On the rise

By webadmin on 01:05 pm May 04, 2012
Category Archive

Muhammad Al Azhari

It may not be a first-choice pick, but bread, with Sari Roti loaves leading the charge, is making significant headway into the Indonesian diet – and its maker Nippon Indosari Corporindo is reaping the rewards.

With rice being served at most meals every day across the archipelago Nippon Indosari Corporindo, doesn’t have any illusions about its plance in the Indonesian diet. “We don’t dream that breads will become the staple food of Indonesians,” said Yusuf Hardy, 10-year veteran of Nippon Indosari Corporindo, the company behind Sari Roti ready-baked bread loaves told GlobeAsia in an interview on April 11.

“We have always promoted that bread is a complementary food which is handy and provides enough calories for people,” he said.

High potential

Nippon Indosari, which was co-founded by Wendy Yap, currently president and chief executive officer at the company, knows all the tricks to selling bread to Indonesians, as well as building trust with retailers and customers by through strong distribution lines for its highly-perishable products.

The company was incorporated in Indonesia in 1997. It is now the only publicly listed bread maker in Indonesia and the largest maker of breads in the mass production category.

“The most difficult part of doing this business is to distribute the products. Our product lasts only four days, people in the operations must have the capability and experience to deliver it in time to customers,” said Yusuf.
Sari Roti is not alone in this business. It is competing with home or small producers, other mass producers for breads, and boutique bakeries.

State brokerage Danareksa Sekuritas wrote in its equity research, when it initiated coverage on Nippon Indosari’s stocks on January 26, that “the home or small producers comprise around 5,000 players with distribution coverage up to 5 to 20km from their factories. The bread is not branded.”

Meanwhile in the mass producers segment, there are a few companies that have distribution coverage of up to 200km to 300km from their factories. They generally use a specific brand name.

And then there are the boutique breads, made by local producers such as Holland Bakery or Singapore-based BreadTalk.
Still, Nippon Indosari has been successful enough to book a revenue growth of 35% per year on average since 2007, according to Danareksa’s calculation.

Said Yusuf: “Many companies started before us. However, they usually have problems accessing the capital [to expand] and lack the willingness to grow outside of their territory.”

Nippon Indosari, with 19 different bread products and flavors coming out of six factories, now controls a 90% market share in the mass production category. The company is also affiliated with the Salim Group, one of Indonesia’s biggest conglomerates whose businesses including Indofood Sukses Makmur, the world’s biggest instant-noodle maker, and Bogasari, a giant flour-milling operation.

One of its key strategies is that Nippon Indosari sells more than a third of its products through modern distribution channels; among its network are minimarts such as Alfamart and Indomaret, and supermarkets such as Hero and Carrefour.

After 15 years of operation, Nippon Indosari has grown the number of outlets to around 30,000 all over the nation. This figure includes private shops, school canteens and hospital canteens. There are also 2,500 street hawkers who sell Sari Roti.

“We are in everywhere,” said Yusuf proudly, adding: “The good thing about our outlets is that when they expand, we also grow.”
Shikishima Baking Company, the second-largest bread company in Japan, which is also a substantial stakeholder in Nippon Indosari, has been contributing significantly with technological support and good corporate management, Yusuf added.

On the rise

According to Danareksa, Nippon Indosari boasts another benefit as a food company: it “has been able to pass on all of its higher raw material costs to customers and still generates strong revenues. The company’s pricing policy is to adjust prices every two years.”

Danareksa was citing to information from the company’s management that showed Nippon Indosari’s revenues grew by 27% and 26% in 2008 and 2010 respectively, despite price increases of 30% and 10% in those respective years.

Supported by Nippon Indosari’s success so far, Yusuf believed the growth story for the company would continue, with three factories that opened last year set to be joined by two new ones this year, in Palembang, the capital of South Sumatra, and Makassar, South Sulawesi’s capital. The two new factories will cost Rp200 billion.

His confidence is backed by the fact that an Indonesian middle class that is expanding rapidly – in more ways than one – will contribute to demand that could drive net income up 13% this year.

“Consumption of breads here is still low. I believe a stable 30% growth in revenue per year is achievable,” Yusuf said.
According to data from Euromonitor, a market research provider, Indonesians consumed 1.7kg of bread per year in 2010, far lower than neighboring Malaysia at 5.9kg.
Yusuf said strong sales made possible by the new factories would translate into 11% to 13% growth in net income.

Nippon Indosari booked Rp116 billion ($12.6 million) in net income last year, up 16% from 2010. This net income growth was supported by a 32% rise in sales to Rp813 billion last year.

The attempts by Nippon Indosari to expand Indonesians’ bread consumption comes at a time when the government, through Trade Minister Gita Wirjawan, is attempting to wean the nation off rice, another product rich in carbohydrates.
While Gita’s preferred alternative is cassava, bread may also play a role. ROTI share prices remained unchanged at Rp3,925 per share on Thursday. The shares have gone up 18% this year.