Analysis: Dairy Farm faces headwinds as it revamps Indonesian business

The retailer posted a net loss of IDR35 billion (£1.8m) after net revenue dropped 3% to IDR3.41 trillion (£176.2m).

President Stephane Deutsch said: “While there are initial signs of margin improvement, the trading conditions for food are expected to remain challenging.

“Various initiatives are under way to improve the profitability of the food business, and continuing progress is expected in both health and beauty and Ikea.”

Dairy Farm Indonesia operates a portfolio of Giant hypermarkets, Hero supermarkets, Guardian drugstores and Ikea stores in Indonesia through its 83.9% owned subsidiary PT Hero Supermarket Tbk.

The food division is Dairy Farm Indonesia’s largest, accounting for roughly 70% of revenues.

Since last year, Dairy Farm has implemented numerous measures to address rising labour and operational costs through a significant price investment programme on fresh produce.

These moves delivered strong like-for-like growth for the category during the first quarter.

However, disappointing grocery and general merchandise sales at banners like Giant Ekstra and Giant Ekspres impacted negatively on overall sales.

Dairy Farm will take further action in its second quarter to improve its supply chain, centralised distribution and store productivity.

Nevertheless, Dairy Farm’s Hero supermarket enjoyed a slight like-for-like uplift, resulting from its renewed efforts in fresh, imported and exclusive private-label ranges.

After a store restructuring last year, identifying unprofitable stores and focusing on better locations, the retailer disposed of 28 stores during its first quarter, including one Giant Ekspres, 24 Guardian and five Starmart convenience stores.

The network added one Guardian and one Giant Ekstra, with more to come before the end of the current financial year.

The scheme is expected to drive an improvement in sales and profitability for its drugstore business, introducing refreshed branding and more private label development.

As of March 31, the business operated 582 stores, comprising 54 Giant Ekstra, 153 Giant Ekspres and Hero Supermarket, 295 Guardian health and beauty stores, 1 Ikea and 79 Starmart convenience stores.

Despite the restructuring of most other divisions, Dairy Farm’s Ikea home furnishing business seems to be building a potential foothold for expansion in Indonesia.

In the first quarter, Ikea Indonesia achieved double-digit like-for-like growth. The retailer is expected to roll out its Ikea business across the country in the next five years.