Giant Closes, Here’s Fitch Ratings’ Astonishing Forecast!

Jakarta, CNBC Indonesia – The permanent closure of Giant retail outlets by PT Hero Supermarket Tbk (HERO) starting next July will not necessarily benefit its competitors such as Hypermart, Carrefour and Transmart.

This is because retail companies face competition from smaller minimarkets and grocery retailers.

Research published by Fitch Ratings explains that while HERO will close all of its Giant stores and potentially replace them with supermarket, Hero, or IKEA format stores, the closure will not mean more room for format expansion. hypermarket other,

“Because hypermarket It is gradually losing its brand appeal to Indonesian consumers,” Fitch Ratings wrote, quoted on Friday (4/6/2021).

Hypermart had around 90 stores at the end of 2020, a decrease of more than 100 stores at the end of 2019. Giant has 75 outlets, consisting of Giant Ekstra with large format and Giant Ekspres with smaller format, after closing 25 outlets since 2019.

The Hypermart outlets are managed by the Lippo Group issuer PT Matahari Putra Prima Tbk (MPPA), whose shares are also owned by PT Application Karya Anak Bangsa (Gojek) for less than 5%.

Indonesia’s wholesale retail market is currently dominated by small minimarket formats such as Alfamart managed by PT Sumber Alfaria Trijaya Tbk (AMRT) and Indomaret owned by PT Indomarco Prismatama (associated with PT Indoritel Makmur Internasional Tbk/DNET) with more than 15,000 stores each in Indonesia. throughout Indonesia.

Alfamart added more than 1,000 stores, while Indomaret added 700 stores during 2020 while players hypermarket struggling to maintain their store presence.

“The competitive advantage of minimarkets in terms of strong bargaining power with suppliers and proximity to buyers will make it difficult for hypermarket operators to expand their presence, even though competition in the hypermarket space is reduced,” Fitch further explained.

Plus, financial performance hypermarket which is currently sluggish also makes it difficult to compete with minimarkets.

HERO, for example, continued to suffer operating losses while its revenue fell 16% yoy to Rp 1.7 trillion in the first quarter of this year from Rp 2.6 trillion previously.

Hypermart managed by MPPA will also find it difficult to significantly expand its stores, as its revenue declines by 22% during 2020 and continues to suffer operating losses.

On the other hand, Fitch expects Alfamart to continue to book revenue growth of around 5% in 2021 while maintaining a stable EBITDA margin of around 6%, supported by a combination of store expansion and recovery in same-store sales growth.

Business proposition hypermarket in terms of a larger store area also results in higher operating costs in terms of rent and labor to run compared to minimarkets.

In comparison, HERO’s salary expenses accounted for around 10%-13% of total revenue throughout 2019-2020 while similar expenses only accounted for 8%-9% of Alfamart’s total revenue.

“As the Covid-19 pandemic subsides, it will also benefit the smaller format over the large format,” Fitch said.

For information, HERO has confirmed that it will close all Giant outlets starting at the end of July 2021. Not only that, the company will also convert up to five Giant outlets into IKEA as a strategic step for the company.

“The company is also considering converting a number of Giant outlets into Hero Supermarket outlets,” said HERO Director Hardianus Wahyu Trikusumo, in an information disclosure on the IDX, Tuesday (25/5/2021).

According to Wahyu, this strategy is the company’s response to adapting to changing market dynamics, especially regarding the shift of Indonesian consumers from the hypermarket format in recent years. This phenomenon also occurs in the global market.

“This plan is expected to have a positive impact on the company’s operational activities, financial condition or business continuity. This change in strategy is the company’s quick and appropriate response,” he said.

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