Mixed fortunes for Dairy Farm Indonesia

Dairy Farm International’s Indonesia operation continues to struggle in food – but Ikea trades above expectations.

The Hong Kong-listed company holds a controlling 83.9 per cent share in PT Hero Supermarket Tbk, which operates Giant hypermarkets and grocery stores, Guardian pharmacies and has the nation’s Ikea franchise, among others.

Hero has reported a first quarter sales decline of 3 per cent to IDR3,409 billion (US$258 million), a 2 per cent improvement in gross profit, but a net loss of IDR 35 billion ($2.65 million).

“While there are initial signs of margin improvement, the trading conditions for food are expected to remain challenging,” said president director Stephane Deutsch.  “Various initiatives are underway to improve the profitability of the Food business, and continuing progress is expected in both health and beauty and Ikea.”

Although still relatively new, Ikea was the star of the quarter with sales up by double digits, exceeding both sales and profitability expectations.

A total 28 net stores were closed in the first quarter, including one Giant Ekspres, 24 Guardian and five Starmart convenience stores. This was offset by the opening of one Guardian and 1 Giant Ekstra.

In health and beauty, Guardian’s store rationalisation program is “progressing well”, said Deutsch. Together with the introduction of refreshed branding and increasing private label development, the restructure is leading to improvements in both sales and profitability.

But profitability in the food operations was reduced due to the lower sales, higher stock provisions and increasing costs resulting from last year’s wage increases.

“Significant attention continues to be given to driving sales growth, and several initiatives are underway to mitigate the effects of rising costs through energy savings and improved productivity,” said Deutsch.

In food, the strategic decision to increase the focus on fresh produce is showing promising results with strong like-for-like sales growth.

“Disappointing grocery and general merchandise sales, however, impacted negatively the overall food [division] performance during the quarter, especially in Giant. Action is also being taken to improve the efficiency of the supply chain, with increased centralisation through the group’s distribution centres,” he said..

Both Giant Ekstra and Ekspres are taking action to improve their trading and their profitability.

Dairy Farm Indonesia’s upscale format, Hero Supermarket, had stable like-for-like sales and continues to focus on enhancing its offer across the fresh, imported and exclusive ranges to provide a more distinctive choice for customers.

At the end of the quarter (March 31), Hero operated 582 stores: 54 Giant Ekstra, 153 Giant Ekspres and Hero Supermarket, 295 Guardian Health and Beauty stores, one Ikea and 79 Starmart convenience stores.