Report from the Board of Directors
The global Covid-19 pandemic in 2020 has affected Indonesia with a total of 743,198 infected cases and 22,138 death rates during the period. This inevitably led to negative impacts to the nation’s state of economy with lower GDP of -1.0% compared to previous years. Within the year, the Covid-19 spreading to most regions across Indonesia forced the government to implement Large-Scale Social Distancing and lockdowns in several areas. Covid-19 prevention protocols such as usage of masks, hand-washing, social & physical distancing measures, have been enforced nationally until present days.
These conditions led to most businesses, including retail industry, had to face significant performance impact as consumers’ traffic to stores/malls decreased by an average of 40-60%, resulting to lower overall purchasing power and consumption rate. Moreover, the relatively low increase of annual minimum wages, increasing unemployment rate as the result of more business efficiencies/closures and relatively high electricity & fuel tariffs contributed to lower household retail spending during the period.
With the Covid-19 virus pandemic spreading across regions in Indonesia, Year 2020 was another challenging and difficult year for MPPA’s business, yet it raised another key opportunity for the Company in sustaining its retail operation. This opportunity is captured and geared to become an additional key business pillar for MPPA’s strategic direction going forward. The Board of Directors (“BOD”) is pleased that the Company was still able to navigate throughout Year 2020 in executing its customer-centric retailing strategy, despite having to make important necessary adjustments to its business plan and execution within the year.
Throughout 2020, MPPA continued a series of important actions to stay focus in bringing best of fresh products to its consumer retailing strategy. It also revamped and strengthened its online businesses as part of the Company’s omni-channel strategy in overcoming the Large-Scale Social Distancing imposed by the government.
The Company successfully revamped and reinforced its Hypermart Online e-commerce platform as well as introduced its popular Chat & Shop by WhatsApp to its valued customers in late Q1 2020 when several regions started to get affected by Covid-19 virus spread and regional lockdowns imposed by the government.
In the second semester 2020, MPPA continued to strengthen its online businesses by collaborating with several leading Indonesian marketplace operators. These efforts were prudently implemented to bring the unparalleled and complete online retail offerings nationwide to Indonesian consumers through both MPPA’s own Hypermart Online and Chat & Shop online businesses as well as virtual stores at online platforms of those leading marketplace operators.
The overall online business grew significantly and now captures great opportunities to serve the new digital lifestyle being adopted by more Indonesian consumers as they have been practicing Social & Physical Distancing measures and health protocols to avoid the spread of Covid-19 virus. These strategies would support the Company in strengthening its strategic foundation and key business pillars as it will enter into New Normal post Covid-19 pandemic in 2021 and beyond.
To anticipate and overcome those market challenges, the Company continued its unwavering focus in realigning MPPA’s business strategy throughout 2020.
Strategy #1: Focus on Consumer Retailing by Delivering the Best Of Fresh Products
It is critical for the Company to continue the execution of strategy realignment to consumer retailing amid the difficult Covid-19 situation. Sustainable consumer retailing and competitive pricing have become important factors and continued being implemented into majority of Fresh Products, groceries and fastmoving, basic household necessities sought by most consumers on daily basis.
In 2020, The Company continued to strengthen its focus to Delivering the Best of Fresh Products To Consumers as its business strategy fundamental.
Key focus was addressed to meet most customers’ daily needs on a sustainable basis through wide arrays of fresh food, groceries and Fast-moving Consumer Goods. The Company also focused on reviewing the product assortments and inventory management in order to address the most appropriate product offerings to consumers as well as to reduce slower unproductive items for better cash flow.
Greater focus was put on fast moving, productive SKUs; while the Management also put greater efforts in eliminating aging inventory. These would also allow fresher merchandise in portfolio to capture the retail potential from valued customers.
As the results of these efforts despite difficult Covid-19 market condition, a highlight of the Company’s achievements in 2020 was:
|Company’s Achievement Highlight||FY 2020||FY 2019|
|Performance of Fresh Product||Rp 1,9 Trillion||Rp 2 Trillion|
|Contribution to Total Sales||27.7%||24.0%|
|KPI of Out Of Stock (Overall)|
|on Critical Items||4.7%||10.5%|
|on Key Value Items||8.7%||10.7%|
In addition to the above, the Company also continued in carrying out the execution of other important initiatives and actions to bring the best of fresh products to meet the growing consumer needs.
