2005 April Issue
Cover Story
Taking the digital route to snag shoppers' interest
Matahari Supermarket maps out growth with dynamic integrated strategy
Retailers in tsunami-affected zones in Sri Lanka resume business
Central Food Retail to invest US$2.6m to spruce up stores and open new outlets
eBay to pump US$100m into China operations


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Matahari Supermarket maps out growth
with dynamic integrated strategy


Matahari Supermarket (MSM), one of the three strategic business units of the Matahari Group, has made a remarkable turnaround that boosted the overall profitability of the group. And this came about after Noel Trinder, CEO of MSM, and his team set out to transform
the business. Yoki Wong finds out how ..

The year 2004 was notable for PT Matahari Putra Prima Tbk (MPPA), Indonesia’s largest retailer. It was notable not only because the group had completed a difficult year, with sales revenues and profits exceeding market expectations — sales had risen 11% to Rp5.62 trillion (US$600 million) from Rp5.06 trillion in 2003, with net profit up by 8.5% yearon-year to Rp125.34 billion. What was more remarkable was the performance of its supermarket division, Matahari Supermarket (MSM).

Indeed, 2004 was a watershed year for MSM. Sales totalled Rp1.46 trillion, an increase
of 15.5% over 2003, margins grew by 42.7% to Rp73.9 billion while labour productivity shot up by 37.2%, resulting in a cost decline of Rp25.2 billion. Also commendable was the effective containment of shrinkage, which dropped by 56.7%, saving the division Rp38.7 billion.

In the third and fourth quarters of 2004 alone, a sales growth of more than 20% year-on-year reaffirmed that MSM had indeed turned the corner. The supermarket division also registered more than 30% improvement in EBITDA (earnings before interest, taxes, depreciation and amortisation).

MSM ended the year with a 48% growth in operating profit; the foodretailing division finally broke even after operating at a loss for so many years, says Noel Trinder, CEO of MSM.

This year, Trinder is confident that his team will take the supermarket division to profitability for the first time in Matahari’s history.

Created in 2003 as one of three strategic business units following the complete overhaul of the group’s retail operation in 2002, the supermarket division has always been perceived to be the weakest link in the group’s business, which is best known for its national network of department stores under the Matahari banner.

However, MSM is off to a good start this year, with firstquarter sales up by 12%-15% and net profit by 70%-80%. For 2005, Trinder is targeting a top-line sales growth of 25% and a net profit increase of 20%-30%.

For the past five years, the supermarket operation has been contributing between 25% and 27% of the group’s total revenues, with the department- store segment accounting for 66% and the third business unit, Time Zone, making up the balance of between 7% and 8%.
Trinder is looking to boost MSM’s share to 36% this year and 48% in 2006, with a view to taking a majority 53% share by 2009 and generating Rp20 trillion in annual revenues by then.

In essence, Matahari’s food business today is “greater than the whole company”, that is, the sum of parts is greater than the whole, says the division chief.

Trinder, who joined Matahari in August 2003 as COO and was appointed CEO of the newly-created MSM in October the same year, had a clear strategy from the start: To position MSM as the country’s leading multi-format FMCG (fast-moving consumer goods)/food retailer, further strengthening MPPA’s leadership stronghold in Indonesia’s retail industry.

In 2003, the supermarket division was at a crossroads: The group was planning to introduce a superstore concept — a kind of Matahari department store integrated with a premium
supermarket — under the banner of MarketPlace.

Trinder’s first challenge as CEO of the new supermarket division was to convince the management board to revise strategies mid-stream. “We have to change — and change dramatically — for MSM to succeed.” This means adopting a multi-format approach with
the introduction of hypermarket and soft-discount formats.

Trinder received the go-ahead in December 2003. After a thorough study of the market, he and his management team concluded that the compact hypermarket (with a 3,000sqm-6,000sqm selling space), as opposed to the full-sized (8,000sqm-12,000sqm) concept, would be the most efficient in catering for Indonesia’s urban consumers.

MSM took 60 days to convert from a dual-management and dual-merchandising system to a single, independent company with the mandate to set up and run its own operation. During this time, it also jumpstarted a venture in April 2004 — it opened its first compact
hypermarket under the new banner ‘Hypermart’ in Serpong in the area of Tangerang, West Java.

Hypermart Serpong was converted from an existing supermarket with a weak sales record. “We improved sales five times at this first Hypermart, which was profitable from day one and has been profitable ever since,” says Trinder.

Subsequent outlets that followed have also been profitable, with sales and consumer acceptance continuing to exceed all expectations, he reports with justifiable pride.

