The Trade Ministry has formally issued a new regulation on retail franchising in another legal mesure to prevent monopolies in the country’s growing retail franchising business sector.
The Trade Ministry’s director general for domestic trade, Gunaryo, said on Wednesday that the rule aimed to encourage modern store franchisors to set up partnerships with another party, particularly small and medium enterprises.
“We don’t intend to restrict ownership of modern stores, but hope that along with the growth of their company-owned outlets, they can also broaden their partnerships with other parties that could largely benefit from their proven business systems and brands,” he told The Jakarta Post over the phone.
Gunaryo underlined that the rule would apply only to modern stores registered as franchise businesses, and not those with regular modern store business permits.
Under the new rule that was put into effect on Monday, retail franchisors can only operate 150 company-owned outlets. They can increase the number of their stores, but at least 40 percent of them should be operated by their franchisees.
Existing retail franchisors that presently operate more than 150 company-owned outlets have been given five years to comply with the regulation. To meet the target, they should transfer the operations of at least 20 percent of them to their franchisees per year.
During the past several years, the retail franchising business sector has expanded rapidly in Indonesia, home to 240 million inhabitants, where the rising middle-class drives robust consumption of goods. Local retail chain operators like Indomaret and Alfamart have operated thousands of company-owned outlets nationwide.
The new rule on franchises supports another regulation issued in August that centralizes franchising legal permits and, among other things, requires foreign franchisors to have more than one local franchisee to avert a monopoly.
Responding to the new rule, Indonesian Committee for Franchises and Licenses (WALI) chairman Amir Karamoy said the new rule seemed to be a disincentive for franchisors and would not be effective in helping to achieve the government’s goal to expand business opportunities.
“To endorse the growth of modern stores, the government should offer incentives so they are willing to transfer their business model to franchisees, especially to areas outside Greater Jakarta, Java and Bali,” he said, citing easier location permits and bank facilities as examples.
Indonesian Retailers Association (Aprindo) deputy secretary-general Satria Hamid also expressed his disappointment, saying that franchisors feared that the rule could not be well implemented at the regional level.
“Expanding retail outlets at regency-level will be tough for franchisors as it will be hard to find a partner who wants to buy the license. If a modern store does not have a strong brand, nobody will be interested in buying its franchise license and thus avert its expansion,” he said.