Report from the Board of Directors
The continuance of Covid-19 pandemic in Year 2021 has certainly become another challenging year for economy and most businesses in Indonesia. Throughout the year, the infected cases tolled to more than 4.2 million compared to 743,198 cases in 2020. The significant surge was due to the widespread of Delta variants in the middle of year hitting nationwide which led to the halt of most business operations. Nevertheless, the Government continued its solid execution of health protocols and monitoring process through endless efforts in reminding people for usage of masks, regular handwashing, social & physical distancing measures as well as the implementation of PPKM based on Level 1-4 criteria to each specific region and the enforcement of PeduliLindungi smartphone app to monitor people mobility and contact tracing. The accelerated Covid-19 vaccination program has been progressing well with more than 276 million doses given to first, second and third vaccine shots, including vaccination to children of 6-11 years old which was also started at 2021 yearend. This, in turn, is expected to build the necessary herd immunity to the society as we are moving forward. These efforts start to yield encouraging results as the pandemic situation has been recovering well with a lowering trend of infected cases starting at third quarter toward yearend, albeit the rising cases of milder yet faster infectious Omicron variant which started to be seen at 2021 yearend to early 2022.
As an overall impact from the pandemic in 2021, most businesses, including the Company, had to face a significant, challenging situation which inevitably led to lower achievement of business performance. The tight limitation of PPKM such as less stores/malls operating hours and children under 12 years of age not allowed into public areas, resulted to an average decrease of consumers’ traffic to stores/malls by 40% during the period, resulting to lower overall purchasing power and consumption rate. Moreover, more common salary reduction and increasing unemployment rate as the result of more business efficiencies/closures as well as relatively high electricity & fuel tariffs contributed to lower household retail spending as most consumers shifted or downgraded their household daily necessities spending.
Despite the situation, the year 2021 raised another key opportunities for MPPA in sustaining its customercentric retailing strategy and operation. Top priority focus on Fresh Products remains as the Company’s fundamental direction to meet the rising household needs for quality daily food necessities with great prices. The Company also marks an important milestone for the successful transformation of its online business as part of its omni-channel strategy with more expansion and collaboration with leading marketplaces in Indonesia making it as one of the Indonesian food retailers with most penetrated to online marketplaces. Organic online businesses (Hypermart Online and Chat & Shop by Whatsapp) were continued to strengthen, while more collaborations were taken with more leading marketplaces (GoMart, BliBli, JD.ID, HappyFresh and enlarged coverage of Tokopedia) in 2021 in addition to the existing collaboration with Tokopedia, Grabmart and Shopee in 2020 sustainably to bring the complete online retail offerings sought after by most Indonesian consumers.
On its offline retail business, MPPA successfully closed 9 underperforming mall-located stores and opened new 9 stand-alone stores from previous Giant stores with encouraging results. The Management team believes that standalone stores with efficient store size and ample parking space at good locations will be the new choice for most consumers to do their household shopping activities going forward since it provides the convenience of faster shopping process. The Company will review for more opportunities to further close underperforming mall-located stores and replace with the opening of smaller-sized standalone store in the future.
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 and to capture the next growth phase opportunity in 2022 and beyond.
The Year 2021 also marked as an important year for MPPA as GoTo Group (“GoTo”), one of the leading operators of ride-hailing services, marketplaces and digital payment platform in Indonesia, officially became a shareholder of the Company. GoTo took shareholding from PT. Multipolar Tbk (“MPC”), the Company’s largest shareholder, with an effective 10.21% shareholding in MPPA at 2021 yearend.
The share purchase was already reported by the Company to Financial Authority Services (“OJK”), Indonesian Stock Exchange (“IDX”) and general public with the Company’s letter No. 104/X/2021-CSExt dated October 07, 2021. The BOD and Management team welcome GoTo as the official shareholder of the Company, together with MPC, where future potential opportunities would arise in strengthening MPPA’s omni-channel with the strengths of MPC and GoTo.
In December 2021, the Company successfully completed its rights issue process for the total amount of Rp 720.9 billion. MPC also contributed well to subscribe its shareholding portion as well as being limited standby buyer. This rights issue was an important foundation to sustain the Company’s capital base in order to support its next phase of growth. As of 2021 yearend, approximately Rp 263 billion of the fund proceed has been used for working capital and related fees associated with the limited public offering, which has also been reported to Financial Authority Services (“OJK”) with letter No. 004/I/2022- CSExt dated January 14, 2022. Another plan for capital raising in the form of private placement has also been approved by the shareholders and OJK, which could be exercised within the next 2 years representing another important foundation to support the Company in executing its retail business direction in the future.
