H

igh operating costs and stiff competition continue to put pressure on the bottom line of Fast Food Indonesia (FFI), the franchise holder for Kentucky Fried Chicken (KFC) in Indonesia, despite an increase in total revenues.

The rise in operating costs was not only caused by an increase in salaries and the cost of raw materials, but also as a result of higher rents, FFI director Justinus D. Juwono said on Tuesday. Many tenants saw continually increasing rents because of high demand for both local and international chain restaurants, with resulting heavy competition for the limited space available, he added.

“A lot of local-food restaurants have upgraded their stores. For example, nasi padang and soto kudus restaurants are now equipped with air conditioning and attractive store designs,” he said.

Unlike buying clothes where customers can go to multiple stores to buy a variety of things, usually people only eat one big meal in a specific location during the day. This has made the competition more intense for KFC, he said.

“For example, nasi padang and soto kudus restaurants are now equipped with air conditioning and attractive store designs.”

In 2015, the company saw its net profits decline by 32.7 percent year-on-year (yoy) to Rp 105 billion (US$7.85 million) and its sales only grew by 6.32 percent yoy to Rp 4.48 trillion.

Meanwhile, in the first quarter of this year, the company booked an improvement in revenue, which increased by 10 percent yoy to Rp 1.1 trillion. Its net profits, however, dropped by 6.43 percent on an annual basis to Rp 8.2 million.

Besides the escalating rents, the company’s profit slump was also caused by a hike in staff wages. “This year, the wage costs have risen by about 18 percent,” Justinus added.

Furthermore, the unstable rupiah exchange rate had an impact on the cost of imported raw materials. FFI imports its spices and potatoes directly from KFC in the US.

“The decrease in profits [at FFI] was also caused by the increasing cost of raw materials used for production,” Harjono Wreksoremboko, president director of Indoritel Makmur International said during Indoritel’s press conference on Monday. Indoritel held a 35.8 percent stake in FFI as of March.

To cope with the weak performance, FFI reduced its workforce by 3.3 percent to 16,345 nationwide at the end of 2015 from 16,902 in 2014, according to the company’s 2015 annual report.

This year, the company has allocated capital expenditure (capex) of Rp 300 billion to open 30 new restaurants across the country, renovate 50 existing store units and add more equipment. In the first quarter of 2016, it had used about 30 percent of its capex, Justinus said.

Of the 30 planned new restaurants, the firm plans to open five KFC box units, a scaled-down store model to penetrate smaller locations like residential areas and train stations, each with an investment cost of Rp 1.5 billion, which is one third of the cost needed for a regular-sized outlet of Rp 4.5 billion. The company had a total of 540 retail stores in December 2015, up from 493 units in 2014.

With the strategies that it plans to follow this year, the company is optimistic about booking sales growth of 7 to 9 percent in 2016 to stand at Rp 4.9 trillion, up from Rp 4.5 trillion in 2015. (win)