Background

The food and beverages franchise business has highly contributed to the economic development of Republic of Indonesia; therefore it needs to be followed with the development of small and medium enterprises through partnership.  In order to support the development of partnerships in the food and beverages franchise business, the Ministry of Trade has promulgated Minister of Trade Regulation No. 07/M-DAG/PER/2/2013 on the Development of Partnership in Food and Beverages Franchise Business (“F&B Franchise Regulation”). This regulation completes the Minister of Trade Regulation No. 53/M-DAG/PER/8/2012 on Franchise Implementation (“Implementation Regulation”) and the Minister of Trade Regulation No. 68/M-DAG/PER/10/2012 on Franchise of Modern Retail Stores.

Definition of Food and Beverages Franchise

Under Article 2 of F&B Franchise Regulation, the scope of food and beverages business in F&B Franchise Regulation are as follows: (i) Restaurant, (ii) Food Stalls (Rumah Makan), (iii) Bar/Drink Stalls (Rumah Minum), and (iv) Cafe. Restaurant is defined as the business of providing food and beverages supplemented by the tools, and equipments for making, storing, and serving process, which stays in one place only. Food Stalls (Rumah Makan) is similarly defined to Restaurant, but with the exception that it does not perform the making process. Bar/Drink Stalls (Rumah Minum) is defined as the business of providing drinks (alcohol and non alcohol) supplemented by  tools and equipments for making, storing, and/or serving process, which stays in one place only. Café is defined as the business of providing snacks (makanan ringan) and soft drinks (minuman ringan) supplemented by tools and equipment for making, storing, and/or serving process, which stays in one place only.

Limitation of Outlet/Counter

One of the fundamental issues stipulated in the F&B Franchise Regulation is regarding the limitation of outlet/counter. Under Article 3 of F&B Franchise Regulation, the franchisor or franchisee of food and beverages business (“Entrepreneur”) can develop their business by establishing an outlet/counter which (i) is owned and managed by his own (company owned outlet), (ii) by franchise, (iii) by cooperation with partnership scheme (capital participation).

The Entrepreneur can only own “company owned outlet” as mentioned above, at maximum 250 outlets/counters. If the Entrepreneur would like to establish additional outlet/counter (more than 250), the Entrepreneur can choose between 2 (two) options which is through (i) franchise and/or (ii) capital participation.

Capital Participation

Under Article 5 paragraph (2) of F&B Franchise Regulation, if the Entrepreneur chooses the capital participation scheme, the following conditions shall apply: 

  •  For investments less than or equal to Rp.10.000.000.000,00 (ten billion Rupiah), the amount of capital participation from the other party is at least (minimum) 40%; or
  • For investments of more than Rp.10.000.000.000,00 (ten billion Rupiah), the amount of capital participation from the other party is at least (minimum) 30%.

Furthermore, the Entrepreneur shall prioritize the small and medium enterprises in the local area as the franchisee and/or capital participant as long it has fulfilled the requirement by the franchisor.

Raw Materials and Business Tools

The regulation regarding domestic raw materials and business tools has been stipulated previously on Article 19 of Implementation Regulation, and now it is restated in Article 7 of F&B Franchise Regulation.

The above mentioned regulation states that the Entrepreneur shall use domestic raw materials and business tools at least 80% of the production of goods and/or services as well as in the selling of the product. In some conditions, the Minister is able to give permit of utilization of domestic raw material, business tools and in selling the product less than 80% after considering the recommendation from the assessment team.

Education and Training

Article 8 of F&B Franchise Regulation states that the franchisor of food and beverages business shall provide guidance to the franchisee and/or capital participant in the form of training and instruction of franchise business management.

Obligation to Report

Under Article 10 of F&B Franchise Regulation, the Entrepreneur shall report the change of the number of outlet/counter which are classified as (i) company owned outlet/counter, (ii) franchise outlet/counter, (iii) capital participation outlet/counter, to the Directorate General of Domestic Trade for the attention of Trade Business Development Director and copied to Head Authority (kepala dinas) which is responsible in trading sectors in the respective Province and District/City.

Sanction

Under Article 11 of F&B Franchise Regulation, the Entrepreneur, who violates Article 4, 5, 7, and 8 of F&B Franchise Regulation, can be imposed with administrative sanctions with the following stages: (i) written warning (three times), (ii) temporary suspension on Franchise License (Surat Tanda Pendaftaran Waralaba- STPW), and (iii) revocation of the Franchise License (Surat Tanda Pendaftaran Waralaba- STPW).

Adjustment to the Regulation

According to Article 12 of F&B Franchise Regulation, the Entrepreneur currently owning more than 250 outlet/counter shall make adjustment with F&B Franchise Regulation within the period of 5 (five) years since the regulation is promulgated. This adjustment shall be reported every year to the Directorate General of Domestic Trade for the attention of Trade Business Development Director.