11 February 2013, Minister of Trade of Indonesia has issued Regulation No. 07/M-DAG/PER/2/2013 on Franchise Partnership Development for Food and Beverage Businesses (restaurants, diners, bars, and cafes ) (the “Regulation”). The Regulation intends to promote the involvement of small-medium enterprises in the franchise industry. To achieve such purpose, the Regulation sets a limitation for foreign investment on how many outlets a food and beverage business may own.
Company-Owned Outlet Limitation
One of the most notable provisions under the Regulation is the limitation of company-owned outlets that may be established by a food and beverage business (“business”). Under Article 4, a business may establish, at most, 250 company-owned outlets.
If a business wishes to establish more than 250 outlets, additional outlets must be franchised or established under an investment cooperation scheme. In doing so, a business must prioritize partnership with local small-medium enterprises, as a franchisee or an investor.
The minimum investment that must be made by an investor is as follows:
a. 40% of the total capital, if the investment value of an outlet is below IDR 10 billion;
b. 30% of the total capital, if the investment value of an outlet is above IDR 10 billion.
Another important provision set out under the Regulation is the obligation to use domestic goods. Pursuant to Article 7 the Regulation, 80% of business’ production materials and equipment must be produced domestically. This provision, however, can be exempted with the Minister’s approval based on a recommendation from an Assessment Team (An assessment team will be established by the Director General of Domestic Trade)
Franchise businesses are responsible for their franchisee partners’ development by ways of providing training programs and guidelines on how to manage a franchise business.
It should be noted that franchisers and franchisees are obliged to submit a report to the Director General of Domestic Trade (“Director General”) if there is a change in the number of franchise outlets.
Franchisers and franchisees that fail to comply with the Regulation will be subject to administrative sanctions in the form of written warnings. Failure to comply with written warnings may lead to a 2 month (max) suspension of franchisers’ and franchisees’ Certificate of Franchise Registration (Surat Tanda Pendaftaran Waralaba – “STPW”).
Franchisers and franchisees that have more than 250 outlets prior to the Regulation must adjust their outlet ownership within 5 (five) years and they must submit an annual adjustment report to the Director General.