Last year, MSM also successfully launched a second new store brand, Cut Price Toko Diskon. Toko Diskon marks Matahari’s entry into the soft-discount convenience business, one of the fastest-growing store formats in Indonesia and throughout Asia today.

What contributes to the success of MSM’s new positioning is the management’s “consistent and single-minded strategy” to drive the division forward with the aim to achieve a market share of 25% of the FMCG-retail volume in Indonesia over five years.

“We realise that the supermarket business is moving in a completely different direction — we have observed the rise of Carrefour, which has, within five years, catapulted itself into the forefront of FMCG/food retailing as the number one player in this field.”

MSM faced several challenges in its early days. The immediate challenge was to put in place systems and capabilities that were lacking — from boosting low staff morale to overhauling the entire operating system.

It had to develop core competencies in fresh-food management, category management, risk management, and store planning and development. It had to tackle the issue of high shrinkage levels and escalating overhead costs. It had to clean up a messy inventory and inefficient logistics system. And, finally, it had to deal with the ‘high price’ perception that consumers had of its stores.

Trinder restructured and streamlined the division, setting up individual format operations, each headed by a format director — Meshvara Kanjaya (supermarket), Alan Stewart (hypermarket) and Martinus (pharmacy) — and operating independently.

The strategy was as dynamic as it was integrated. Over a 12-month span, MSM had created a powerful portfolio of store brands nationwide. At press time, it had 77 outlets, with strong branding under Matahari Supermarket, Hypermart, MarketPlace supermarkets and Toko Diskon soft-discount stores. These are supported by a second echelon of store brands — Boston OTC Pharmacy and Baker’s Delight/Delibon RTE — as well as a strong private label.

MSM aims to triple its store count to 207 by 2009. “We have secured all the sites (between 30 and 35) for the next three years,” says Trinder.

Indonesia’s modern food-retail industry is expected to grow to 50% of the nation’s total retail market by 2010 from the current 29%. In the modern foodretail sector, the supermarket format will shrink, predicts Trinder. While hypermarkets will command a 50% share of modern food retailing, supermarkets (currently the largest in the sector) will decline to 28%-30%, but mini-marts or convenience stores will see rapid growth to 20%-22% of the pie.

He foresees the hypermarket format will be the major driver of food retailing in Indonesia. The number of hypermarkets in the country grew from 24 in 2001 to 67 in 2004 and is expected
to reach 150 by 2009, with one hypermarket serving a population of 1.43 million by then.

This, says Trinder, is a conservative figure, considering that Indonesia’s ASEAN neighbour, Thailand, already had 127 hypermarkets in 2004, with each catering for a population of 499,213, compared with Indonesia’s 67 hypermarkets in 2004, with each serving a population base of 3.13 million.

MSM’s Hypermart generated sales of Rp1.61 trillion in the first 12 months of its opening. “The first full-year sales were greater than MSM’s total food business, which had taken 20 years to grow. [The Hypermart’s] sales are expected to be over Rp10 trillion by 2009,” says Trinder.

Confident that MSM’s performance will be transformed by the Hypermart banner, which will drive the division’s growth in the future, he confirms that the number of Hypermarts will increase from the current seven outlets to 15 by year-end.

Retailers who are not responding to the changes and shifts in consumer shopping
preferences and trends, will be left behind, warns Trinder. “We are well aware of the changing face of retail and are positioning ourselves for it,” he says.

MSM will continue to focus on its three pillars of growth: “Right strategy, right capabilities and right execution”. Its strategy includes the rapid expansion of its Hypermart banner in major
cities, with the conversion of selected existing supermarket stores to the compact
hypermart format or soft-discount format depending on the customer profile in each location.

Also on the agenda are plans to reformat and remodel the chain of traditional supermarkets that will be relaunched under the Matahari Supermarket banner.

Trinder also sees potential for expanding MSM’s private label, Value Plus, which currently contributes 3% of total sales. Plans are under way to develop the private-label portfolio to 10%-15% of total turnover over the next five years.

Putting the right capabilities in place means a restructure of the entire food division, including the recruitment of executives who have experience in hypermarket and supermarket operations, from planning development to risk control. Merchandising, finance, human resource and IT have been centralised while store formats and functionalities decentralised.

The division has enhanced its technology capabilities as well, with the three-year roll-out of RETEK 10, an integrated end-to-end retail application which Trinder says will put Matahari on par with the rest of the world in retail IT systems.

With a clear strategy and direction in place, the MSM is restructured and ready for the rapid expansion which has been mapped out and which will “transform MSM into a world-class
multi-format retailer that generates sustainable organic sales and profit growth”.


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