Full-service Restaurants Industry In Indonesia

Although consumers reduced their spending on eating out amid the economic downturn and political turmoil, FSR was able to maintain growth in 2009 with an increase of over 6% in current value terms. The aggressive performance of chained FSR in terms of store expansion, menu innovation, pricing promotions, loyalty schemes and additional services helped sustain growth amid poor consumer sentiment. Pizza Hut has employed various strategies including outlet expansion to cities outside Java such as Abepura, Samarinda, Balikpapan and Bandar Lampung and new menu offerings during 2009.

FSR in Indonesia witnessed a slowing down of growth in terms of outlet numbers, transactions volume and value sales in 2009, due to increasing maturity and the downturn in the economy. FSR is the consumer foodservice format that is most familiar to Indonesians, aside from street stalls/kiosks outlets, as the concept was popularised long before the introduction of fast food or even cafés/bars outlets. In addition, the unfavourable economic condition which further led to diminishing purchasing power of consumers prompted the decelerating growth in 2009 than in the previous year. A portion of consumers from the middle to lower-income groups therefore reduced spending by visiting FSR outlets less frequently and instead preferred more affordable home-cooking.

With an increase of almost 12% in current value terms in 2009, Latin American FSR posted the fastest growth performance among the FSR categories. This was due to its very small sales base, when compared to other types of FSR restaurants, so that an increase in value sales can translate to very good percentage growth. Dominated by independent outlets, Latin American FSR restaurants such as Amigos by a local company Eatertainment International Tbk PT are frequented by upper-income consumers, tourists and expatriates, who are generally not price sensitive. In addition, attractive entertainment’s such as live bands and Latin American dance helps to boost performance.

Led by Front Row Sports Grill and TGI Friday’s (both operated by Tri Saga Sarana PT), Pizza Hut (Sari Melati Kencana PT), Planet Hollywood (Planet Dwimas PT) and Hard Rock Café (MRA Group), casual dining - full-service restaurants registered robust growth of 8% in current value terms in 2009. Its strong value growth rate was largely due to price increases and a customer base that is less price conscious. Most casual dining - full-service restaurants are located in major cities, where the proportion of middle-to-upper-income consumers is highest. Although the customer base is sometimes dependent on the location and surrounding area of the establishment, the majority of diners are groups of businessmen enjoying working lunches and dinners, people entertaining guests or young adults socialising.

Asian FSR with a 95% value-share of FSR in 2009, it continued to dictate the performance of FSR, in terms of units/outlets, transactions and value sales, as Indonesian food is obviously the most familiar to local consumers. The starting capital required to open an Asian FSR is lower than for other types of FSR. This is partly because it is easier to find a chef who can cook Indonesian food than it is to find one that can offer Thai or Japanese dishes. In addition, the franchise fee required for Asian FSR is usually lower than for foreign FSR. These outlets can also attract a considerably wider consumer base.

Independent FSR accounted for the overwhelming majority of value sales (97%), transactions (98%) and units/outlets (98%) of FSR in Indonesia in 2009. Based on industry sources, Indonesian operators such as Rumah Makan Padang dominate the independent FSR category. Despite the continuing domination of independent operators, chained FSR marginally increased their share of transactions and value sales in 2009. These share movements owed much to the growing trend towards franchising which is being encouraged by the rising number of urban consumers eating out.

Eat-in accounted for a share of over 93% of value sales in FSR in 2009, mainly because the main purpose of FSR is to offer a dining out experience. The value-share held by eat-in sales gradually grew between 2004 and 2009. Eat-in sales were boosted by the emergence of casual dining FSR which provide a more pleasant and relaxing ambience that appeals greatly to consumers, particularly when conducting business or entertaining guests.

Food accounted for the bulk of value sales in FSR in 2009, at a share of 78%, its share gradually increasing between 2004 and 2009. Most people dine at FSR mainly to enjoy the food. However, In some outlets offering alcoholic drinks and live music, drink contributes a larger share of sales than food, as consumers enjoy the entertainment while ordering alcoholic drinks throughout the evening.

Pizza Hut, the only pizza FSR brand with a nationwide network in Indonesia, continued to account for the highest share of value sales, transactions and outlets in 2009. The success of Pizza Hut owes much to its first-mover advantage. Following its entry into Indonesia, Pizza Hut has shaped the country’s appetite for pizza. In 2009, Pizza Hut remained the only FSR brand to invest in mass media, particularly television advertising, to promote its latest offerings. The brand also witnessed aggressive outlet expansion into smaller cities in Java as well as outside Java towards 2009.

Pizza Hut’s clear leading position did not prevent it from slightly increasing its value share in chained FSR, to reach 28% in 2009. In addition to its high advertising expenditure, Pizza Hut invested heavily in new product development in 2009. During 2009, it launched many new menu additions including new toppings such as Tuna Melt and Pop Crust as well as side dishes such as Choco Chiz, Beef/Chicken Mushroom Calizza and various cakes. The company also applied a rapid outlet expansion strategy, as it managed to open new Pizza Hut outlets in various cities such as Samarinda, Balikpapan, Abepura and Bandar Lampung. Pizza Hut therefore managed to enjoy an increase of almost one percentage point between 2008 and 2009 in chained FSR.

