Consumer Foodservice by Location Industry In Indonesia

Consumer foodservice operators in 2009 sought alternative locations in order to reach a wider consumer base. Fast food operators such as the leading chained foodservice brand KFC focused on outlet expansion in stand-alone locations towards 2009. Meanwhile, several leading street stalls/kiosk operators such as Edam Burger and Red Crispy opened new outlets in school and campus areas to target students.

The stand-alone location type remained an important element of the players’ overall location mix, given its strategic benefits such as high visibility and revenue generation potential. In 2009, stand-alone outlets remained dominant, with a 51% share in terms of outlet numbers. Stand-alone outlets are built separately and are not constrained by the limitations of the buildings they are located in. Compared to other locations, such as retail, leisure or travel, the rental cost of stand-alone outlets is the lowest under the same conditions which is the key reason for the dominance of stand-alone outlets. Most outlets found in stand-alone locations are independent consumer foodservice brands. In 2009, stand-alone posted an outlet growth of 2%, which was the same as the previous year.

Non-standalone retail locations continued to dominate in terms of outlet numbers in 2009. Indonesia’s major cities have an expanding number of shopping malls, so that shoppers are likely to stay for more than two hours in a mall and thus increase their spending on shopping (and also eating). This benefited consumer foodservice operators with outlets located in shopping malls. Shopping malls are commonly known to have several foodservice formats, including fast food, FSR, 100% home delivery/takeaway as well as cafés/bars. In addition to shopping malls, more consumer foodservice outlets were established in locations such as apartments, office buildings, schools/campuses and hospitals which Euromonitor International categorises under retail locations, thus sustaining the dominance of retail locations in non-standalone locations in 2009.

Registering an outlet growth of 3% in 2009, travel location was the best performer among consumer foodservice locations. The growth of travel locations was particularly boosted by petrol/gas/fuel stations. More petrol/gas/fuel stations were established in the country, with foreign petrol/gas/fuel stations such as Petronas, Shell and the new comer - Total from France. Total was more aggressive in inviting consumer foodservice operators to establish outlets in its stations in order to provide one-stop petrol/gas/fuel stations.

Due to higher rental costs, the average value sale per transaction in retail & lodging location is higher than in stand-alone outlets, in which value per transaction in lodging is the highest. In order to balance the high rental costs, consumer foodservice operators in non-standalone location particularly FSR have to have higher unit item prices to generate greater value sales and offer more value added products to generate higher value sales per transaction.

Transactions per outlet in stand-alone locations are generally higher than in non-standalone locations. Stand-alone outlets, particularly FSR and street stalls/kiosks which form the biggest outlet contribution to overall consumer foodservice in Indonesia, allow for more flexible opening hours and greater independence, as opposed to outlets in retail locations which are bound by the opening hours and rules of the retail shopping centres in which they are situated. In addition, stand-alone outlets do not depend on passing traffic to the extent that outlets in retail and travel locations do.

Retail outlets remained the most popular location for cafés/bars, fast food and self-service cafeterias outlets up to 2009. Unlike in European countries, cafés/bars outlets in Indonesia are not located by the pavement/sidewalk, as there are very limited pedestrian facilities available. Therefore, cafés/bars outlets are mostly found in retail locations. Meanwhile, fast food outlets in Indonesia are almost synonymous with retail shopping centres, several chained brands maintain a prominent presence in every retail shopping centre in the country. This is mainly because of the greater accessibility of retail shopping centres which allows for patronage by consumers of all income levels.

In 2009, stand-alone continued to be the most popular location for FSR, 100% home delivery/takeaway and street stalls/kiosks. In Indonesia, FSR and street stalls/kiosks are clearly dominated by independent outlets which are usually established in stand-alone locations which typically have lower rental costs than semi-captive locations. Given the nature of the format, street stalls/kiosks outlets were unsurprisingly most commonly found in stand-alone locations over the review period. Most outlets are temporary; therefore tents or carts have to be set up or wheeled in at the beginning of each day and packed up at the day’s end. Having their outlets in stand-alone locations makes day-to-day operations for owners simpler and more flexible.

Drive-through facilities for standalone consumer foodservice outlets are still at the beginning of their development in Indonesia. This was only available at prominent chained brands of fast food and cafés/bars such as KFC, McDonald’s and Starbucks. Segment performance has not been as good as had been expected, with sales per outlet in drive-thru outlets naturally lower than in eat-in outlets, some drive-thru outlets have even had to maintain income with eat-in sales. Meanwhile, almost all independent outlets in stand-alone locations typically do not offer drive-thru facilities.

