An important change will be made to the ministerial regulation that deals with the franchise businesses and traditional markets in Indonesia. Indonesian Trade Minister Muhammad Lutfi said that the government plans to adjust a retroactive clause formulated in Ministry of Trade Regulation No. 7 Year 2013 on Partnership Development in Franchise Business Services for Food and Beverages (Permendag Nomor 7). Initially this clause limited franchise ownership to a maximum of 250 outlets, forcing big franchisees to confirm to new requirement.
However, the revised regulation will stipulate that only new companies are required to comply with this clause. For major multinational companies already active in Indonesia and that exceed the imposed limit this is good news as they will not need to divest ownership to local businesses within a five year-period.
Another regulation that will be looked into is the provision which obliges modern retailers to stock 80 percent locally supplied goods. This regulation would be a problem for Mitra Adiperkasa, the master franchise contract holder for Burger King in Indonesia, because it would not be able to locally source enough beef for its outlets. Relaxation of this local content requirement is possible but the original regulation does not state clearly in which situations relaxation would be allowed. The Indonesian government will now address this issue to make the regulation more transparent.
With a rapidly expanding middle class and higher purchasing power, Indonesia’s retail sector has expanded considerably, including the franchise business. Permendag Nomor 7 was introduced to prevent development of monopolies in the attractive mini-market and fast food chain industries as well as to support increased involvement of local small and medium enterprises. Hundreds of master franchisees emerged in Southeast Asia’s largest economy in the past decade. Three of the largest players in this industry are Mitra Adiperkasa, which controls licenses for Burger King, Domino Pizza and Starbucks; Modern Putra Indonesia, which operates 7-Eleven stores; and Fastfood Indonesia, master franchisee for KFC and other Yum! Brand firms in Indonesia.
Foreign brands perform well in Indonesia as Indonesian consumers regard these brands as higher quality compared to local brands, although sometimes adjustment to local tastes are required. For example, fast food chains such as McDonald's and Burger King would probably be less popular in Indonesia if they did not serve rice.