Blog 12 Jun 2017 Updated 17 Jan 2020 Indonesia An Insider’s Guide to Cracking Indonesia’s F&B Scene Share: Looking to invest in the F&B market in Indonesia? Here is an insider’s guide to help you navigate the sector adroitly. We recently organised an in-market iAdvisory workshop to Jakarta for over 20 Singapore companies interested in venturing to Indonesia’s F&B market. Here are the key takeaways from our event. Common Food Preferences Convenience sells: Food delivery services such as GO-Jek are becoming more popular Extended dining hours: More eateries are catering to those who deliberately wait out Jakarta’s peak hour traffic jams Niche focus: Speciality shops such as artisanal coffee houses are favoured over mass market chain outlets Your options for entering the Indonesia market We spoke to key executives from Angeline Suparto Law Corporation and PT Boga (an existing F&B operator who manages Paradise Dynasty, Sushi Tei, Bakerzin and Pepper Lunch etc) who shared their thoughts on Indonesia’s F&B scene. Via subsidiaries or JVs With most businesses (except bakeries) within the F&B sector recently removed from Indonesia’s Negative Investment list (DNI), 100% ownership of cafes and restaurants is permitted for foreigners. However, a minimum investment of 10 billion rupiah (approximately S$1m) is still required. Of this amount, 25% has to be registered as paid up capital. Companies are given 60 days to fulfil the initial requirement, and up to a year to realise the remainder investment. The Principle License received during the incorporation process allows companies to start investing in Indonesia. However, operations can only commence when companies have successfully received the Permanent Business License – a pre-requisite for food companies to apply for other relevant permits and licenses. If you import your own ingredients, an ML code is mandatory for every imported SKU and it is renewable every 5 years. Application process for the code takes at least 6 months, and can cost upwards of S$10,000. Tip: Foreign companies are advised to isolate their holding companies or parent companies and set up a separate entity to enter into JVs with local partners. Via franchising or licensing “Standard” franchise agreements that Singapore franchisors are used to cannot be applied or enforced in Indonesia. This is because all franchise agreements in Indonesia are governed by Indonesian law, written in Bahasa Indonesia and contain minimum provisions prescribed by the Indonesian Franchise Regulations. Pre-requisite for franchising (franchisor) in Indonesia: Your business in Indonesia must have proven profitability for the latest 2 years Franchisor must have owned and operated at least one outlet which meets the profitability requirement Pre-requisite for franchising (franchisee) in Indonesia: Preparation for franchising: Register your trademark locally at the Trademark Office. Provide Prospectus and draft the franchise agreement at least 2 weeks before signing. Before you start your business, you need to obtain the Franchisee Registration Certificate by submitting the signed Franchise Agreement to the Ministry of Trade for registration. The franchisor has to register the Prospectus with the Indonesian Department of Trade to obtain the Franchisor’s Registration Certificate If a franchise agreement is terminated prior to its expiration, franchisors cannot appoint a new franchisee, unless: There is a “clean break” agreement issued to certify that there are no outstanding obligations or liabilities There is a final and binding court decision for dispute resolution Note: Franchisors are not allowed to appoint subsidiaries or affiliated entities as franchisees. Franchisor’s control over franchisees are to be reflected in contractual arrangements. Setting up shop in Indonesia's malls With malls playing a significant part in the Singaporean lifestyle, you might be surprised to know that Indonesians too enjoy spending time in shopping centres. We met OPCO, a local F&B lifestyle concept operator with three core businesses: F&B, interior design and fitting for F&B, and consultancy and turnkey solutions for F&B. The company’s executive director, Chris Kuang, is a Singaporean who has been based there for over 5 years. Here’s what he shared pertaining to the retail scene in Indonesia’s shopping malls. Our participants survey the surroundings of one of Indonesia’s many shopping malls. Although many locals spend a significant amount of their time in shopping malls, some of them are window shoppers who like to browse and enjoy air-conditioning. As such, it is expected that the sales conversation rate is lower compared to that of Singapore. That being said, the high footfall still translates into a significant stream of customers for F&B businesses as majority of the actual amount spent is on food and beverages. There is huge shortage of supply for rental retail space in malls. In fact, there are no new malls planned in Jakarta for the next 5 – 7 years to prevent the worsening of the overcrowded traffic conditions in the city. Singapore firms looking to rent outlets in a shopping mall can also consider major cities like Medan, Makasar and Surabaya, where populations are expected to grow rapidly. Different malls have different characteristics, and attract different demographics. Visitors tend to frequent malls that suit their lifestyle. As such, it is important to choose a mall that matches your target customer profile. You may also consider different food concepts to cater to different groups of consumers e.g. fast food concept for young adults and fine dining for affluent families. Opportunities, Considerations and Challenges Opportunities The rising middle class in Indonesia provides a very large potential consumer market for your business. Indonesian consumers are familiar with Singapore brands due to high business/leisure traffic between the two countries. Considerations The Halal Product Assurance Law means that by 2019, all products sold to Muslims [food & non-food] must be halal certified by Majis Ulama Indonesia (MUI). This has huge implications for F&B firms as the procedure to get MUI halal certification will take up to a few months, and halal certification from other organisations will not be recognised. An example of one of Indonesia’s many Halal restaurants. The differing taste profiles across Indonesia (E.g. Medan vs. Makassar vs. Jakarta) mean that there is no one-size-fits-all solution across the archipelago and food offerings may need to be tweaked to suit the local palate. Indonesia has a content requirement for businesses, whereby 80% of raw materials have to be sourced locally. However, underdeveloped infrastructure for frozen and chilled goods means that transportation of perishable goods may be a concern. Labour laws in Indonesia dictate fixed term and outsourcing arrangements are only allowed for certain types of employment and non-core activities so casual labour may not always be that available. Tips to succeed in Indonesia’s F&B market It might seem daunting to dive into the F&B scene in Indonesia at first, but fret not. Here are some tips to successfully establish your business in Indonesia: Find a reputable partner for your JVs or franchise arrangements. Devise an interesting and innovative business concept to stand out from the crowd. Location, location and location – choose a location that aligns with your target audience to set up shop. Constantly keep abreast of the latest changes pertaining to Halal requirements and regulations in Indonesia.