Hero Supermarket Indonesian retailer unloads convenience stores
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Indonesian retailer Hero Supermarket on Wednesday said it will sell its poorly performing Starmart convenience store business to local food conglomerate Wings Group.
Hero is selling about 80 Starmart outlets to Fajar Mitra Indah, a unit of Wings Group and the franchisee of Japan’s FamilyMart convenience stores in the country. The move follows the closure of 50 Starmart stores in 2015. In a press release, Hero said it will pull out entirely from the convenience store business. The sale will have no material impact on the company’s finances, it added. The value of the transaction was not disclosed.
A Startmart outlet in Jakarta
Fajar Mitra plans to convert 50 of the Starmart stores to FamilyMarts by the end of the year, which will help raise the number of FamilyMart stores to around 80, according to a person familiar with the matter.
Starmart has been struggling to compete against the top two local brands, Alfamart and Indomaret, which run about 10,000 outlets each and are expanding aggressively. Hero’s move comes after Supra Boga Lestari, a high-end supermarket operator, recently announced the sale of its Ministop convenience store business.
Hero’s core supermarket business, which targets middle-class shoppers, has also faced intense competition from hypermarkets, which purchase large amounts of merchandise and sell at low prices. Combined with slowing consumer spending and rising labor costs, the company’s earnings have eroded quickly. Hero’s net profit in 2014 plunged more than 90% from the previous year, and it slipped into a loss for the nine months ended September 2015.
In addition to Starmart, Hero has also closed some of its Guardian drugstores. Searching for new sources of revenue, the company became the franchisee of Swedish furniture retailer Ikea, opening its first store in Indonesia in 2014. But its prospects have been clouded by a recently published Supreme Court ruling that allowed a local furniture company to use the Ikea trademark.
Hero is owned by the retail arm of Hong Kong-based conglomerate Jardine Matheson Holdings. Jardine, which also controls Indonesia’s largest automaker, Astra International, has been increasing its investment in other countries in the region, such as Thailand and Vietnam.
Questions & Answers
Q.Why is Hero Supermarket selling its Starmart convenience store business?
Why is Hero Supermarket selling its Starmart convenience store business?
Hero is selling Starmart because the business was poorly performing. Starmart struggled to compete with dominant local brands and 50 stores had already closed in 2015 due to these struggles.
Q.What is Wings Group's plan for the acquired Starmart outlets?
What is Wings Group's plan for the acquired Starmart outlets?
Wings Group's unit, Fajar Mitra Indah, plans to convert 50 of the Starmart stores into FamilyMarts. This conversion is intended to be completed by the end of the current year.
Q.Has Hero Supermarket faced difficulties in other parts of its business?
Has Hero Supermarket faced difficulties in other parts of its business?
Yes, Hero's core supermarket business faces intense competition from hypermarkets, slowing consumer spending, and rising labour costs. The company also closed some Guardian drugstores and has issues with its Ikea franchise.
Q.Who owns Hero Supermarket?
Who owns Hero Supermarket?
Hero Supermarket is owned by the retail arm of Jardine Matheson Holdings. This is a Hong Kong-based conglomerate that also controls Indonesia's largest automaker, Astra International.
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