Trailing behind Pizza Hut was a local brand of Asian FSR, Rumah Makan Sederhana which also enjoyed an increase in share in 2009. Offering Indonesian food, especially regional cuisine from Padang, Rumah Makan Sederhana targets middle to upper-income consumers. Each outlet emphasises the quality of its products as well as its service, with a clean and spacious environment. These outlets therefore are often used for meetings, family gatherings and even parties.

North American and pizza FSR made casual dining a popular consumer foodservice option. In addition, North American and pizza FSR in Indonesia are often preferred for outings with friends or colleagues, rather than for family dining. Prominent brands within casual dining FSR category include Pizza Hut, Papa Ron’s (Eatertainment International Tbk PT), Planet Hollywood, Hard Rock Café and Sizzler (Bestfoods Nusantara PT).

Many of the chained players in FSR opt to expand their outlets through company-owned stores, rather than franchising. These players, such as Sari Melati Kencana PT the master franchisee of Pizza Hut, aim to have full control of all of their outlets in order to maintain the standard of product and service quality nationwide. There are also a number of brands of Asian FSR such as Sapo Oriental, Papa Ron’s and Bakmi Japos which offer franchising agreements to expand their outlets.

Television advertising is not common for FSR brands in Indonesia, with the exception of Pizza Hut. Whilst most FSR previously relied on word-of-mouth, an increasing number of FSR, such as Pizza Hut and various independent brands, have entered into co-branding agreements with credit card issuers and mobile phone service providers in order to offer discounts for customers using a particular credit card/using a particular phone network to settle their bill.

Asian FSR offer the most diverse themes, with regional Indonesian-style restaurants the most popular. Rumah Makan Padang is the most common Indonesian restaurant, while the Rumah Makan Sederhana chain is one of the more prominent chains within Asian FSR in the country. Noodle-themed chained FSR such as Hot CMM (operated by Hot Cwie Mie Malang and various franchisees), Bakmi Japos (Tara Kuliner PT and various franchisees) and Bakmi GM are also popular, given the fondness of many Indonesians for noodle dishes.

International FSR brands offered fewer outlets than local brands in 2009, due partly to the lower starting capital and franchise fees required to open domestic brand units/outlets. Nonetheless, given the much higher priced menus in international FSR and the predominantly upper-income customer base, foreign brands typically generate higher value sales compared to domestic competitors.

Competition within FSR is predicted to become even more intense in the forecast period, especially with both local and foreign operators employing various strategies to boost sales. In a tough competitive environment, FSR operators especially chained operators are targeting middle to upper-income consumers and are expected to offer more sophisticated dishes and outlet designs than they did during the review period. As many urban consumers are becoming more health conscious, FSR operators may also focus more on healthier ingredients, dishes and cooking methods. Other strategies such as store expansion to untapped cities outside Java as well as second-tier cities in Java, pricing promotions and loyalty schemes are expected to be carried out by FSR operators in the forecast period, thus maintaining the positive growth of FSR category.

As the largest consumer foodservice segment in terms of value sales, transactions and units during the review period, growth rates for FSR restaurants over the forecast period are expected to be slower than over the review period. Further, a number of FSR outlets may face indirect competition from cafés/bars in the forecast period, thus leading to decelerating transactions volume growth year-on-year to 2014. More cafés/bars outlets with semi-restaurant concepts are likely to be developed, offering complete meal and beverage menus which may become quite a threat for FSR over the forecast period.

FSR that caters to niche consumers such as Latin America FSR, Middle Eastern FSR are expected to have the fastest constant value CAGR in the forecast period by clocking of 6% and 5% respectively. The main drivers are expected to be more Indonesian consumers are projected to venture increasingly into foreign cuisines during better economy times and those two niche FSR are still from a small base.

Going into the forecast period, Asian FSR will continue to dominate outlet numbers, transactions volume and value sales of FSR. Asian FSR offers the most diverse themes, with regional Indonesian-style restaurants the most popular. Rumah Makan Padang is the most common Indonesian restaurant, while the Rumah Makan Sederhana chain is one of the more prominent chains within Asian FSR in the country. Noodle-themed chained FSR such as Hot CMM, Bakmi Japos and Bakmi GM are also popular, given the fondness of many Indonesians for noodle dishes.

A number of FSR brands, especially those targeting consumers from all income levels, are expected to develop more affordable set meal menus, though portion sizes may be slightly reduced in an effort to maintain profit margins, during the forecast period. With portion sizes being reduced, some consumers might order more items, thus resulting in higher constant value sales per transaction especially in the second half of the forecast period. Improving constant value sales per transaction over the forecast period will also be fuelled by value-added services offered by FSR operators including free Wi-Fi access, playgrounds for children, theme-based restaurants, futuristic designs, relaxed ambiences and more sophisticated or exotic menus in the long term.

Despite the intensified competition among chained FSR brands, Pizza Hut is expected to extend its lead in terms of value-share over the forecast period. Pizza Hut is expected to benefit from unit/outlet expansion and new product launches, as well as heavy advertising and promotional efforts. These strategies may be adopted by smaller brands but they are unlikely to make gains, even in the long term, at the expense of Pizza Hut.

With the price of raw materials expected to continue increasing over the forecast period, FSR will have to adjust their pricing policies. Nonetheless, price increases are likely to be kept to a minimum, to boost transaction sales by attracting more consumers and encouraging brand loyalty. Many FSR brands are expected to develop more affordable set meal menus, though portion sizes may be slightly reduced in an effort to maintain profit margins, during the forecast period.