Giant Loses, Carrefour Owned By Conglomerate Chairul Tanjung And Mochtar Riady's Hypermart Excited?

JAKARTA - Fitch Ratings Indonesia said that retail operators in the country will still face stiff competition from smaller minimarket formats and traditional grocery retailers even though competition from hypermarkets has decreased.

Director of Fitch Ratings Indonesia, Olly Prayudi said the plan to close the operation of PT Hero Supermarket Tbk's Giant hypermarket (HERO) at the end of July 2021 will not benefit other hypermarket operators.

"Matahari with its Hypermart and large format players such as Carrefour and Transmart is still considered to be in a tight competition", he said in the latest report quoted on Friday, June 4.

Carrefour is a retail outlet managed by CT Corp, a company owned by conglomerate Chairul Tanjung. Meanwhile, Hypermart is a retailer owned by Lippo Group boss, conglomerate Mochtar Riady.

According to Olly, the proposition of a hypermarket business in terms of a larger store area also results in higher operating costs in terms of rent and labor to run compared to minimarkets.

For comparison, he revealed that HERO's salary expenses accounted for around 10-13 percent of total revenue throughout 2019-2020.

"Meanwhile, similar expenses only account for 8 percent to 9 percent of Alfamart's total revenue, which is a small minimarket", he said.

Olly believes that the restoration of store traffic as the COVID-19 pandemic eases will also benefit smaller formats over large formats.

"Shopping groceries at small outlets requires lower transaction costs for consumers in terms of travel and time", he said.

As is known, HERO has announced that it will be closing all Giant stores and potentially replacing them with supermarket format stores, Hero, or IKEA. Hypermart, which is one of HERA's business lines, had around 90 stores at the end of 2020, down from more than 100 stores at the end of 2019.

Meanwhile, Giant has 75 outlets, consisting of Giant Ekstra with a large format and Giant Ekspres with a smaller format, after closing 25 outlets since 2019.

In terms of performance, HERO continued to experience operating losses while its revenue fell 16 percent on an annual basis to IDR 1.7 trillion in the first quarter of 2021 from IDR 2.6 trillion in the same period last year.

Meanwhile, the Indonesian wholesale retail market is dominated by small minimarket formats such as Alfamart by PT Sumber Alfaria Trijaya Tbk and Indomaret by PT Indomarco Prismatama, with more than 15,000 stores throughout Indonesia.

Alfamart added more than 1,000 stores while Indomaret added 700 stores during 2020 while hypermarket players struggle 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", concluded Olly.