The trade ministry of Indonesia has announced a new regulation limiting the number of stores or outlets a master food franchisee can hold in the country. The new regulation comes as an effort to avoid monopoly in the market and encourage local and small businesses. The new regulation will drive some of the major franchising players like KFC and McDonalds to cut or slow down on outlet expansions in the country.
The new regulation demands all the franchising companies to keep outlet limits to a minimum of 250 operating stores. Those franchisees that already have more than 250 stores are required to comply with the regulation and adjust to it within the next five years.
"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 Wirjawan, trade minister of Indonesia, said in a statement.
Yum! Brands Inc., the owner of KFC and Pizza Hut chains will now be slowing down their fast-paced growth in Indonesia. Yum will probably take its expansion plans to the U.S. Dunkin' Brands Group, owner of the Baskin-Robbins and Dunkin Donuts, said that it was reviewing the regulation and will still be committed to the market, reports Bloomberg.
In 2012, the trade ministry introduced two other regulations for the franchisee business fraternity in Indonesia. The first regulation required foreign franchisees to have more than one local franchisee operator, which would allow a local third party to buy the franchisee license from the parent company. The second regulation was aimed at controlling retail franchisees and capping their stores to 150 outlets albeit with some exceptions.
Experts assert that it is too early to forecast or estimate the impact of the new regulation. However, the new law could be infectious and lead other nations to adopt the rule as well.
"This is one of the things we're worried about in the franchise community. This may set a precedent for other countries -- the 'me too' does happen." Bill Edwards, CEO of Edwards Irvine, a global franchisee consultancy, said to Businessweek.