Hero Supermarket, meeting the challenges of Indonesia today

Twenty-five years ago, when Hero Supermarket opened the first of its stores on Jl. Falatehan in South Jakarta, the challenge the company faced was a rather unusual one, it had to actually create a demand for such a shopping option.

The concept of a supermarket chain was still new. Gelael was the only comparable store at the time and only those who had traveled abroad were familiar with it. Logically, therefore, the targeted clientele was expatriates and upper-income Indonesians.

In the early days, Hero struggled to provide goods at competitive prices because of low awareness and low demand. Competition was intense from the popular owner-managed family stores (P&D) that were on every street corner. These stores did not have set operating hours. The owner chose the items for the customer. The customer had to be content with what was given to him even if the item was damaged.

Customers accustomed to such shopping practices had to be taught the advantages of shopping in a supermarket where, in addition to there being regular operating hours, customers had the advantage of choosing the items themselves. They could now reject a dented can or a damaged item.

Hero Supermarket rose to the challenge admirably. Customer education was done on the spot. Supermarkets were opened in shopping areas where population concentration was at its highest. Some of the earliest Heros were in Hotel Jayakarta and Hayam Wuruk Plaza which both attracted shoppers in large numbers.

Presenting itself as a sensible shopping option, Hero Supermarket, the "super" market with the Kepala Romawi (Trojan head) for its logo, strove to educate and inform its customers through advertisements, mostly in the print media. Magazines read by the expatriate community also helped to spread the message. Sponsorship of fund-raising activities held in international schools and women's clubs also helped build an image.

Twenty-five years later, the customer profile has changed considerably, necessitating a classification of its stores into four categories and a need to bear in mind varying customer preferences in different areas.

Stores categorized as "A+" continue to cater to the very-high- income Indonesians and expatriates. In this category are the stores located in Plaza Senayan, Mal Pondok Indah and Galaxy Mall in Surabaya.

Stores graded as "A" include those located in areas such as Green Garden, Sunter and Kebon Jeruk, where there is a local- population majority.

Category "B" stores, such as those in Lippo City and Cilegon, cater to the growing middle and upper-middle-class groups, while category "C" stores, located in Pondok Bambu and Pamulang/Ciledug in Tangerang, target the lower-middle and middle-class consumers.

Qualitatively, the products are identical in all the stores. The earlier bias toward wealthy Indonesians and expatriates has, today, given way to more B category and C category stores, where competition is intense and the buying power of targeted customers has increased considerably in conjunction with the country's impressive economic development.

While approximately 50 percent of sales are registered in the stores categorized A and A+, the increasingly larger number of people shopping in B and C category stores have modified the focus of the company's marketing strategies.

Hero Supermarket now sees itself as targeting the middle and upper-income groups of shoppers; its special relationship with very-high-income Indonesians and expatriates remains as strong as ever as their continued patronage lends the name Hero a very high credibility.

Growth

Founded in 1971, PT Hero Supermarket, a publicly-listed company on the Jakarta Stock Exchange since 1989, today continues its expansion and growth as Indonesia's preeminent food retailer.

The company has remained the industry leader since the early 1980s and has a current domestic market share of over 40 percent. Total sales of Rp 308 billion (US$155 million) in 1991, more than doubled to Rp 787 billion ($341 million) in 1995, while the number of stores rose from 38 (28 in Greater Jakarta) to 59 (44 in Greater Jakarta) in the same period.

Today, Hero Supermarket, with its 65 outlets throughout Indonesia (47 in Greater Jakarta) has a well-established national presence that is expanding in line with rising demand for the Hero name and continuing economic growth.

Outside Greater Jakarta, the stores are located in principal metropolitan markets throughout Indonesia including Sukabumi, Bandung, Cirebon, Karawang, Semarang, Yogyakarta, Magelang, Surabaya, Malang, Banjarmasin, Balikpapan, Palembang and Denpasar. Samarinda is to have its first Hero supermarket next year.

Challenges and strategies

Unlike other department store-cum-supermarket chains, which earn higher margins from the department store side of the business while competing with Hero for a slice of the supermarket action by fighting on prices, Hero's core business has always been the supermarket, where profit margins are tight.

And with the coming of Western franchises like Wal-Mart and European retailers like Carre Four, competition is likely to become even more intense.

However, PT Hero Supermarket, a 100 percent Indonesian-owned company, does not believe that the strategy to counter this should be a price war in a bid to corner the market. The company has, instead, turned its attention to improving product and staff quality.

Over the years, the company has established advanced training programs for both managerial and nonmanagerial positions, as well as quality-adherence programs for food distribution and retailing employees. These programs utilize the high international standards set by organizations such as the International Grocers' Alliance (IGA), a worldwide organization of independent affiliated grocers of which Hero Supermarket is a member in good standing.

Affiliations such as these require strict adherence to quality standards. The training center at Green Garden, for management and supervisor development programs, often draws upon foreign expertise for specialist categories such as merchandising.

Working with IGA, Hero Supermarket launched the Total Customer Satisfaction Program earlier this year. This program strives to inspire employees to maximize their potential. They are encouraged to ensure high product quality by keeping the processing and serving areas clean; displaying clearly all information to the customer; and offering the right-quality product at the right time.

Staff improvement programs also impart special negotiating and store-management skills to employees. The Space Management and Reordering Technology (SMART) program, in collaboration with Survey Research Indonesia (SRI) is aimed at cutting inventory costs and optimize the shelf space.

