Dairy Farm Indonesia reviews struggling Starmart
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Dairy Farm Indonesia is reviewing the future of its Starmart convenience store chain after closing nearly a third of its stores in the latest half year.
The chain has been hit hard by the Indonesian government’s moves to limit the sale of alcohol, banning liquor sales in c-stores in April.
Since then, Hong Kong headquartered Dairy Farm Indonesia subsidiary PT Hero Supermarket group has closed 39 stores leaving just 95.
“A detailed strategic review of this business is currently being undertaken,” the company said in its earnings statement released Tuesday.
The company said the closures would improve the profitability of the banner, but its prospects do not appear bright.
PT Hero operates 641 stores in all, including 53 Giant Ekstra hypermarkets, 155 Hero Supermarkets and Giant Ekspres stores, 337 Guardian health and beauty stores and one Ikea.
Overall, the group experienced a 15 per cent increase in revenue in the first half year, with gross profit up nine per cent, but it still posted a net loss of Rp 32 billion (HK$18.4 million).
Food and health & beauty sales, showed strong like for like growth in the half year, despite a soft trading environment, and Ikea showed “very promising” early trading figures, the company said.
“Despite the sales momentum, profitability was negatively impacted by outpacing costs resulting from minimum wage increases, stocktake improvements and store rationalisations. Strong actions on energy saving and productivity are being taken to mitigate the impact of increasing costs. In Food, investment in price has led to a reduction in the gross profit margin.”Besides the Starmart closures, PT Hero shuttered another 24 stores across its brands.
Stephane Deutsch, president director, said in food, the company was concentrating on increasing fresh produce sales.
“A detailed strategic review of this business is currently being undertaken,”
“This has helped to increase like for like sales, especially in Giant where progress is being made on growing its market share. Action is also being taken to improve the efficiency of the supply chain.”
The hypermarket operation, Giant Ekstra, and the supermarket operation, Giant Ekspres, are both taking steps to improve the customer shopping experience in selected stores prior to rolling out the initiative more broadly across the country, he said.
“The upscale format, Hero Supermarket, is continuing to enhance its offer across the fresh, imported and exclusive ranges to provide a more distinctive choice for customers.”
In Health and Beauty, Guardian’s store expansion program is “progressing well” alongside the introduction of refreshed branding and increasing private label development, leading to further improvements in like for like sales.
“The strategic partnership with the local pharmacy operator Apotik Melawai, which combines their local pharmacy strengths with the broader health and beauty offering of Guardian, is showing encouraging results.”
Questions & Answers
Q.What specifically caused the Starmart convenience store chain to struggle, leading to its review?
What specifically caused the Starmart convenience store chain to struggle, leading to its review?
The Indonesian government's decision to ban liquor sales in convenience stores in April significantly impacted Starmart. This policy led to the closure of nearly a third of its stores in the latest half year.
Q.Despite overall revenue growth, why did Dairy Farm Indonesia's PT Hero Supermarket group still post a net loss?
Despite overall revenue growth, why did Dairy Farm Indonesia's PT Hero Supermarket group still post a net loss?
Profitability was negatively impacted by costs outpacing sales momentum, specifically due to minimum wage increases, stocktake improvements, and store rationalisations. Investment in price also reduced the gross profit margin in food sales.
Q.How is PT Hero Supermarket group planning to improve its food business beyond the Starmart review?
How is PT Hero Supermarket group planning to improve its food business beyond the Starmart review?
The company is concentrating on increasing fresh produce sales to boost like-for-like sales, especially in Giant stores. It is also working to improve the efficiency of its supply chain and enhance the customer shopping experience.
Q.Which of PT Hero's businesses are performing well and contributing positively to the group?
Which of PT Hero's businesses are performing well and contributing positively to the group?
Food and health & beauty sales showed strong like-for-like growth. The Guardian health and beauty stores' expansion and branding efforts are progressing well, and the strategic partnership with Apotik Melawai is showing encouraging results.
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