MPPA’s collaboration with The Walt Disney Indonesia continued to receive positive responses from customers during the year. This collaboration is aimed to bring the best fresh products available in the market to meet modern customers looking for world-class unique lifestyle experiences in their shopping activities. Quality fresh produce like fruits and vegetables, as well as bakery and products-across toys, apparel and stationaries come in packaging inspired by Disney and Pixar characters.
Strategy #2: Omni-Channel & Digital Payment As Additional Key Retail Strategy
The Company sees omni-channel as a positive opportunity to drive sales beyond what can be realized by conventional offline stores in the future. This is in-line with the vast growing of consumer’s modern digital lifestyle seeking for convenience.
In early 2020, the Company has anticipated the spreading stage of Covid-19 and Large-Scale Social Distancing & Stay-At-Home by revamping and reinforcing its existing Hypermart Online e-commerce platform as additional contingency plan to address the decreased in-store customer traffics. It was followed by the introduction of Chat & Shop by WhatsApp to customers in late Q1 2020 when several regions started to get affected by Covid-19 virus spread and regional lockdowns imposed by the government. The popular Chat & Shop quickly expanded to all stores nationwide and completed by additional features such as Park & Pick-up and BELLA (Single National WhatsApp Number) to bring a totally new online shopping experience and convenience to customers.
In the second semester 2020, MPPA continued to strengthen its O2O omni-channel by collaborating with several leading Indonesian marketplace operators (GrabMart, Shopee, Tokopedia). For a total online experience to customers, MPPA also successfully expanded the usage of digital e-wallet payments ranging from OVO, ShopeePay into the utilization of national QRIS platform which is available for online payments from various e-wallet and mobile banking platforms in Indonesia.
These efforts were prudently implemented to bring the unparalleled and complete online retail offerings nationwide to Indonesian consumers through both MPPA’s own Hypermart Online and Chat & Shop online businesses as well as virtual stores at online platforms of those leading marketplace operators.
We are pleased to see a significant growth of online business to approximately 4-5% of total sales in 2020 compared to less than 0.1% in previous year while we expect it would grow further to 8-10% in 2021.
|MPPA’s Online Business Highlight||FY 2020||FY 2019||% Change|
|Contribution to Total Sales (in billion Rupiah)||205||2||10,250.0%|
|MPPA’s Online Store & Marketplace Partners|
|Chat & Shop||125||-||n/a|
It now captures great opportunities to serve the new digital lifestyle being adopted by more Indonesian consumers as they have been practicing Social & Physical Distancing measures. These strategies would support the Company in strengthening its strategic foundation and key business pillars as it will enter into New Normal in 2021 and beyond.
As of 2020 year-end, the overall online business has been actively operating with Hypermart Online e-commerce at 103 stores, Chat & Shop at 125 stores, active operation of 97 virtual stores at GrabMart, 45 virtual stores at Shopee and 23 virtual stores at Tokopedia nationwide.
We believe all those actions above are important foundation as the Company continues to build a sustainable retail management platform that is necessary to support future growth. We are optimistic that improved macroeconomic condition in 2021, coupled with the new strategy will position the Company to regain its market leadership going forward.
Performance Highlights In 2020
Net sales reached Rp6.7 trillion in fiscal year 2020, which was still 22% below the Rp8.7 trillion level reached in 2019. This was predominantly due to lower customer traffics and consumption rate due to difficult market as well as continued reduction of B2B business. Company’s retail sales (excluding B2B) in 2020 was Rp6.3 trillion, which was 6% of total sales compared to 8% of total sales last year. In-line with focus to consumer retailing, controlled inventory purchases and pricing as well as cost efficiency measures, the Company was able to show some margin improvements with gross profit reaching Rp1.3 trillion, or 19% of sales compared to 18% last year and EBITDA profitability continued to deliver positive improvement for the year.
