YOGYA GROUP STRATEGIC OBJECTIVE AT RISK

“TAKING YOGYA GROUP TO THE NEXT

LEVEL”

YOGYA GROUP is faced with savage competition, with price war being
carried on the competition rivals are pushed to lower their price in order
to remain competitive to their customer. Profit margin is diminishing, even
in some products they have to reduce their price below their marginal cost
just to keep their customer out of their rival’s territory. Now profitability is
very difficult to retain. YOGYA GROUP needs to make action towards this
severe condition. There are not many options, whether to achieve cost
leadership or make a significant differentiation to keep the firms alive and
achieve their strategic objectives.

RETAIL BUSINESS IN INDONESIA

Retail business is direct sale of goods in any type of outlet such as

kiosk/stall, traditional/modern market, department store, boutique, etc
including delivery service, which generally supplies for purchasers
personal consumption.

Retail business in Indonesia can be classified into two main groups, i.e.
Modern Retail and Traditional Retail.

Modern retail is basically an expansion of traditional one. This retail

format emerged, growing side by side with economic, technology
developments, as well as changing in society life style which demands a
more comfortable shopping experience.

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Modern retail first emerged in Indonesia when Sarinah Department Store
was established in 1962 and this system continued to grow during 1970-
1980. Early 1990 is a milestone for foreign retailer entrance into
Indonesia, marked by the first operation of the largest Japanese’s retail
chain ‘Sogo’. Modern retail grew rapidly when the Government, by
President Decree No. 99/1998, removed the retail business out from
foreign investment negative list. Before the decree was issued, there were
very few foreign retailers operated in Indonesia.

At present, there are various types of modern retail ranging from Modern
Market, Supermarket, Department Store, Boutique, Factory Outlet,
Specialty Store, Trade Centre, and Mall / Super Mall / Plaza. Growth of
these types of modern retail outlets will continue to follow economic
development, technology and demands made by society lifestyle.

Challenges in Retail competition

Afterwards, Retail Market, which has experienced high performance, will

face several challenges. One of the major challenges will be the possible
slowing down of turnover growth as an impact of economic slowdown due
to 2008 global crisis.

At present, people’s purchasing power has been affected and is predicted

to continually decrease due to the slowing down of economic growth.
However, as Modern Market offers consumer’s basic need, this type of
market is forecasted to remain developing, although not as high as
before. If during 2004-2008 modern market turnover grew on average
20% per year, thus, in 2009-2010 - when the negative impact of global
crisis on real sector reach its peak, turnover of modern market is
forecasted to increase at only 5-10%. Yet, as global economy improves, by
year 2011, turnover growth will bounce back to its level of growth as
before global crisis.

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Another challenge comes from regulatory framework. A fact that
Traditional Market is weighing down gradually, which is shown from
declining of their turnover and the lesser consumers shop in Traditional
Market, have forced the Government to issue several policies that
regulate harmony between Modern Market and Traditional Retail.

YOGYA GROUP
Back sixty years ago, Gondosasmito established Toko Djogdja in Kosambi,
Bandung. The shop was focused on Batik which made in solo and
Yogyakarta. at that moment they still taking goods from Cibadak with a
real minim capital not rarely payee behind a.k.a owes at the shop owner .
The Shop was 100 m2 large with only ten workers. The shop managed to
hold out to twenty four years without significant progression. Changes
was finally occurred when Boedi Siswanto Basuki join the family business.
He married to Gondosasmito’s daughter, Tina Handayani. The Shop enter
its new regime under Boedi siswanto’s control. a big opportunity come
when Budi Siswanto Basuki the owner of Djogdja is offered a land in
Sunda street, blessing of saving which he has save for many years he
finally bought that land. And that is the first breed of Djogdja, Named
Toserba Yogya, located at Jln Sunda 60 Bandung, 300 m2 large with 40
workers.

To cope with the existing competition, Toserba Yogya begins its expansion
outside Bandung. At the beginning of 1984 Toserba Yogya established its
branch in Cirebon. Four years after Cirebon expansion Yogya spread it
wings to Tasikmalaya, followed by Sukabumi, Jakarta, sumedang,
kuningan, indramayu, majalaya, Garut and subang.

When monetary crisis knocks over Indonesia Yogya almost experiences

bankruptcy but blessing of sprier and readiness of thinking from the
owner and his team Capability and Character which strong Yogya
successfully rise and reach feather in one's cap though resides in middle

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of incursion minimarket and Hypermart which many spread over in
Bandung, now Yogya has around 52 store which spread over in West Java.

