F

ood manufacturing giant PT Indofood Sukses Makmur and its subsidiary, processed food company PT Indofood CBP Sukses Makmur (ICBP), are facing a tougher challenge from their competitors, which have begun to cut prices to boost their market share.

Corporate analysts said that the two companies’ competitors cut their profit margins to tap into growing demand amid a wave of panic buying among consumers due to fears that the partial lockdown imposed by the government might disrupt supplies.

“Consumers are paying more attention to the price of instant noodles [sold] at big quantities, and it shows that Indofood group’s competitors have become the winners,” BNI Sekuritas equity analyst William Siregar told The Jakarta Post on Tuesday.

He said their competitors were offering much lower prices, a business strategy that could undermine the market share of Indofood and its subsidiary.

William also said that both Indofood and ICBP would have a tough time using the pricing strategy to attract customers because the prices of raw materials had begun to increase due to a scarcity of supplies owing to transportation problems caused by COVID-19.

Indofood’s net profit margin increased to 6.4 percent last year from 5.7 percent in 2018. The company’s net profit jumped 18 percent to Rp 4.91 trillion (US$327.33 million) in 2019. In the meantime, ICBP maintained a relatively stable net profit margin of 11.9 percent in 2019, during which it booked 10 percent growth in net profit to Rp 5.04 trillion.

In order to maintain a high profit margin this year, William predicted that both companies would continue their efficiency efforts, which have become an important strategy amid growing competition in the fast-moving consumer goods business.

“Such a strategy is important because, despite tighter competition and higher raw material prices, companies in the industry face difficulties in raising their products’ prices,” he said, adding that ICBP was currently in dire need of increasing its Indomie noodle price due to the rising wheat price, which had been climbing since the third quarter of last year.

Despite booking double digit growth in profit, Indofood only saw a 4 percent increase in sales to Rp 76.59 trillion. The percentage was slightly lower than the 2018 sales growth figure of 4.6 percent as low crude palm oil (CPO) prices caused Indofood’s agribusiness sector to slump last year.

Despite the slump, Indofood president director and chief executive officer said the positive growth showed that the company still managed to show its strength as a so-called “total food solutions” company.

ICBP, meanwhile, recorded net sales of Rp 42.3 trillion, up by 10 percent from last year.

Anthoni also said that he was “happy” that ICBP could still record strong growth in 2019 despite heightening global trade tensions and uncertain geopolitical conditions.

“To maintain our competitiveness in the years to come, we will strengthen our brand equity and encourage product innovation, while also increasing product availability, exports and food service sales, diversify our raw material sources and put efficiencies forward,” he said in the statement.

Such an effort to maintain the firm’s efficiency, if coupled with recovering CPO prices in the mid- to long-term, could be a positive catalyst for Indofood’s sales growth in the future, William said.

“It could also help to compensate ICBP’s slowing business, which had been occurring since the fourth quarter of last year, in the mid to long-term future.”