In terms of cost efficiencies, the Company continued re-examining its cost structure by looking at a number of operational efficiencies. In 2020, total employees were 8,044 people with a more streamlined, efficient management structure. Other actions were also taken for unsupportable costs including a shift of marketing spend from nationwide media advertising to a more cost-effective online, social media approach and community-based marketing. These efficiency measures resulted into approximately Rp273 billion savings on selling, general, and administrative expenses within the period.
|In trillion Rupiah||FY 2020||% Sales||FY 2019||% Sales||Y.O.Y Growth|
During the year, the Company halted most of its new store expansion, store renovation and any other unnecessary expenses in light of preserving capex and financial cashflows necessary amid the uncertain market. Total capex for investing activities spent amounted to Rp77 billion from initial capex budget of Rp154 billion. The Company relaunched 5 Hypermart, opened 2 new Hyfresh as well as closed 2 Hypermart, 1 Foodmart, 1 Hyfresh, 7 Boston and 2 FMX. As of December 31, 2020, the Company operates a total of 211 stores consisting of 100 Hypermart, 9 Primo, 16 Foodmart, 9 Hyfresh, 62 Boston HBC, 14 FMX and 1 SmartClub in 73 cities across Indonesia.
The BOD worked closely with the Management under the guidance of the BOC and Audit Committee to deliver company-wide standard operating procedures, which in turn ensuring proper implementation of GCG aspects into daily business operations. Internal control measures were continually being strengthened to support MPPA’s businesses. The function and importance of Internal Audit has also been further strengthened with new appointment of Internal Audit Head and a series of stricter audit control procedures to ensure higher credibility of audit findings. Additionally, the existing Whistleblowing system has also been further elevated and enforced to ensure good governance practices are being executed following proper procedures.
In compliance with OJK Regulation No. 33/ POJK.04/2014, the BOD continued to enforce its guidelines and work conducts for each Board member. During the year, the BOD conducted 12 meetings among its members and 4 separate formal meetings with the BOC, in which all of the meetings were conducted via online video conferencing, emails and other online communication methods. Results and further BOC’s guidance from those meetings were well communicated to the Management team to ensure proper and timely execution and reviews.
The BOD remuneration is determined by the BOC and is approved by the shareholders through the AGMS. The remuneration is calculated after taking several factors into consideration, including collective and individual performance, market conditions and the capacity of MPPA.
In 2020, the BOD and Management team received the remuneration in the forms of salaries and allowances based on individual, teamwork and Company’s KPIs. The remuneration was based on BOC’s evaluation, which was supported by the Nomination and Remuneration Committee (NRC), for each member of the Directors and key members of the Management team. However within the year, the BOD, Management team and entire Company’s employees took voluntary, temporary salary decrease in the range of 20-30% in order to support the Company within the difficult situation. The BOD appreciates the commitment demonstrated by the Management team and all employees for the motivation and dedication for the voluntary decreases, which led to Rp95 billion temporary salary & remuneration savings to support the cash flow position during the year.
Corporate Social Responsibility
The Company always prioritizes its role as a good corporate citizen for all stakeholders and continues to address Corporate Social Responsibility (CSR) in its daily activities. It is involved in various social activities, which focus on community development, education and environmental preservation through long-term cooperative partnerships. Working with several Indonesian NGOs, it reaches out to communities managing certain CSR programs.
Covid-19 Prevention Measures
In order to uphold its social responsibility to stakeholders, the safety and security of customers and company-wide staffs are always the Company’s top commitment in bringing MPPA’s best retail offerings. The widespread of Covid-19 virus to several regions have triggered our focus and efforts even higher as part of the Company’s good governance to ensure a safe shopping environment and quality products throughout our store network nationwide.
The Company have taken further measures and stricter controls in terms of cleaning and hygiene protocols at all stores, distribution centers and headquarter office in accordance with public health authorities. We uphold MPPA’s ISO certification: ISO 22000:2018 - Food Safety Management System which is integrated with ISO 9001:2015 - Quality Management System and HAS 23000 & SNI 99001:2016 - Halal Management System into our food safety protocols.
Halal Decree Certification by Majelis Ulama Indonesia (MUI)
In 2020, the Company has been declared to meet the requirements of halal certification by The Assessment Institute for Foods, Drugs and Cosmetics of The Indonesian Council of Ulama (“LPPOM MUI”). Meeting these requirements reflects MPPA’s strong commitment to implementing the Halal Assurance System (“HAS”) in all business line operations and supporting functions. This achievement makes MPPA being the first modern retailer in Indonesia to receive Halal Decree for its 150 locations of multiformat stores, distribution centers and head office nationwide. With this commitment, MPPA ensures that production activities and facilities at suppliers, delivery of products from suppliers, receipt and storage of products in warehouses, receipt, handling, processing and displaying products in stores, services at cashier checkout and delivery of products to customers’ homes meet the criteria of HAS.