The Company continued its unwavering focus and execution in realigning MPPA’s business strategy throughout 2021:
Strategy #1: Best Of Fresh Products As Top Priority Focus On Consumer Retailing
The Company believes that its retail business sustainability depends largely toward its prioritized focus in extending and developing its Fresh products assortments to meet the great household demand for quality food necessities as the modern lifestyle of most Indonesian consumers are now changing toward healthy living amid the Covid-19 situation. In 2021, The Company continued to strengthen its focus to Bringing Best of Fresh Products To Consumers as its business strategy fundamental. The execution of strategy realignment was continued as top priority being implemented into majority of Fresh products.
The Company believes that consumers nowadays buy Fresh Products more frequently than any other groceries, while they are likely to buy other groceries on their trips to buying the Fresh Products, hence it will eventually increase sales values.
To pursue this important strategy, the Company’s Merchandising team for Fresh Products has been improving its direct supply chain mechanism by working directly with local farms, fisheries, poultries and meat distributors for faster and fresher Fresh Products distribution to all stores. This led the Company to dominate the modern retailer fresh produce proposition nationwide, particularly in East Indonesia with the support of renewed distribution center in Porong, East Java and and new distribution center in Timika, Papua.
The collaboration with The Walt Disney Indonesia continued to receive positive responses from customers during the year. This exclusive collaboration has been continuing for more than 2 years and successfully brought the best Fresh products available in the market to meet modern customers looking for worldclass 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 characters. This is aimed to develop point of differentiation by marketing new exclusive product offerings (in particular to food products) which can drive foot-traffic into our stores, and to create excitement and enhance shopping experience for our customers through Disney themes and characters.
In order to drive Fresh Product sales from consumers, MPPA already received Halal Decree from The Assessment Institute for Foods, Drugs and Cosmetics of The Indonesian Council of Ulama (“LPPOM MUI”) in 2020, making it as the first and only modern retailer in Indonesia to receive the Halal Decree. The decree is in the categories of meat and poultries; fruits and vegetables; bakery and ready-to-eat (RTE) in all Hypermart, Foodmart & Primo, Hyfresh, FMX and SmartClub stores. MPPA also received the Food Safety and Quality Guarantee System for Processed Food (“SMKPO”) certification from the Head of Indonesian Food and Drug Supervisory Agency (“BPOM”) in 2021 while the Company continues to maintain its ISO 22000:2018 - Food Safety Management System, and ISO 9001:2015 - Quality Management System.
As the results of these efforts amid prevailing Covid-19 market condition, a highlight of the Company’s Fresh product achievements in 2021 was:
|Fresh products achievement||FY 2021||FY 2020||FY 2019|
|Contribution to Total Sales||27.5%||27.7%||24.0%|
The Fresh Products’ sales contribution to sales successfully increased from 24.0% in 2019 to 27.7% in 2020, despite the initial Covid-19 pandemic started to spread in Indonesia in April 2020. However, the sales contribution in 2021 decreased slightly to 27.5% due to supply chain issues relating to Covid-19 pandemic as well as shopping malls were shut down in Q3 2021 due to the peak of Covid Delta variant, and children under 12 year-old not allowed to enter the malls until Q4 2021 as regulated by the government. These eventually impacted the Fresh Products sales achievement as its biggest contributors coming from the food necessities of household families who had limitation in fulfilling their shopping needs during that time. As the government regulation starts to get relaxation in early 2022, the Company believes the Fresh Products would increase its contribution and performance within this year.
Strategy #2: Omni-Channel & Digital Payment Gain Traction As Key Consumer Retailing
In-line with the growth of consumer digital lifestyle in doing online transactions and mobile payment, the Company’s omni channel also gained traction in 2021 to become an important part of its overall consumer retailing strategy on sustainable basis beyond what can be realized by conventional offline stores.
In 2021, the Company marks an important milestone for the successful transformation of its online business as part of its omni-channel strategy with more expansion and collaboration with leading marketplaces in Indonesia making it as one of the Indonesian food retailers with most penetrated to online marketplaces.
The Company successfully continued reinforcing and expanding its organic online business, Hypermart Online and Chat & Shop by Whatsapp, which are available at 113 and 128 stores nationwide, respectively. In addition, the Company also continued expanding and developing its collaborations with more leading marketplaces in 2021 (GoMart, BliBli, JD.ID, HappyFresh and enlarged coverage of Tokopedia) in addition to its existing partnerships with Tokopedia, Grabmart and Shopee since the previous year. By 2021 yearend, the collaboration with these marketplaces already available at 637 virtual stores at those platforms, making MPPA as one of the respected FMCG retailer at online platform.