Retail, travel and leisure were the three leading non-stand alone locations in terms of number of outlets as well as value sales in 2009. Within the non-stand-alone locations, retail remained the leading location and continued to grow steadily and strongly in 2009, with the increasing number and rapid expansion of shopping malls in major cities. Travel location saw high growth, largely due to the growing number of petrol/gas/fuel stations in many cities in the country. Leisure location has also been flourishing, emerging as an increasingly important category, with the development of leisure places such as Trans Studio Theme Park in Makassar.

Standalone location was dominated by independent outlets across various types of consumer foodservice, especially FSR and street stalls/kiosks throughout the review period, as it is the most accessible location for setting up outlets. Meanwhile, chained foodservice outlets are mostly found in non-standalone locations. Retail had strong foothold in various locations in many cities in the country over the review period, many multinational locations are especially popular for chains, followed by travel, while lodging is popular for both chains and independents.

Despite their expansion plans toward non-standalone location, the leading chained consumer foodservice brands such as KFC and McDonald’s did not neglect their outlet expansion in stand-alone locations in 2009. These standalone outlets can operate 24 hours a day, thus can generate higher revenues compared to outlets located in other locations such as retail. Upon opening several stand-alone outlets in 2008 with various facilities such as drive through, internet corner, lounge room and play area in major cities including Makassar and Denpasar, KFC continued to open more outlets in stand-alone location during 2009 such as in Tangerang and Bekasi. Similarly, McDonald’s also saw a new outlet opened in stand-alone location in Denpasar in late 2009. This strategy helped to boost the company’s value sales during 2009.

Apart from KFC and McDonald’s which both already foodservice players are still focusing on non-standalone outlets in their expansion. Foreign brands targeted upper-income consumers such as Starbucks, The Coffee Bean & Tea Leaf, Krispy Kreme and Häagen-Dazs are typically established in upmarket retail locations such as shopping malls, apartments and hospitals that target affluent consumers. A number of local brands such as J Co Donuts & Coffee and Daily Bread also followed suit as they attempted to reach consumers from the upper-income group in order to obtain higher value sales due to the high purchasing power of this consumer group.

Over the review period, the majority of street stalls/kiosks were located in a stand-alone location. Towards 2009, however, the leading chained street stalls/kiosks such as Edam Burger and Red Crispy expanded to non-stand-alone locations, especially a retail location. According to industry sources, many of new outlets by these leading operators were established in schools and campuses. A number of them were also located in grocery retail outlets such as hypermarkets and convenience stores.

Consumer foodservice operators are expected to continue seeking alternative locations to expand their outlets in the forecast period. Chained operators which only had a presence in shopping malls and stand-alone locations during the review period may expand their presence to various other locations in the forecast period. These locations may include fuel stations, airports and train stations (travel), apartments, schools/campuses, office buildings and hospitals (retail) and theme parks and sports stadiums (leisure). The operators recognise the huge potential of establishing outlets in these locations, as they are able to widen the consumer base and to avoid the more intensified competition in shopping malls and lower traffic in stand-alone locations.

Over the forecast period, the travel location is expected to have the biggest potential with a CAGR of over 1% in terms of outlet numbers. The expected rise in car ownership in Indonesia will further boost the opening of petrol/gas/fuel stations – both locally and foreign-owned in many cities in the country. Further, there is still huge potential for forecourt retailers to be established in major cities outside Java. Bright’s move to open outlets in Medan, Palembang and Denpasar towards 2009, will attract other players to follow suit in the forecast period. More of these petrol/gas/fuel stations in the country are expected to invite consumer foodservice operators to establish outlets in their stations in order to provide a one-stop concept. This will provide a boost to travel location in the forecast period.

Non-stand-alone locations, the retail location is expected to register the biggest increase in outlet number in actual terms in the forecast period. This is thanks largely to the expected rapid development of shopping malls especially in Indonesia’s major cities, as these malls will be able to house more foodservice formats as demand for dining out increases in the forecast period. More outlets are also likely to be established in retail locations such as office buildings, apartments, hospitals and schools/campuses. Grocery outlets such as hypermarkets and convenience stores are also set to invite more foodservice outlets such as street stalls/kiosks to be established in the areas, thus further boosting growth of retail location in the forecast period.

A potential threat to the forecast growth of consumer foodservice outlets will come from hikes in real estate prices. Real estate prices experienced strong growth in 2009, especially in urban areas and are expected to continue increasing in the forecast period. As most consumer foodservice outlets are rented, the hike in real estate prices will result in much higher rental costs and reduced profit margins. As a result, outlet openings will be limited by the higher rental costs.

In order to obtain higher value sales by attracting more upper-income consumers, more consumer foodservice outlets, especially chained brands from multinationals and prominent local players, are expected to be established in semi-captive locations. These may include upmarket shopping malls and hospitals, apartments and schools/campuses targeted at affluent consumers.