Indonesia franchise update
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Confidential: ©株式会社 大出版社 Dai Corporation co., ltd 〒 600-8412 京都府京都市下京区二帖半敷町 646 ダイマルヤ四条烏丸ビル 5F TEL: 075-361 1171 Page 1 Indonesia is Southeast Asia’s largest economy and though the beginning of this year, 2015, was not the best start for Indonesia-growth slowed to a near 5 year low and consumption was at a 4 year low-the overall economic forecast remains strong. The International Business Report recently produced by Grant Thornton indicated that business optimism in Indonesia in Q1/2015 rose to 68 percent, up from 14 percent in Q4/2014, whilst IHS Global Insight predicts that Indonesia is set to become Asia’s next tri llion dollar economy with GDP hitting $2.1 trillion dollars by 2023. "The Indonesian economy has the capacity for robust long- term economic growth of around 5.4 percent per year over the 2016 to 2020 time horizon," said Rajiv Biswas, chief economist, Asia-Pacific at IHS. Moreover, Indonesia's GDP per capita is forecast to rise to $8,700 by 2025. Why this is of particular importance to franchises is that it will create a new market of consumers with greater quantities of disposable income. These consumers will be new entrants, relatively young, and open to trying new brands before becoming loyal to their chosen brands. This “experimenting period” is a key opportunity for brands to persuade consumers to become loyal to their brand, create a long term consumer relationship and therefore have high customer lifetime value. With regards to Indonesian consumers, they are less price conscious than their Asian counterparts and instead place higher value on quality and durability. Another main purchase driver is brand image. They view brands as an extension of themselves and as a status symbol among their peers. So for franchises, the overall economic market looks good and has growth potential. In 2012, there were more than 2,000 franchises-including licensed businesses-more than double from two years before, with an estimated combined revenue of Rp 115 trillion (US$11.74 billion) (Indonesian Committee for Franchises and Licenses). More recent data, according to the Chairman of the Indonesian Franchise Association Mr Anang Sukandar, says the franchise industry contributes Rp 172 trillion (US$13 billion) turnover annually. Within the industry there are around 400 overseas franchises. The majority of the existing franchises originate from the United States, South Korea, Japan, Australia and Europe. However the full implementation of the Association of South East Asian Nations (ASEAN) in 2016 will ease entry to a consumer market of more than 250 million people and we will see an increase in foreign franchises
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Transcript of Indonesia franchise update
Confidential: ©株式会社 大出版社 Dai Corporation co., ltd 〒600-8412 京都府京都市下京区二帖半敷町 646 ダイマルヤ四条烏丸ビル 5F TEL: 075-361 1171Page
1
Indonesia is Southeast Asia’s largest economy and though the beginning of this year, 2015, was not
the best start for Indonesia-growth slowed to a near 5 year low and consumption was at a 4 year
low-the overall economic forecast remains strong.
The International Business Report recently produced by Grant Thornton indicated that business
optimism in Indonesia in Q1/2015 rose to 68 percent, up from 14 percent in Q4/2014, whilst
IHS Global Insight predicts that Indonesia is set to become Asia’s next trillion dollar economy with
GDP hitting $2.1 trillion dollars by 2023. "The Indonesian economy has the capacity for robust long-
term economic growth of around 5.4 percent per year over the 2016 to 2020 time horizon," said
Rajiv Biswas, chief economist, Asia-Pacific at IHS.
Moreover, Indonesia's GDP per capita is forecast to rise to $8,700 by 2025. Why this is of particular
importance to franchises is that it will create a new market of consumers with greater quantities of
disposable income. These consumers will be new entrants, relatively young, and open to trying new
brands before becoming loyal to their chosen brands.
This “experimenting period” is a key opportunity for brands to persuade consumers to become loyal
to their brand, create a long term consumer relationship and therefore have high customer lifetime
value.
With regards to Indonesian consumers, they are less price conscious than their Asian counterparts
and instead place higher value on quality and durability. Another main purchase driver is brand
image. They view brands as an extension of themselves and as a status symbol among their peers.
So for franchises, the overall economic market looks good and has growth potential. In 2012, there
were more than 2,000 franchises-including licensed businesses-more than double from two years
before, with an estimated combined revenue of Rp 115 trillion (US$11.74 billion) (Indonesian
Committee for Franchises and Licenses). More recent data, according to the Chairman of the
Indonesian Franchise Association Mr Anang Sukandar, says the franchise industry contributes Rp
172 trillion (US$13 billion) turnover annually.
Within the industry there are around 400 overseas franchises. The majority of the existing franchises
originate from the United States, South Korea, Japan, Australia and Europe. However the full
implementation of the Association of South East Asian Nations (ASEAN) in 2016 will ease entry to a
consumer market of more than 250 million people and we will see an increase in foreign franchises
Confidential: ©株式会社 大出版社 Dai Corporation co., ltd 〒600-8412 京都府京都市下京区二帖半敷町 646 ダイマルヤ四条烏丸ビル 5F TEL: 075-361 1171Page
2
from the members of the ASEAN. The main franchise sector is food and beverages and the vast
majority of new franchisees are seeking franchises within this sector.
Domestic Indonesian brands are also starting to look outwards and at the recent Philippine
franchise Expo the Indonesian pavilion showcased eight brands seeking expansion opportunities.
The pavilion was supported by the Embassy of Indonesia in Manila.
Overall government support for the franchise industry is good but there is still very much a grey
area concerning the 80% local content rule. Due to domestic supply-side problems a franchise that
demands a uniformed product and standards across all their branches may find this an obstacle.
We understand the need to promote domestic production and Made in Indonesia but this has to be
carefully balanced against creating entry barriers for foreign brands.
Despite the above, demonstration of a growing franchise opportunity can be seen by recent
franchise activity:
7-Eleven convenience stores in Indonesia reported a 7% increase in profit for Q1 2014 and
plans to carry out an expansion strategy that will see it add 200 new outlets to its existing 161
by the end of 2014.
Quiznos has announced plans to open 100 units by 2023.
Yum! Brands’ saturation of 2-3 stores per million people in Indonesia is poised to rapidly
expand to a level closer to the US ratio of 50-60 eateries per million people (Bloomberg).
Wingstop with PT Mega Mahadana Hadiya (Mahadya) plans to open 100 locations over the
next seven years.
Cooks Global Foods will see a minimum of 40 Esquires Coffee Houses open.
SugarBun aims to open 20 new outlets by 2018.
Jamba, Inc. (JMBA - Snapshot Report) recently announced that it has entered into a master
franchise development agreement with PT Sari Gemilang Makmur to develop 70 Jamba Juice
stores in Indonesia over the next 10 years.
Confidential: ©株式会社 大出版社 Dai Corporation co., ltd 〒600-8412 京都府京都市下京区二帖半敷町 646 ダイマルヤ四条烏丸ビル 5F TEL: 075-361 1171Page
3
Flavored french fries retailer Potato Corner is planning to expand 10 stores overseas- all be
located in Indonesia.
Overall Indonesia definitely has market potential for franchise brands.