MPPA also successfully expanded the usage of digital e-wallet payments through the most recent partnership with one of the leading e-wallet platforms, GoPay which is a part of GoTo Group, in addition to the existing OVO, ShopeePay and Nobu QRIS. These mobile payments are integrated into the national QRIS platform, which supports online payments from various e-wallet and mobile banking platforms in Indonesia for further digital convenience and security to most consumers.
|MPPA’s Online Business Highlight||FY 2021||FY 2020||FY 2019||% Change
2021 vs 2020
|Sales (billion Rp)||444,6||195,7||2||127.1%|
|MPPA’s Online Store & Marketplace Partners|
|Chat & Shop||128||125||-||2.4%|
We are pleased to see a continued significant growth of online business to approximately 4.76% in Q1; 4.39% in Q2; 9.82% in Q3; 8.53% in Q4 and 6.7% of total sales in 2021 compared to 2.9% and less than 0.1% in 2020 and 2019 respectively. 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 2022 and beyond.
Strategy #3: Network Operation & Expansion Through Standalone And Cost Effective Smaller-Sized Stores
As consumers move into the New Normal era, the Company also needs to adapt its network operation and store expansion strategy to anticipate the new shopping preference and renewed lifestyle. The Company sees that gradual expansion of the smallersized (400-600 sqm) Hyfresh concept in standalone locations will be the optimal store size to sell fresh products whereby minimarkets are restricted.
This concept is targeted to open in city area where it can reap market share from traditional markets for vegetables, fruits, meats and poultry purchases, and the store is also well positioned to support the Company’s express delivery and pick-up services. Several larger Hypermart stores also went into remodeling to adapt to the smaller-sized yet more efficient operation.
Starting Q3 and Q4 2021, the Company successfully closed 9 underperforming mall-located stores and opened new 9 stand-alone stores from previous Giant stores, which consisted of closing and opening 7 Hypermart and 2 Hyfresh stores. Additionally, MPPA also opened 1 new store and remodeled 10 Hypermart, 1 new Hyfresh as well as closed 7 Hypermart, 6 Foodmart, 1 Hyfresh, 7 Boston and 1 FMX. Total capex spent amounted to Rp17.4 billion from initial capex budget of Rp 23.6 billion. As of December 31, 2021, the Company operates a total of 200 stores consisting of 101 Hypermart, 7 Primo, 12 Foodmart, 11 HyFresh, 55 Boston HBC, 13 FMX and 1 SmartClub in 71 cities across Indonesia.
Strategy #4: Building Sustainable Retail Management
The Company focuses its strategy to maximize efficiency and achieves cost leadership, supported by institutionalization of business processes and implementation of data analytics across organization as the key fundamental in building sustainable retail management.
MPPA put high priority toward leveraging data and building business intelligence system with values of data analytics platform to allow marketing strategies to be better tailored and utilized to support the Company’s growth and continuity. The expanded logistic network through the renewed distribution center in Porong, East Java and the new fourth distribution center in Timika, Papua will certainly improve MPPA’s fresh food leadership in East Indonesia through better direct sourcing capability and more efficient distribution shipment for reduced fuel consumption to support reducing the carbon footprint.
Improvement of human capital capability also becomes another important focus for MPPA to develop sustainable, knowledgeable work forces through investments in a series of trainings and development. Gender equality in employment becomes another focus to promote and accommodate women roles in career path within the organization.
In-line with the global initiatives for environment sustainability, the Company has put tremendous efforts in socializing and educating customers in reducing the usage of plastic shopping bags and switching to reusable bags for the last 2 years. Business travel activities were also converted into online meetings while electricity efficiency measures were continued to become important focus, in which these efforts are expected to support in reducing overall carbon footprint.
The Company’s focus to further develop and expand its online business also supports its business sustainability with the objectives for reduced usage of store electricity & air conditioning needs, more flexible operating hours to sustain the business, approach to digital payments to reduce bank notes and coins as well as reduced commuting from customers into stores for reduced carbon footprint.
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 2022, coupled with the unwavering focus of consumer retailing strategy will position the Company to regain its market leadership going forward.
