Clash of the Titans

After receiving a frenzied round of bids from some of the world’s leading retailers, PT Matahari Putra Prima announced in January that its Hypermart unit was no longer for sale and will instead seek a strategic partnership. “We would like to bring in a strong global partner and are determined to retain and grow our Hypermart business,” said Matahari President Director Benjamin Mailool in a January 11 statement.

Since late last year, Matahari had attracted bids reportedly from Wal-Mart, the Carlyle Group, South Korea’s Lotte, France’s Casino and Hong Kong’s Dairy Farm. The pulling of the sale signals Matahari’s intent to launch a new round of aggressive expansion. Matahari’s long-term goal is to overtake rival Carrefour, a unit of the French retailer now partnered with billionaire Chairul Tanjung’s Para group.

 “We believe we can defeat Carrefour by next year,” says Matahari Director Carmelito Regalado, who is in charge of merchandising and marketing. Matahari plans to open 30 new Hypermart stores this year, brining its store total to 82, or two more than operated by Carrefour. Last year Hypermart had sales of $1 billion, trailing Carrefour’s sales of $1.5 billion. In 2012, Matahari opens to add another 20 stores to the Hypermart chain.

To pay for 30 new stores, Matahari has prepared Rp 1 trillion for the expansion, as each Hypermart costs about Rp 27 billion to build. Hypermart will also open a new logistics center, in either Makassar or Ambon, to support the expansion. Matahari hopes to open its first Hypermart in Papua within two years. “We have to ensure that we have strong logistical support before we open on Papua,” says Matahari Corporate Communications Director Danny Kojongian. Hypermart is already in such diverse locations as Manado, Pontianak and Banjarmasin.

Tycoon Mochtar Riady’s Lippo group controls Matahari, which established Hypermart in 2004. Mochtar purchased Matahari from its founder Hari Darmawan in 1996, an entrepreneur who had grown Matahari from a single small outlet in 1958 to pioneer the department store concept in the country, eventually listing Matahari on the stock exchange. Helping fuel the expansion of Hypermart will be Matahari’s recent sale of a majority stake in its department store unit, Matahari Department Stores, to U.S. private equity firm CVC Capital Partners for Rp 7.2 trillion, of which Rp 5.3 trillion was cash.

Some claim Hypermart may only have a partial victory against Carrefour next year. Hypermart may have more stores next year but its revenue may not exceed that of Carrefour’s, according to Kim Eng analyst Lucky Ariesabdi: “It is mostly because the locations of Hypermarts is not as strategic as those of rival Carrefour.”  Lower quality locations translate into lower revenue per store. According to a recent survey by researcher Nielsen, about 80% of Indonesians chose where to shop based on convenience or location.

However, the Lippo connection for Hypermart is still significant. Wherever Lippo goes, Hypermart can follow. “Hypermart is blessed that it is part of the Lippo group, so it can open stores wherever the group has malls,” Lucky says. It’s likely that everyone will continue to do well regardless of market share. The entire market is growing so fast, with consumer spending expected to grow 15% this year, that everyone can enjoy a slice of a bigger pie. 

*the article published on Forbes Indonesia Vol 2, Issue 3