CHAPTER I INTRODUCTION

Transcription

1 CHAPTER I INTRODUCTION 1.1. BACKGROUND There has been a rapid growth of the modern retail business for the past decades in Indonesia, marked with the emerged of Sarinah Department Store in Modern retail is basically an expansion of traditional retail that grew side by side with economic, technology developments, as well as changing in society life style, which demands a more comfortable shopping experience (Pandin 2009). Indonesia, with a population of 230 million, the fourth largest in the world is a potential market for modern retail business. Along with a Presidential Decree no. 99/1998 that allowed foreign retailers to operate in this country and supported with the strongly conducive situation of economic and political stability in Indonesia, both local and foreign retailers start its rapid expansion in early 2000 s. According to the Association of Indonesian Retail Companies (Aprindo) retail business grew 10%- 15% annually (Austin & Debnam 2006; Pandin 2009). As the Indonesian retail sector grew modern retail businesses such as hypermarkets, supermarkets, and minimarkets are gradually replacing more traditional retail outlets, including wet markets and independent small grocers (Rangkuti, F.Y. 2007).

2 Around 1990 s, Hero supermarket was one of the leaders in supermarket format known as premium supermarket that mainly sold good quality of fresh food, frozen food, and wide range of groceries. But nowadays, where there are so many players in the category including hypermarket and minimarket Hero is no longer a leader. This condition is being driven mostly by strong shopping preferences. Hypermarket were offering more variety of product, new store environment that also consider as a shopping entertainment and the most important thing were at the lowest possible price (Gillai & Hutchinson 2009; p.1). Pressure over supermarket not only comes from hypermarket, but also from minimarket that aggressively expands its business by adding more outlets starts in early 2000 s. Minimarkets were able to offer comfort and convenience by located near residential area (Pandin 2009). During , minimarket and hypermarket are both modern markets with very good performance in the past 5 years. Minimarket s share increased very high, average 38.1% per year. Hypermarket s share also grew significantly at 21.5% per year, whereas during the same period, Supermarket s share squeezed at 6.2% per year The intense competition in the emerging of hypermarket and minimarket has also squeeze Hero supermarket profitability as one of the pioneer in modern food retail business that established in Mild symptoms start to appear in 2004, where amount of revenue that comes from Hero supermarket were getting smaler and only able to contribute less than 14% of PT. Hero Supermarket Tbk. net profit.

3 Encourage by its vision to be a leading food retailer in Indonesia in terms of sales and long-term shareholders value creation, in 2007 Hero Supermarket Tbk. started to implement its turnaround strategy on Hero Supermarket by having a new repositioning for Hero Supermarket. This new repositioning were aimed to focus on premium segment and developing a thorough retail marketing differentiation strategy towards several stores that located in premium area such as Hero Senayan, Hero mall Puri Indah, and Hero Taman Anggrek, with more and more stores selected to be repositioned based on the opportunity to capture the premium segment. To direct the company in its turnaround strategy implementation, Hero Supermarket Tbk. appoints Sugiyanto Wibawa as the Operations Supermarket Director. Having broad range experience in retail industry and accumulated expertise, Sugiyanto is very optimistic and look forward to navigate the company securing the leadership position in premium supermarket segment. Focusing on the target market, developing value differentiation and put utmost priority on customer satisfaction, would be among his primary agenda to win the customer s heart share. After severe for declining its profits and market share, Hero Supermarket were successfully implement its turnaround strategy by focus on new repositioning based on Retail Marketing Differentiation (Retail Mix) towards six elements which are assortment, convenience, value & price, information, customer care and shopping experience. The company focused on redesign a new comfortable, fresh and premium stores ambience, selecting product categories, enhancing services and quality to uplift its image to become more affluent stores. The repositioning also being strengthened

4 with strong distinguishes service quality in many sectors including human resources and technology. With the fact that Hero supermarket has the largest number of supermarket outlets in Indonesia, its turnaround strategy and the strategic initiatives that are planned for company transformation in the emerging of retail market is an interesting topic to be uplifted PROBLEM STATEMENT Change in retail industry structure has affected customer shopping preferences, therefore put supermarket in the most competitive pressure of sharing its profits with hypermarkets and minimarket. The intense competition in the emerging of modern retail business has also squeeze Hero supermarket profitability. Mild symptoms start to appear in 2004, where amount of revenue that comes from Hero supermarket were getting smaler and only able to contribute less than 14% of PT. Hero Supermarket Tbk. net profit. This case will document and analyze problems faced by Hero Supermarket in the emerging of new competition in retail market, and to analyze the implementation of its turnaround phase and strategic initiatives that are planned for company transformation on the background of dynamic changing in Indonesian retail industry.

5 The author will also analyze how customer respond the company repositioning, and perceptions of value in consumers mind for capturing customer insight LEARNING OBJECTIVE 1. An analysis of retail industry in Indonesia, especially key success factors of Supermarket format. 2. Analysis of dynamic evolution of Hero Supermarket from Retail Competitive Differentiation (Retail Mix) Perspective. 3. To learn how did retail environment changes and intense competition has influence Hero supermarket positioning. 4. An analysis of how did Hero supermarket implement its turnaround strategy and strategic initiatives that are planned for company transformation. 5. An analysis of how customer responds the company repositioning, and perceptions of value in consumers mind using elements of customer equity drivers TIME FRAME Focus of this case study will be on Hero supermarket within year , yet the author will be using years before that to give an overview of environmental situation in the scope of modern retail market that contributed in affecting problems to the company.

6 1.5. EXPECTED CONTRIBUTION This thesis is expected to give overview of current retail market in general. As for the company, PT. Hero Supermarket Tbk. for being prepared in implementing its turnaround strategy for the upcoming years by benchmarking from Hero supermarket performance and strategy in 2007 to SCOPE OF CASE STUDY This case study thesis will focus on an analysis of problems that faced by Hero supermarket in the industry of modern retail market, an analysis of how did retail environment changes and intense competition has influence its positioning, an analysis of the implementation of its turnaround strategy that started in year 2007 to 2009, and an analysis of how customer responds the company repositioning, and perceptions of value in consumers mind ORGANIZATION OF CASE This section is aimed to give clear view of guidance for each chapter of this thesis This case study case consists of five chapters as follow:

7 Chapter I: Introduction The first chapter elaborates the background, problem statement, learning objective, scope of the case, and organization of the case. This chapter introduces the readers to the company s situation as basic information for the case development. Chapter II: Literature Review The second chapter explains about the theoretical foundation that helps analyze the company. The topic mentioned includes Turnaround strategy, Repositioning, Market segmentation, targeting and positioning (STP), Retail Competitive Differentiation, Porter Five Forces, TOWS analysis and customer equity drivers. Chapter III: Methodology The third chapter consists of the methodology of writing Hero supermarket turnaround strategy case, from definition to framework used to develop the case. Chapter IV: Case Analysis The fourth chapter describes about case study result and continues with an analysis using related theory. Chapter V: Conclusion and Managerial Implications On fifth chapter conclusion is drawn based on analysis process, and the author will give suggestion based on managerial implication for further improvement.