Performance Highlights In 2021
Net sales reached Rp6.7 trillion in fiscal year 2021, which was slightly lower than sales achievement level in 2020. Despite higher sales contribution from online sales and more marketing intensive promotion and communication to consumers, the lower sales level was mainly contributed from Q3 period due to the peak of Covid-19 Delta variant where shopping malls had to be completely shut down, affecting stores’ business hours and customer traffics as the Government enforced the Emergency PPKM lockdown during that time. Children under 12 year-old were also not allowed to enter shopping malls until mid-Q4. These caused the overall lower consumer shopping and MPPA’s sales achievement as their mobility were limited in fulfilling their household needs in mall-located retail stores.
|In trillion Rupiah||FY 2021||% Sales||FY 2021||% Sales||Y.O.Y Growth|
The Company’s retail sales (excluding B2B in 2021 was Rp6.2 trillion compared to Rp6.3 trillion in 2020, which was 93% of total sales compared to 94% last year. In-line with focus to consumer retailing, controlled inventory purchases and pricing as well as cost efficiency measures despite slightly lower sales achievement, the Company was able to deliver gross profit reaching Rp 1.2 trillion, or 18% of sales compared to 19% last year and EBITDA profitability continued to deliver positive traction of improvement for the year.
In term of cost efficiencies, the Company continued re-examining its cost structure by looking at a number of operational efficiencies. In 2021, the Company was able to maintain total employees at the level of 8,704 people with greater focus on existing staff productivity and duty assignment. Other actions were also taken for unsupportable costs including a continued marketing promotion spend to cost-effective online, social media approach and community-based marketing. These efficiency measures resulted into approximately Rp193 billion savings on selling, general, and administrative expenses within the period.
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 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 2021, 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. Within the year, the temporary salary decrease of the BOD, Management Team and entire Company’s employees since last year due to difficult situation were partially restored throughout the year. This positive governance was well perceived throughout the organization as a confidence boost and corporate responsibility inline with the Company’s focused efforts to regain its sustainable retail business outlook.
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.
Food Safety and Quality Guarantee System for Processed Food Certification
MPPA received the Food Safety and Quality Guarantee System for Processed Food (“SMKPO”) certification from the Head of Indonesian Food and Drug Supervisory Agency (“BPOM”) in November 2021. This highlighted MPPA as the first multi-format retailer receiving the SMKPO certification for all of its store formats in Indonesia.
This certification is dedicated to retailers or distributors who distribute food products that they are required to have and fulfilled the food safety standards in accordance to the Implementation of Good Processed Food Circulation (“CPerPOB”) with national standard or have ISO 22000 Food Safety Management System certification with international standard.
Halal Decree by Majelis Ulama Indonesia (MUI)
In 2021, the Company continued to uphold the halal decree 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.
MPPA reinstated its “In-Store CSR Educational Fieldtrip for Children” in mid-Q4 2021 at Hypermart, Primo and Foodmart stores with health protocols as regulated by the government. MPPA also coordinated with Yayasan Pendidikan Harapan Papua (“YPHP”), a non-profit organization in Indonesia, to disburse food and daily necessities aid to the victim of Mamuju earthquake in Sulawesi island.
Other Social Activities
During 2021 the Company continued its coordination with Yayasan Lembaga Amil Zakat Infaq Dan Shadaqah Nahdlatul Ulama (“LAZISNU”) through “Program Infaq via Kasir” during the festive Ramadhan 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 YPHP to support the development of school infrastructure and children education in remote areas of Papua island.
Perspective for 2022
We believe that Indonesia’s economy will resume in 2022 as the rapid vaccination rate has been progressing well while the Government still monitors and enforces Covid-19 health protocols as well as giving financial incentives for the private sector to resurrect from the pandemic.
Moving into the New Normal era, MPPA is wellpositioned to capture its strong revenue growth and omni-channel potentials when consumer spending recovers. We are grateful to able to capture the opportunities in strengthening MPPA’s consumer retailing and omni-channel strategy during pandemic era in 2021. It brings the Company in a better position to further implement both online and offline business operational going forward. The expansion of Indonesia’s middle class, the increasing rate of urbanization, the ongoing shift to modern channels as well as the 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 200 multi format stores, an unparalleled world-class logistics infrastructure and employing directly 8,704 staffs and store associates. Looking to longer term, we view the Company will have a positive prospect with its aligned consumer retail strategy 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 2021, the BOD’s structure has changed to enable the Board to manage the execution of Company’s strategy more effectively. Suwartono SE and Wirawan Winarto were approved by shareholders to become the Company’s Directors, replacing the outgoing Andre Rumantir and Johanes Jany. Both Suwartono and Wirawan are experienced executives with professional long-term knowledge on store operational aspect.
Suwartono is the director responsible for the operation of Company’s Large Format (Hypermart) while Wirawan is the director responsible for the Small Format (Hyfresh, Primo, Foodmart, FMX). Their outstanding execution capabilities are needed to strengthen MPPA in this fast-changing yet difficult environment.
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 2022 forward. His retail expertise and disciplines bring valuable insights and solid teamwork for the organization in executing MPPA’s consumer retailing strategy.
The BOD 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