Giant quits Indonesia: Was the writing already on the wall?

As Hero Group announces its plans to close all its Giant supermarket outlets by the end of July, it seems like the Covid-19 pandemic has claimed another victim in Indonesia’s retail industry. The group cites how social distancing measures led to a 34 percent year-on-year (YoY) drop in its annual revenue, so its latest move represents its attempt at stabilising a pandemic-rocked ship.

Yet, we feel that there are more deep-rooted factors at play. Giant’s business model was ill-equipped for Indonesia’s evolving and growingly competitive retail scene– and the pandemic simply happened to be the fateful straw that broke Giant’s back.

Losing a fight on two fronts

Giant stands by a simple motto: “Muriah Setiap Hari”. Cheap, every day. The retail chain brands itself as the one-stop shop for daily staples, relying on price and convenience as its main selling points.

But it has struggled to establish itself on either front.

Warungs are one of its main roadblocks. Opened by housewives and microentrepreneurs, these mom-and-pop stores are free from both wage and rent considerations, allowing them to sell products at lower prices. Compared to national chains, they are also more mobile, sprouting up in the random nooks and crannies of every neighbourhood.

The role that warungs play in Indonesia’s retail scene is unique, and our team has examined it in greater detail in our Blooming Ecommerce in Indonesia report. Check it out to find out more.

The growth of ecommerce has not made this fight any easier. It’s difficult to resist the temptation of finishing grocery shopping in the comforts of one’s couch. Let’s not forget about the appeal of free shipping as well.

Finding Giant’s USP

Without the advantage of affordability or accessibility, Giant could only survive by setting itself apart with its products or shopping experiences. In other words, it needed to convince shoppers to travel the additional kilometre or fork out the additional dollar.

However, unlike other national retail chains, Giant has failed to provide this compelling reason. From what our friends have shared with us, Giant is one of the less fashionable supermarket chains in Indonesia. 

Here’s a shot of a Giant Ekspress outlet:

Which does not catch as much of the eye as the sleeker-looking Transmart Carrefour:

Furthermore, given its focus on groceries, home appliances, and other wholesale items, it’s also challenging for Giant to carve out a niche. Lotte Mart initially differentiated itself by being an exclusive retailer of Korean fashion products; is there, however, a similarly unique category of products that lines Giant’s shelves?

The answer is probably no.

As such, even before the pandemic began, Giant was already losing ground to its competitors. The retail chain had retreated to Indonesia’s Tier 2 cities several years back, having shut down all its outlets in the larger, metropolitan cities. Covid-19 only made it easier for this shrinking base to switch its allegiance to online shopping. Ultimately, because of its wobbly footing in the retail industry, Giant was naturally the first on the chopping block when Hero Group needed to shore up its financials.

What’s Hero’s next step?

As Hero Group phases out its Giant franchise, it has also laid out plans to replace most of the existing outlets with its Ikea, Guardian, and Hero brands. Its investors have reacted positively to this move, with Hero’s share prices rising after the announcement.

But we doubt that Hero Group is out of the woods.

Covid-19 has disrupted the entire retail market, with the total spending on traditional trade declining in 2020 because of the movement restrictions. While brands such as Hero (older history) and Ikea (international branding) may offer stronger value propositions, good management and agile responses will still be needed to tide through this pandemic.