Indonesia Franchising Made Easier
Regulatory reforms make Indonesia’s franchise market more attractive by easing local content requirements, removing the 250 outlet cap, and allowing more than one master franchisee.
Indonesia’s franchise market has been attractive for many years but regulatory reforms that took place in 2019 make it even more attractive. There are many opportunities for innovative restaurant concepts to gain a foothold and grow in Indonesia. Potential franchisors should consider the needs of a young, digitally savvy consumer base with growing spending power. Beyond food franchises, there are also opportunities for entertainment, training, home services, and security franchises.
The Ministry of Trade Republic of Indonesia issued Regulation No. 71 of 2019 on Franchise operations in September 2019. This new regulation simplifies the requirements for franchisees in Indonesia compared to the previous regulation. The previous regulation required both franchisors and franchisees to comply with challenging requirements, such as 80% local content requirements, a cap of 250 on the number of outlets, and clean break letter for unilateral termination. The new regulation removed these restrictions.
- Local Content Requirement Eliminated: The new regulation still encourage foreign brands to use domestic goods and/or products as long as such good/products meet with the quality standard required by the franchisor but the previous 80 percent rule is no longer applied.
- No Limitation of Outlets: the new regulation removed the 250-outlet cap.
- Language of Franchise Agreement: The new regulation requires all agreements be made in Indonesian language
- No Clean Break Letter: The new regulation does not have a requirement to have clean break letter for a unilateral termination.
- Appointment of More than One Franchisee: The new regulation allows a franchisor to appoint more than one master franchise.
- Validity of STPW (Franchise Registration Certificate): The previous regulation stated the STPW was valid for five years. The new regulation does not specify a length of time.
- OSS System: The new regulation is now included in the Online Single Submission (OSS) system, which streamlines applications. This system is used to apply for an STPW Franchise Registration Certificate.
The Indonesian food service industry’s compound annual growth rate (CAGR) was 4.2%% from 2015 to 2018, reaching US $49.5 billion in annual sales. During this period, the industry realized significant growth in fast food, cafes/bars and the home delivery market. Home delivery was spurred by the availability of the mobile phone application Go-Jek, which gives consumers the ability to order food via motor cycle delivery drivers. Franchise investors may need to consider ways to adapt their food menus to the Indonesian palate. For example, Indonesians often favor spicy and salty foods and stay away from items that are too sweet.
Demand for foreign franchises has been very strong for the past decade. The country has recorded impressive consumer retail spending growth mirrored by tremendous shopping center development in large cities. Major urban areas with greatest middle-class population are Jakarta, Bekasi, Surabaya, Bandung, Tangerang and Medan.
Many large Indonesian business groups have diversified their operations to include franchisee operations. These companies are mainly interested in well-established franchises with a strong brand and track record. While it may be easy to find partners capable of launching 1 – 2 stores, there are fewer potential partners capable of launching on a larger scale.
Franchisors should consider attending major franchise trade events, such as the International Franchise, License and Business Concept Expo & Conference or the Franchise and License Expo Indonesia, both of which are usually held at the Jakarta Convention Center. Valuable assistance can also be obtained from the Indonesia Franchise Association.
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