T

he Trade Ministry has introduced its latest regulation on restaurant franchising in a move to avert monopolies in the business and endorse greater participation from local players through third-party ownership.

The regulation limits a single master franchisee to owning a maximum of 250 outlets. If the franchisee wants to open more outlets it must invite a third party to join the ownership.

Any franchisees that currently run more than 250 outlets need to adjust to the regulation within five years.

The policy was aimed at endorsing higher involvement from local business partners, particularly small and medium enterprises at the regional level, to earn benefits from successful restaurant franchises, Trade Minister Gita Wirjawan said in Jakarta on Friday.

“We must have a long-term outlook, say 20 years or 30 years ahead. We want to see that the distribution of business opportunities should also be prioritized for smaller business entities,” Gita told a press conference at his office.

According to the regulation, the transfer of ownership to a third party can be conducted through a franchise system or equity participation.

In the case of equity participation, the third party may own 40 percent of a restaurant outlet worth less than Rp 10 billion (US$1.03 million). If the outlet is worth more than Rp 10 billion, the third party may own 30 percent.

Under such an arrangement, the master franchisees were still given ample room to take dominant control of their business and management, Gita said.

The new regulation on restaurant franchises is the latest in a series of government moves to regulate Indonesia’s fast-growing franchise industry and will affect key players in the restaurant franchise business like Kentucky Fried Chicken (KFC), Pizza Hut and McDonald’s.

Last year, the Trade Ministry launched two regulations on the general arrangement of franchise businesses and retail franchising to step up oversight of one business sector that has expanded rapidly in the past decade in Indonesia, where an emerging middle class make up a lucrative market.

The first regulation requires foreign franchisors to have more than one local franchisee, aiming to end monopolies and allow local third parties to buy licenses for a proven business model.

The second regulation, meanwhile, only allows retail franchisors to operate 150 outlets. If they want to further expand beyond the cap, they must transfer at least 40 percent of any additional outlets to be operated by their franchisees.

Amir Karamoy, the chairman of the board of directors at the Indonesian Committee for Franchisees and Licenses (WALI), said that the arrangement on the threshold for company-owned outlets was good, as it could considerably avert monopolies and encourage the spread of opportunities for local franchise partners.

However, he questioned the franchisors’ control over the majority stake in a restaurant franchise, which he considered to be opposed to the spirit of franchise.

“The regulation breaches the basic principle of franchise, in which each business should operate independently and what binds them is only the brand,” Amir told The Jakarta Post.

According to Amir, franchisees should ideally hold a 51 percent stake in their franchised business, with the rest going to franchisors to allow them to determine the course of their operation.