The Down Side of Indonesia’s Food and Beverage Industry
Broader perspective for future lessons.
COVID-19 pandemic has badly affected many sectors in Indonesia, including the food and beverage industry. The food and beverage industry could not survive due to Large-Scale Social Restrictions (PSBB) which caused the industry to stagnate. As a consequence, some 400,000 restaurant workers in Jakarta, Indonesia have been furloughed since the re-implementation of PSBB measures.
However, after a few months, the food and beverage industry becomes one of the fastest-growing industries amidst the pandemic. In mid-June 2020 which permitted consumers to dine in at restaurants, restaurants in the Greater Jakarta Area saw their number of visits soar by 35% and 54% in July and August respectively (Deloitte, 2020). Also, the industry successfully recorded positive year-on-year (YoY) growth at 3.94% in the first quarter of 2020.
An Outlook in Food and Beverages Industry in Indonesia
The food and beverages (F&B) industry in Indonesia can grow estimated at 5–7% in 2021, driven by economic growth according to The Association of Indonesian Food and Beverage Entrepreneurs (GAPMMI). The food and beverage industry is also the highest contributor in Indonesia to export in the first semester of 2020 with the value of food export was USD 13.73 billion and beverage export was USD 10.87 billion according to Indonesia’s Ministry of Trade.
The development of retail infrastructures, particularly malls and hypermarkets supported the growth of this sector. During the COVID-19 pandemic, the food and beverage industries registered a high demand. The sector has managed to rebound quickly from the impacts of COVID-19, recording about USD 495 million worth of investments in the first quarter of 2020.
However, the sector is still facing challenges especially in limited mobility and other movement restrictions that may also discourage consumers from further purchases. The food and beverage players will need to keep a finger on the pulse of these trends to deliver timely offerings to their consumers. Including some recent concerns, that have emerged around packaging materials used for online food delivery services.
Global Food Retail Failures in Indonesia during Pandemic
Major restaurant chains are hard hit by the coronavirus outbreak, as more than 70% of medium to large-scale restaurants are located in malls and office spaces, according to Indonesia Statistics (BPS) data. Many say that only well-known and large restaurants can survive these conditions, but in fact, many large restaurants have had to permanently close their businesses.
The chairman of the BPD Association of Indonesian Hotels and Restaurants (PHRI) DKI Jakarta, Sutrisno Iwantono, said that the Central PHRI in September 2020 surveyed more than 9,000 restaurants in Indonesia with 4,469 respondents. From there, it was found that 1,033 restaurants were permanently closed. From October 2020 until February 2021, it is estimated that around 125 to 150 restaurants are permanently closed per month.
Pizza Hut
Pizza Hut franchise holder in the United States, NPC International recently admitted to filing for bankruptcy. The reason is because of the swelling debt up to USD 1 billion. The news is widely discussed, especially because the trademark has many fans in Indonesia. However, this does not affect the Pizza Hut franchise business in Indonesia, whose license is held by PT Sari Melati Kencana Tbk (PZZA).
Nonetheless, PT Sarimelati Kencana Tbk (PZZA), recorded an 85% decrease in net profit in the first quarter of this year to IDR 6.04 billion. In fact, PZZA posted a net profit of IDR 40.17 billion in the same period the previous year. The Covid-19 pandemic affected PZZA’s operational activities by the large-scale social restriction (PSBB) policy. During the PSBB period, consumers were no longer allowed to eat on the spot but only through delivery services or takeaway services.
According to Corporate Secretary, Kurniadi Sulistyomo, the decline in the company’s net profit resulted in a decrease in basic earnings per share in the first quarter of this year to only IDR 2 per share compared to the previous year’s IDR 13 per share. However, the company ensures that it does not terminate employees or even cut salaries by up to 50%.
KFC (Kentucky Fried Chicken)
KFC’s license holder for Indonesia’s branch, PT Fast Food Indonesia Tbk, cites revenue losses of around 25% to 50% due to the cessation of the company’s operations from March 2020. To date, KFC has closed 115 outlets in various regions across Indonesia due to the coronavirus pandemic. As a result, nearly 10 thousand employees have been affected.
PT Fast Food Indonesia and a worker union had signed an agreement to delay and cut monthly allowance and other commissions. Apart from that, the company also announced it would delay few stipend payments to ease the financial brunt of the health crisis. However, the company ensures to continue meeting the short-term financial obligations such as account payables and principal bonds to related institutions.