It was first introduced in Hero, Mal Pondok Indah.

Investment in equipment includes installing scanners which help speed up the payment process. This will be followed by bar- coding of all products, at no extra cost to customers. As part of introducing greater efficiency in store operations, Hero Supermarket works closely with David Holdings of Australia in managing the central warehouse and in handling distribution.

Foreign consultants are involved in designing store layouts for improved customer convenience.

As part of its human resources development, store managers identified as future store leaders are sent on diploma programs created by Monash University, Melbourne, Australia. By motivating and equipping its employees with special skills to combat the challenges of global free trade, the company rightly believes that long-term benefits will accrue. Plans are on the anvil for increased investment in staff training programs next year.

A sound business strategy dictates that a judicious client mix can build a solid fund of goodwill. While Hero Supermarket enjoys the majority share of the middle to upper-market segment, the company believes that the growing demand in the middle to lower- market segments, where consumer shopping trends indicate a need for Hero-style quality products at competitive prices, need to be addressed as well.

Hero Supermarkets employ the latest advanced point-of-sale and customer-service technology. These have enabled the company to remain apprised of customer demand and enabled it to introduce related subsidiary businesses that enhance Hero supermarket's core offer.

Popular examples of these are the Family Bakery Shops and Garden Fresh Produce Centers. Constantly fine-tuning and upgrading its marketing and merchandising mix, the company has become widely known for its introduction of new quality brands and products. The magic of the Hero name has helped the company successfully expand its private label lines, permitting higher profitability while providing the customer with a wider selection.

Innovation in marketing

Hero Supermarket is recognized nationally for its innovative marketing and promotional activities. The Funk and Wagnall's encyclopedia promotional campaign conducted in 1994 and 1995 saw the sale of more than 3,000 sets of the 29-volume encyclopedia, costing Rp 370,000 per set, during the four-month promotion period. The December 1995 Linea promotion for a range of Spanish nonstick cookware was so successful that demand far exceeded supply and necessitated an extension of the campaign for another four months.

The recently-concluded Magic Stamp promotion for Pyrex-ware was a runaway success. Introduced about two-and-a-half years ago, it proved extremely popular with customers from all income groups as the items were made available at prices less than the cost to the supermarket. Profit is not the aim of these promotions, unwavering consumer loyalty is.

The continued success of these annual promotional campaigns over the years has reinforced the marketing power of the Hero name. Future promotions include an Australian-designed high-grade stainless steel cutlery set with an 18-10 nickel-chromium content, which is scheduled for November this year.

Customer interaction

Hero believes that customer feedback is vital to achieving its goals of constantly improving quality and services. Working with SRI, the company annually conducts the Supermarket Omnibus, where customer demographics and preferences are monitored.

On a macrolevel, SRI-assisted quantitative surveys are also conducted periodically in selected stores to draw up shoppers' profiles and quantify amounts spent. Regular focus groups with customers helps get valuable customer feedback on products and services.

The provision of special food counters, targeting ethnic groups, such as Indians, Japanese and Koreans, is the outcome of such periodic evaluations and monitoring. At the store level, morning tea gatherings are popular occasions to elicit customer reactions. Every worthy suggestion is acted upon promptly.

Complaints are usually handled on the spot by store managers, whose photographs and names are prominently displayed for easy identification. However, customers can also approach the office of the Vice President (Operations) or Marketing Manager. A customer hot line to the marketing department is also available on 8300963.

The popular Hero Customer's Club program, run jointly with Bank Bali, gives a 5 percent discount -- in point form -- on purchases made with the debit card. Customers can join the Hero Customer's Club by paying an annual Rp 25,000 fee, of which Rp 10,000 goes into a Bank Bali savings bank account while Rp 15,000 is used by Hero to subsidize cooking demonstrations, factory visits and seminars for club members.

Discount vouchers are mailed to members for special events, such as a restaurant opening or launch of a new product.

The Hero Mastercard, a co-branded international credit card, earns customers a 5 percent discount on credit card purchases.

The monthly magazine Mesra, started in 1988, acts as a communication channel to keep both Hero Supermarket's customers and staff informed about the various programs and events.

Community services and sponsorships

Hero Supermarket's impressive growth has seen a marked increase in its social commitments over the years. Sponsorship of fund-raising events held at Jakarta International School and the Women's International Club bazaars are regular features.

Graduates from SMEA (Senior High School for Economics), SMKK (Senior High School for Home Economics), and Sekolah Menengah Pariwisata (Senior High School for Tourism) are given three months on-the-job training to learn supermarket operations. The Directorate General of Fisheries' annual Festival Ikan (Fish Festival) is cosponsored by Hero.

Local kindergartens are also supported in educational programs intended to promote healthy eating habits among small children. Proceeds from annual charity dinner galas go to Yayasan Jantung Sehat (Heart Foundation of Indonesia) and fund school and community projects, such as building prayer halls.

As an overriding feature of its corporate mission, Hero Supermarket is committed to excellence, offering customers the highest quality available in terms of service, products and marketing.

Ranked number one in Indonesia for product quality and store layout and management, Hero Supermarket has been awarded the Seal of Excellence by the IGA for achieving international standards in store management.

Hero Supermarket is proud to be the first and only recipient of IGA affiliation in Indonesia.