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Ikea drives Hero Indonesia outlook

Hero Indonesia, the supermarket and healthcare retailer, is looking to Ikea to boost its fortunes after a disappointing 2014.

The retailer, 81.9 per cent owned by Hong Hong based Dairy Farm International, has reported a 14 per cent increase in net revenue and nine per cent increase in gross profit. But weak like-for-like sales in the core supermarkets division delivered an “underlying operating loss” of 12 billion IDR (US$925,181) and an “underlying profit” of IDR20 billion ($1.542 million).

“Challenging conditions are expected to continue in the food business in 2015, although action is being taken to address weaknesses and improve profitability,” President director Stephane Deutsch said in a statement.

“Nevertheless, the successful opening of the first Ikea store (in October at Alam Sutera) and the continuing profitable development of Guardian provides reason to remain cautiously optimistic about the trading outlook for the year ahead.”

He said, despite the challenges in the food sector, Hero Indonesia’s health and beauty business experienced good growth with 22 additional stores opening, and early trading results from Ikea were “very encouraging”.

Group overheads were higher, with electricity increases and a rise in the minimum wage negatively impacting on the business, together with a large store network.

Deutsch said like-for-like sales in the food business were weak, particularly in the Giant Ekspres operations, and new stores did not perform as well as expected.

“In the food operations, there is an increased focus on fresh produce and market share continues to improve. Action is also being taken to improve the supply chain with additional distribution centres enabling increased centralisation, rather than having suppliers delivering direct to the stores,” he said.

The Giant Ekstra hypermarket operation delivered above market like-for-like sales growth which enabled it to absorb the increase in operating costs and maintain its profitability. Giant Ekspres, the supermarket banner, faced a challenging year. Disappointing like-for-like sales, higher utilities costs and minimum wages led to a material deterioration of the profitability of its operations. The upscale format, Hero Supermarket, continues to focus on improving its offer across the fresh, imported and exclusive ranges to provide a more distinctive choice and grow customer appeal.

“Starmart’s increased focus on Ready-to-Eat has had a positive impact on sales in the stores where this offering has been introduced. A store portfolio optimisation program was launched to address loss making stores, with the closure of 30 stores to improve the overall profitability of the banner. A detailed review of this business is currently being undertaken.”

Hero’s Guardian store expansion program is progressing well alongside the rollout of a fresh brand look, said Stephane.

“A dedicated distribution centre was opened to support its supply chain. In addition, a strategic partnership is under trial with a local pharmacy operator, Melawai Pharmacy, in Jakarta to combine their local pharmacy strengths with the broader health and beauty offering of Guardian.”

Meanwhile, the new Ikea store attracted more than 75,000 customers per month since opening. “The contribution from IKEA to PT Hero’s full-year result was affected by the limited trading period and pre-opening expenses, but this business is expected to contribute positively in 2015.”

The company is continuing to invest in the supply chain infrastructure, including distribution centres and IT systems, to provide the support necessary to deliver a superior customer offer and to provide a compelling shopping experience for customers.

Hero opened 22 net new stores in 2014, including four Giant Ekstras, seven Hero Supermarkets and Giant Ekspres, 33 Guardians and the Ikea. This was offset by a net reduction of 23 Starmart outlets. As at December 31, the company operated 704 stores: 55 Giant Ekstras, 165 Hero Supermarkets and Giant Ekspreses, 349 Guardians, one Ikea and 134 Starmart convenience stores.

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