or hypermarkets in urban centers in eastern part of Indonesia can lead to a boost in sales (especially on the long term) but it has to be remembered that the eastern part of Indonesia is not as densely population as the western part, while per capita GDP and purchasing power is also not as strong in the eastern part compared to the western part.