To increase revenue the company takes several steps by providing affordable menus and expanding the types of services that can be provided to customers. KFC’s license holder stated that they have suspended dine-in services, but some of its fast-food chains remain operational amid the pandemic. Most KFC chains in Indonesia only process takeaway orders via drive-thru and online delivery services during the pandemic.
Dunkin’ Donuts
The pandemic also affected the world’s famous American coffee and baked goods chain, Dunkin’ Donuts. The company has closed around 450 of its outlets by the end of 2020 in the United States. PT Dunkindo Lestari, the license holder of the Dunkin’ Donuts franchise in Indonesia could not afford to pay the holiday allowances (THR) and cut 50% of the salaries of their workers.
This problem occurs because of the condition of companies affected by the Covid-19 pandemic, where a small number of employees have to be laid off because there are shops in malls that are closed. This led to the demonstration at Dunkin ‘Donuts Headquarters that was conducted by 200 Dunkin’ Donuts employees on May 22, 2020. Dunkin’ Donuts management continues to strive to fulfill workers’ rights by accelerating the sale of assets to get fresh funds to pay the employees.
Lesson Learned from the Previous Ones
Business in the food and beverage industry is arguably very risky. As the main human need for survival, this industry is also an industry with promising benefits. Therefore, business people need to pay attention to several things so that they can achieve success in a good way. Here are some ways to consider running the food and beverage business based on previous experiences in Indonesia.
Get to know your market
According to Communications For Research (CFR), before opening a food and beverage business, market research can help you identify a specific demographic to target (based on certain spending habits, thought patterns, and behavior) so that you can tailor your menu and services to it. Then, as you become more established, it can be used to gauge customer loyalty and menu appeal.
In the current pandemic situation, customer retention is very important to be fostered because buying food behavior is easily affected. Therefore, we have to maintain awareness of customer engagement by letting them know how much you appreciate them and care about them — even if they are buying fewer goods and services from you (Deloitte, 2020). Itt enables you to balance your offerings with constantly changing resources, customer predilections, and economic conditions so you can improve the customer experience, increase customer satisfaction and encourage customer retention.
Always be creative and innovative
Being creative is the key to the success of a business. In the food and beverage industry in Indonesia, being creative and innovative can be done in various aspects of this business, from flavor innovation to packaging to purchasing methods. Being unique and different is one of the mainstays of entrepreneurs. In terms of taste, the bizarre the taste offered, the more interested the buyer will be in trying the product. As with packaging, the more unique the form of packaging offered, the more buyers will buy it.
Apart from that, the marketing process can also be done uniquely and creatively. It cannot be denied that digital media currently controls the activities of each user. So that food and beverage business people must be able to take advantage of this phenomenon. Creating viral content is one of the main attractions in this business. This is also related to the uniqueness of the taste and packaging of the food or drink offered.
In the business image itself, people are paying attention to how the people in the business are responding, and purpose-based businesses that show empathy will likely emerge as the leaders (Deloitte, 2020). This can be the way to attract customers by giving the “soft-side” of the business. For example, in November 2020, Burger King as one of the key players of international fast food retail restaurants, Burger King asks customers to order from rival restaurants affected by the pandemic. This action garnered a lot of positive reactions online and made Burger King have the “emphatic” identity for fast food restaurants.
However, many foods and beverage companies have done this but have failed. So it can be concluded that being creative and innovative is not enough to make this business survive, but quality and maintenance also play a huge role.
A little bit of promotion won’t hurt anyone
According to Chron, getting customers to come in and try your food or drink is the first step in creating a successful food and beverage business. By using promotional strategies that highlight the taste, creativity, and perhaps affordability of your merchant, you can make customers interested in your merchant. Effective promotion strategies can also help transform new patrons into regular customers.
Running your business, you may have a lot of competitors and it may be difficult to compete against them. COVID-19 pandemic could be the time to give special offers and discounts to retain your customer base, and potentially attract new customers. You can use discounted days for certain food items strategy or another discount strategy such as buy one get one and many more.
Start Your Business with BRIGHT Indonesia
To enter Indonesia’s food and beverage industry it is crucial to have the right local partner. BRIGHT Indonesia provides several services such as Market Insight Research, Business Partnership Engagement, Business Registration and Establishment, and Management and Strategy Consulting that can help you in expanding and developing your business, register and establish your products and company, as well as obtain the work and stay permit in Indonesia (expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), limited stay permit (KITAS)) easier.
Our strategy consulting services domain focuses on supporting private sector clients with comprehensive and specialize development regarding the company’s needs and also on the public sector for a broader scope.
For more information, email info@brightindonesia.net.
Co-written by Anneke Julianita
