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Fierce competition takes heavy toll on Giant
Fierce competition in the retail industry and changes in consumer behavior has taken a heavy toll on Hero Supermarket’s business
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Fierce competition in the retail industry and changes in consumer behavior has taken a heavy toll on Hero Supermarket’s business.
The major retail chain will close six of its Giant hypermarket outlets next month in Greater Jakarta as part of consolidation measures taken to cope with cut-throat competition in the retail business.
The closures dealt another blow to the company, which in January closed 26 of its Hero Supermarket outlets and laid off more than 500 employees as it cited challenges in the food business segment.
Hero Supermarket does not only face competition from other supermarket chains such as Hypermarket, Transmart Carrefour and Lotte Indonesia, but also rapidly growing convenience store chains Alfamart and Indomaret.
In an email, Hero Supermarket director Hadrianus Wahyu Trikusumo said the decision was not easy, but it was necessary to respond to rapidly changing consumer behavior.
“Giant will close six stores in July and we have communicated the plan to our colleagues in the stores,” Hadrianus said in the statement issued on Tuesday. “Giant is a strong brand, but we need to keep adapting so we can compete effectively by implementing a multiyear transformation program for long-term improvement.”
The Hero Group has six business divisions that include Hero Supermarket (premium quality supermarket), Guardian Health and Beauty (pharmacy), Starmart (convenience store), Giant Ekstra (hypermarket), Giant Ekspres (hypermarket), and Swedish-licensed IKEA (home furnishing).
In the first quarter, Hero Supermarket booked a revenue of Rp 3.06 trillion (US$216.17 million), almost unchanged from Rp 3.04 trillion in the same period last year. Despite the large revenue, the company suffered losses of Rp 3.5 billion in the first quarter, declining from Rp 4.1 billion in the same quarter last year.
Hadrianus said Hero would continue to develop Guardian and IKEA as they were more rewarding business units, in addition to improving its food business.
“This will include rearranging our business spaces, increasing the quality, scale and freshness [of the products] in all our stores, as well as adjusting our general merchandise to provide more consistent value for our customers,” said Hadrianus.
Sander Halsema, a senior associate director focusing on retail at Colliers International Indonesia, pointed out that five out of the six Giant hypermarket outlets to be closed were Giant Ekstra outlets, which are bigger than Giant Ekspres.
“I think the hypermarket format is not attractive anymore,” Halsema told The Jakarta Post over the phone. “One reason is that convenience stores are growing their network very fast, [so] you can just go there and do some minor shopping and you don’t have to go to bigger supermarkets anymore.”
There were also other possible contributing factors that had led to the closures, he said, such as raising labor costs and a lack of specialization in the stores that could attract certain groups of customers.
Practicality is also a big aspect that is lacking when customers have to spend time driving to a supermarket instead of just walking to the nearest convenience store or simply using grocery delivery services from their smartphones, he added.
Separately, Indonesian Retailers Association deputy chairman Tutum Rahanta said the news, while devastating for the retail industry, was not surprising.
“Shoppers and employees might be shocked as they perceived these stores as having always been crowded and selling well, so if that is the case, the stores might not have been able to cover their operational costs,” Tutum told the Post.
He also weighed in on Giant’s outdated service and facilities, which had not changed since it opened its first stores in the early 2000s, as well as the fact that many of the stores to be closed were located in traffic-congested areas.
“These stores could be the [financially] ill ones and because the rest of the company wants to maintain its health, it would rather cut them off rather than let the problems spread to the entire business,” said Tutum.