In Indonesia the competition draw both Supermarket and hypermarket in

to the same battle. Hero, Superindo, Giant, Carrefo, ur are counted as
rivals in the competition. Within group of supermarket there are six major
player i.e. Hero & Giant, Carrefour, Superindo, Foodmart, Ramayana,
Yogya & Griya. These six retail networks account for 76% supermarket
turnover in Indonesia, as displayed on the following table.

Supermarket Market Share 2008

NO Supermarket Share

1 Hero + compact Giant 14,61 %

2 Carrefour 13, 95 %

3 Superindo 13, 35 %

4 Foodmart 12,19 %

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 5 Yogya Group 11,62 %

6 Ramayana 10,61 %

7 Others 23, 67 %

Source : Media Data 2009

YOGYA GROUP’S STRATEGIC OBJECTIVES

Vision : Constantly being customers number one choice

Mission : Loyal to fulfill customers demand

Yogya group established its corporate strategy 2009 into two main
objectives. To achieve 17.5% annual sales growth and to achieve
merchandising excellence measured by detailed SKP (Stock keeping
period) for the inventory of each type of products (food : 23 days, nonfood
: 27 days and Households/GMS : 50 days). By maintaining growth of sales
and ideal SKP it is expected to keep the firm financially healthy so they
can sustain the appalling competition they are currently facing.

To support their effort to achieve the desired goals, Yogya Group weaved
3 moral philosophy values to their daily operation activities. Honesty,
loyalty and modesty.

What Yogya Group have done : Cost leadership

Yogya Group has claimed to have been striving for cost leadership to
achieve its strategic objectives. From the upstream process to the
downstream process, yogya group work everything they can to reduce
costs while on the other side, service level is still subject to their primary
concern. It improve its traditional supply chain to get the advantage.

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Yogya Group believes that in order to achieve cost leadership there are
sources of cost advantages that could be utilized by firms in retail
industry. Not as much like in manufacturing industry, there are only few
sources that are available for firms in retail industry to exploit, as in retail
industry the value chain process are cut and shortened. There are only
few nested processes in every steps of process in completing the supply
chain. There are supplier relationship, purchasing, inventory
management, Sales and operations and customer relationship. These are
sources of cost advantage that have been wielded by Yogya Group :

1. Technological software of firms such as quality of relations among

labor and management and Organization culture. In Yogya Group
the quality of relationship among the worker and management are
superbly maintained. There are strong kinship surrounds the daily
working attitude at yogya group. By developing strong kinship
among the firm it will reduce possible and labor cost such as cost of
high employee turn over. There are three core corporate value at
Yogya group, Honesty, Loyalty and modesty. Those three core
values contribute fair cost reduction to yogya group’s cost reduction
objective. It will prevent workers from stealing, reduce cost of poor
service quality provided by employee to customer and helps
Manager to maintain labor cost at reasonable and fair level.

2. Supply chain activities, Starting from Purchasing, distribution

system, inventory management to the Sales and operations

Yogya Group believe that cost leadership strategy work best when there
are only few ways to achieve product differentiation that bring value to
the customer, when the competition is very tight, price war occurs, and
profit margin are diminishing. Those are conditions the are facing.

Yogya group always make sure they have fair and beneficial contract with
their supplier. If they can assure this, it will support their cost cutting
policy on daily basis. Here is the description on how beneficial contract
could help the firm to maintain it low cost operational.

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 1. With beneficial contract we can make sure that lead time of
delivering goods ordered will not took very long time before we can
receive the ordered goods. With lead time beneficial to our
operations Yogya can prevent Stock Out cost and making a lean
inventory system.
2. When receiving goods,Yogya double check the goods and matched
it with purchase order, if there is spoiled or wrecked goods detected,
beneficial contract could approve us to return those particular goods
back to the supplier, so we prevent cost of shrinkage.
3. Beneficial contract help Yogya to maintain and control its cash flow,
they usually calculate the stock keeping period of selected goods
and push term of payment to be longer than the stock keeping
period as possible.

Within The operational processes, Yogya pressed down their overhead

cost to retain profitability. In each divisions cost prevent action and cost
decompression is valued at every activities. But not all employees
understand the importance of this philosophy. Yogya still need to enhance
their employees understanding about cost leadership. Regular training
and development scheduled for their employees. On those training, The
management always remind and weaved the importance of cost
leadership attitude among the employee.

Is it enough?