In 2020, MPPA temporarily halted its “In-Store CSR Educational Fieldtrip for Children” at Hypermart, Primo and Foodmart stores in order to uphold the Large-Scale Social and Physical Distancing measures as well as to minimize the risks of Covid-19 spreading to children. However, MPPA continued its CSR program with Book1001 Foundation, a non-profit, volunteerbased foundation, to allow customers donating used children books in 8 participating Hypermart and Primo stores in Greater Jakarta. The collected books will be distributed by Book1001 Foundation to children public libraries in unfortunate areas at several region in Indonesia. Throughout the year, the Company was successfully in collecting approximately 416 books which was donated to several public libraries for children.
Other Social Activities
During 2020 the Company continued its coordination with Yayasan Lembaga Amil Zakat Infaq Dan Shadaqah Nahdlatul Ulama (“LAZISNU”) through “Program Infaq via Kasir” during the festive Ramadan months. This program enables consumers and the public at large to provide donations while shopping to help the community development programs. Additionally, the Company continued its cooperation with Yayasan Pendidikan Harapan Papua (YPHP), a non-profit organization in Indonesia, to support the development of school infrastructure and children education in remote areas of Papua island.
Perspective for 2021
We believe that Indonesia’s economy will resume on track starting Q2 2021 as the availability and deployment of Covid-19 vaccines would take place in Q1 and early Q2 2021 across all area in Indonesia. We are optimistic with the government projecting GDP growth 5.3% in 2021 alongside the continuing infrastructure investment and stable inflation to drive an upturn in consumption growth.
Moving into the New Normal era, MPPA is wellpositioned to capture its potentials when consumer spending recovers. We are grateful to able to capture the opportunities in developing MPPA’s omni-channel strategy during pandemic era in 2020.
It brings the Company in a better position to further implement both online and offline business operational excellence. The expansion of Indonesia’s middle class, the increasing rate of urbanization, the ongoing shift to modern channels as well as the recent accelerated adoption of digital lifestyle and online business are the key drivers to fuel a sustained rise in consumption that will support our business in the future.
We have strong belief for MPPA as it continues to strengthen its position as the Indonesia’s prominent homegrown hypermarket group supported by a strong national network of 211 multi format stores, an unparalleled world-class logistics infrastructure and employing directly 8,044 staffs and store associates. Looking to longer term, we view the Company will have a positive prospect with its aligned consumer retail strategy and several key tailwinds that will benefit the general retail sector.
Changes in the Composition of Board of Directors
Based on the NRC proposal to the BOC as well as shareholders’ approval at the Company’s AGMS in 2020, the BOD’s structure has changed to enable the Board to manage the execution of Company’s strategy more effectively. Herry Senjaya was approved by shareholders to become the Company’s Finance Director & CFO while Andre Rumantir and Johanes Jany were also approved as the Company’s Directors. Herry brings strong leadership and knowledge in monitoring and controlling the Company’s financial and cost efficiency measures with his outstanding financial audit experience of more than 15 years at the Company. Both Andre and Johanes are experienced executives with long-term knowledge about the Company to bring their outstanding execution capabilities needed to build MPPA in this fast-changing environment.
In the same opportunity, we would like to thank Fendi Santoso, the former Director & CFO, for his service in the Company. Fendi now joins as a Commissioner of the Company to strengthen the BOC’s supervisory duties with his long-time knowledge and leadership within MPPA.
For the Management team, BOD thanks Elliot J. Dickson as the Company’s CEO for his relentless efforts and professional leadership in managing the Company during the difficult pandemic situation. Elliot continues as CEO in 2021 forward. His retail expertise and disciplines bring valuable insights and solid teamwork for the organization in executing MPPA’s consumer retailing strategy.
On behalf of the BOD, we would like to extend our recognition and gratitude for the dedication and hard work of the Company management and staff. We would also like to thank our many partners in the business community and government for its continuous support toward our business. We also would like to thank the BOC for their guidance and supervision. We are grateful for the trust and confidence exhibited by our shareholders. And we are thankful for the customers throughout Indonesia who trust their retail needs with us throughout the year.
On behalf of the Board of Directors,