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Franchising Food and Beverage Indonesia Government, Law and Regulation Intellectual Property Rights

Indonesia Franchising New Regulation

On September 2, 2024, the Indonesian government enacted Government Regulation (GR) No. 35 of 2024 on Franchising (GR 35/2024), replacing the earlier Government Regulation No. 42 of 2007 (GR 42/2007). This new regulation aims to enhance the regulatory framework for franchises in Indonesia as well as promote a more dynamic and compliant franchise industry aligned with global standards.

The enactment of GR 35/2024 presents significant implications for U.S. franchisors looking to expand to Indonesia. 

The key changes are:

  • Intellectual Property (IP) Registration: U.S. franchisors must ensure that all relevant intellectual property is registered before applying for a franchise registration (STPW). 
     
  • Legal Documentation: U.S. franchisors are now required to provide legalized business permits from their home country alongside the franchise offering prospectus.
     
  • Business System: Franchisors must develop a clear, documented business system that is easy to understand and implement, encouraging consistency across franchise operations. 
     
  • Profitability Evidence: The regulation mandates a minimum of three years of operational history and two years of audited financial statements.  While this may pose challenges for new entrants, this requirement emphasizes the importance of stability and viability for market participants, encouraging franchisors to adapt their financial reporting practices accordingly.
     
  • Local Content Requirement: GR 35/2024 emphasizes the use of local products and services.  The sourcing of materials locally can help foster goodwill and strengthen community ties according to the regulation.
     
  • Streamlined Processes: The regulation eliminates the previously required five-year STPW renewal requirement, simplifying long-term franchise maintenance for U.S. franchisors in Indonesia.
     
  • Revised Administrative Sanctions: The regulation introduces a structured system of sanctions, including two warning letters, a 14-day business suspension, and potential STPW revocation.  This tiered approach underscores Indonesia’s commitment to compliance, with expanded actions for noncompliance.

The food and beverage (F&B) sector remains the most attractive franchise category among Indonesian business groups. In 2023, Indonesia’s foodservice industry experienced a 4% growth in value sales, reaching 364 trillion Indonesian rupiah or IDR. Notably, U.S. full-service restaurants emerged as the top-performing category, an 8% increase in value sales to IDR 4.9 trillion. The foodservice value sales are projected to grow at a current value CAGR of 10%, with a constant value CAGR of 7%, reaching IDR 593 trillion. 

Despite the continued demand for U.S. F&B franchises, local brands are capturing a larger share of the market. This shift may stem from the perception of international brands’ positions on particular geopolitical issues. As consumer sentiments evolve, U.S. franchisors should monitor these dynamics closely to sustain brand loyalty and optimize their market positioning.

Franchisors should also consider participating in Indonesia’s prominent franchise trade events, such as the International Franchise, License, and Business Concept Expo & Conference or the Franchise and License Expo Indonesia, typically held in Jakarta. These events provide valuable networking opportunities and exposure to local business communities, facilitating successful market entry and growth.

The U.S. Commercial Service is here to help U.S. companies identify opportunities and establish partnerships in Indonesia’s franchise sector. To learn more, please contact Commercial Specialist Fidhiza Purisma at Fidhiza.Purisma@trade.gov

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