Retail industry which Yogya group have been facing from beginning, have
come to the point that the competition is savage and profit margin from
each products they sell is diminishing. This problem is also faced by Yogya
Group rivals such as Hypermart, Carefour, Superindo and Giant. Especially
in West Java, The only region that Yogya Group is operating, every
retailer have to press down cost so they can improve their pricing strategy
and profitability. Apparently, what Yogya has been doing is also been

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done by the competitor. Event the Operational Director is having a
headache thinking new ways to get on top over his rivals. “What we do,
everyone can do, and we will do, everyone is going to do it too” said the
gentleman. It appears that all of the competitors in the industry have the
same ability or access to its supplier and customer. “there’s nothing else
that we can do to create distinctive advantage to win the market share
over the rivals! All we do is keep press down costs and keep an eye of
what our rivals do. If it means to drop the price below the marginal cost
temporarily for specific product, then we must do it. Otherwise they will
get the big pie, not us!”

The cost leadership is no longer cost leadership if everyone is equally

adept on doing it. It is actually no longer provide Yogya a strategic
advantage over its rivals. It is not enough if Yogya are going to achive
their strategic objective, 17,5% growth of sales. Carrefour have done so
well on their one stop shopping trends, Private labeling and cost
leadership. Is it enough for them? Rivals are now doing the same thing. If
it is not enough then maybe Yogya have to look the other way. It is
difficult time for Yogya and there is nothing much that Yogya could do in
this competition except doing what the others going to do and so on.
While there is plenty of area available for expansion, should Yogya
continue to survive the war at west java retail competition? Or they could
take a chance on expanding their flag to other regions with risk of new
market that doesn’t even know that they are exist…

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Teaching Note
Case Synopsis

This case describe how Yogya Group strive to achieve its strategic
objective i.e. 17,5 % sales growth by focusing on Cost Leadership while
the competition among rivals is very tight and that everyone have the
same strategy on dealing with rivals and to achieve their strategic
objective.

Teaching Objectives

This case was written for Strategic management class in Magister

Management at Parahyangan Catholic University, Bandung. It gives
students a chance to develop their analytical and conceptual skills
concerning the retail competition faced by Yogya with their Cost
Leadership strategy.

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Immediate Issue

In current conditions of the competitions, Everyone on the competition is

doing the same thing while there is not much options to differentiate from
others. This Create a conditions of where Profit is diminishing and difficult
to achieve their strategic objective.

Basic Issue

1. Strategic Advantage (Cost Leadership)

2. Strategic Objective at risk

Suggested Student Assignment

1. Do you agree that there is not much options left for Retailer in
West Java to get a Strategic Advantage over its rivals ?

2. What is the biggest risk that Yogya Group will face if they are to
stay in west java competition? How should Yogya Group Act?

Case Analysis

Competition is made not to be perfect, there will always be leader and

follower, it is supposed to be dynamic. Every firm has its own core
competencies, then from this competencies value creation are supported.
What occurs in retailer industry seems to be a headache to every
manager involved. Profit margin is limited, even low operational cost focus
still could not give them cost advantage as all players have same
capability to press its operating cost. By the way, it is depend on the
commitment of the management on how they see the word cost
leadership. If the words only means words not as policy or a matter that
have to be concerned in every business decision, then I’ll say they don’t
really understand the absolute needs of cost leadership. It needs long
time commitment and control. It needs real daily basis control and report.

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It needs evaluation and mitigation. Giving training regularly doesn’t
always prove to be effective. If we are going to give training, then we
need feedback. How to get feedback? We need to give target and
evaluation to the employees.

I am not quite agree that there is not much options left for retailer to
differentiate, there is always a way. By using the correct tools we can
identify further actions that we could take. We identify our positioning and
we take it to the next level.

It is true and normal if rival keeps their eye on their opponents, watching
what they do and imitate, analyze what they are going to do next and
steal their moment. It is true that the competition is not very friendly but I
think Yogya Group could still improve and do better.

Evaluating their products would very helpful in reducing cost. Product

review should be scheduled more often and customer survey should
determine customer needs deeply. Fixing basic needs of customer that
have been problems (parking lot) will also benefit Yogya in the long run.

1. Do you agree that there are not many options left for
Retailer in West Java to get a Strategic Advantage over its
rivals?

I don’t agree….. When there is a will, there is a way… Here

is my plan….

PLAN A
Continue being committed into cost leadership would be a good
answer when firm’s financial positions are not adequate to
support market development (geographical expansion). It is

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difficult to keep up with fierce competition, and players hope that
they never get trapped in a dilemma between low costs and good
quality. Once they have determined to go for this approach, then
here are aspects that need our attention so we can make this
strategy work for your business.

Technological improvement, being a low cost provider requires

plenty of flexibility in product procurement. We need to be able to
respond quickly to shifts in market dynamics. Therefore, we
cannot afford to maintain expensive equipment designed to
manufacture specific products. Sell off such equipment or
unnecessary components. Invest your capital in other technology
areas such as coming up with innovative techniques for cost
reduction.

Evaluate our products periodically, take a look at our existing

product, and determine whether your targeted market segment
really needs its existing attributes. Often, price-sensitive
customers want products that fulfill their promise of delivering
one result. The other add-ons, which are costing you and also the
customer, are not needed. Think simple.

Find cheaper materials for internal work processes. Expensive

materials don’t necessarily mean good quality, while lower prices
don’t always equate to inferior quality. Never compromise on
quality. It pays to do your research and test some inexpensive
available materials for usage in your internal activities. In the long
run, your business becomes more cost-effective, and thus in a
better position to continue your low-cost leadership strategy. This
will press down our overhead cost.

We don’t have to spend millions on advertising. Price tag already

obtains attention from consumers. We do not need to spend huge
amounts of money on marketing to create more hype for your
brand. I am not suggesting that you cut out marketing totally, but
that you spend only on what’s definitely going to benefit your

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 sales. For example, reach out to your customers by providing
samples of your new and improved product, emphasizing the
attractive price, and give a few clues on how you manage to offer
this price. In addition, Yogya group has its own first mover
advantage which gave them the lead in winning customers heart
and stronger customer brand awareness.

People are wary of things that seem inexpensive yet claim to be

of good quality. It is thus important to communicate to them that
you have implemented a new production process that allows
production costs to be cut, for example. They want to believe you,
and you need to provide information to back your business up.

Your position as a low cost provider gets stronger as you build up

your business’ cost effectiveness. I talked about evaluating your
technological capabilities in the first point, because I believe that
external factors are susceptible to changes, and these changes
can come on suddenly, such as a price hike from raw material
suppliers. Therefore, maintaining internal efficiency is the most
important way of achieving cost effectiveness for your business.

PLAN B
If the financial conditions provide possibility for Yogya to develop
its market, than we should use strategic tools like ansoff matrix to
determine the next step.

To portray alternative corporate growth strategies, Igor Ansoff

presented a matrix that focused on the firm's present and
potential products and markets (customers). By considering ways
to grow via existing products and new products, and in existing
markets and new markets, there are four possible product-market
combinations. Ansoff's matrix is shown on the next page:

Existing Products New Products

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 Existing Markets Market Penetration Product
Development

New Markets Market Diversification

Development

Ansoff's matrix provides four different growth strategies:

1. Market Penetration - the firm seeks to achieve growth with

existing products in their current market segments, aiming to
increase its market share.

2. Market Development - the firm seeks growth by targeting its

existing products to new market segments.

3. Product Development - the firms develops new products

targeted to its existing market segments.

4. Diversification - the firm grows by diversifying into new

businesses by developing new products for new markets.

Selecting a Market Growth Strategy

The market penetration strategy is the least risky since it
leverages many of the firm's existing resources and capabilities.
In a growing market, simply maintaining market share will result
in growth, and there may exist opportunities to increase market
share if competitors reach capacity limits. However, market
penetration has limits, and once the market approaches
saturation another strategy must be pursued if the firm is to
continue to grow. The competition has reached the phase that it
is very hard to get result in growth if we are still doing market
penetration. While there is another option provided by ansoff, let
see the next adequate option below.

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 Market development options include the pursuit of additional
market segments on other geographical regions. The
development of new markets for the product may be a good
strategy if the firm's core competencies are related more to the
specific product than to its experience with a specific market
segment. Because the firm is expanding into a new market, a
market development strategy typically has more risk than a
market penetration strategy. But on the other side Pursuing
additional market on other geographical regions would pay off
more and growth is very likely to be reached.

1. What are the possible risk that Yogya Group will face if
they are to develop its market on other geographical
regions? How should Yogya Group Act?

From a business perspective, staying with current existing product in

current existing market is a low risk option, we know how the
competition works, and the market holds few surprises for us

However, we are going to expose ourselves to a whole new level of risk

either moving into a new market with an existing product, or developing
a new product for an existing market. The market may turn out to have
radically different needs and dynamics than you thought, or the new
product may just not work or sell. And by moving two quadrants and
targeting a new market with a new product, you increase your risk to
yet another level.

We ought to manage the risk appropriately. For example, if we are

switching from one strategy to another, make sure that we research the
move carefully, that we build the capabilities needed to succeed in the
new strategy, that you've got plenty of resources to cover a possible
thin period while you're developing and learning how to sell the new
product, or are learning what makes the new market tick, and that you
have firstly thought through what you have to do if things don't work
out, and that failure won't "break" you.

There is always ways to handle risk, here are steps of handling risks:

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1. Identify strategic risk and functional risk
2. Measure the risk identified
3. Monitor the risk
4. Control the risk
5. Embed risk awareness in organizational culture

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