Sunday, December 3, 2023

Can franchise breads win over locals in Indonesia?

Reading Time: 3 minutes
Journalist IBP





The bread industry in Indonesia has seen an increasing demand in the past years. The market is driven by the rising disposable incomes and changing consumer preferences for convenience and healthy eating. Various types of bread also have become a source of high revenue due to the rising growth. 

The industry is highly competitive, combining large-scale industrial and small-scale local bakeries. Some of the major players in the industry include PT Nippon Indosari Corpindo Tbk, PT Mustika Citra Rasa, PT CJ Foodville Bakery and Cafe, PT Talkindo Selaksa Anugrah and PT Sebastian Citra Indonesia.

Rising bread popularity

The Indonesian bread segment is on the rise as a popular street food due to the increasing popularity of “roti bakar” or bread toast. Street vendors usually toasted the bread with toppings such as cheese, chocolate sprinkles or jams.

In the next few years, the bakery industry is expected to experience a veritable boom in products. In 2020, some products such as yeast-raised white bread had the highest growth rates in the segment.  Meanwhile, its domestic market has excellent potential in responding to consumers’ interests.

According to the Compound Annual Growth Rate or CAGR (2023-2027), the bread segment in the Indonesian market has grown annually by 4.98% and will amount to US$ 11.92 billion in 2023. The revenue will increase by 39.9% in 2023. As a comparison, China’s bread market revenue will reach US$ 72.82 billion in 2023.

Meanwhile, Indonesia’s bread industry is likely to have an expected volume growth of 5.7% in 2024, and a forecast volume amount of 9,398.8 million kilograms by 2027.

Local vs franchise brands

Local bakeries in Indonesia often have a strong presence in smaller towns and rural areas, where they have built a loyal customer base over time. These bakeries often offer a wide variety of breads and pastries that are specific to the areas, which can be a major selling point. Bakery giant PT Nippon Indosari Corpindo Tbk (ROTI) has produced and distributed Sari Roti brand since 1996. The products are available in convenient stores in residential areas. The company operates 14 factories in Sumatra, Java, Kalimantan and Sulawesi.

On the other hand, the franchise bread industry has been growing rapidly in recent years. Brands from South Korea such as Tous les Jours (which is under PT CJ Foodville Bakery and Cafe) and Paris Baguette immediately gained attention thanks to Kdrama popularity. These franchises often have the advantage of a well-established brand and a proven business model, which make it easier for them to attract customers and expand into new locations. They also often have access to more resources and technology, which allow them to produce higher-quality products at a lower cost.

BreadTalk, for example, was established in Singapore in 2000. Seven years later, it entered Indonesia’s market with PT Talkindo Selaksa Anugrah as the license holder. It immediately created long queues at malls due to the popularity of its Floss bread. Since the BreadTalk’s license in Indonesia has expired, Talkindo changes the bakery’s name into Mako.

The competition between local and franchise bread industry is intense and both have different types of business with their own strengths and weaknesses. Ultimately, the success of a bakery will depend on factors such as location, pricing, product quality and marketing.

Risks in domestic baking industry

The major problem in domestic baking industry is the shelf life of bread, which is mostly at five days. However, consumers expect bread could last a week. With a market segment is spread over 7,000 inhabited islands, distribution will always depend on wrapped industrial bread and it represents the main problem in the bakery industry. Depending on the region and logistics, it may take up to days for the product to reach its destination.

The industry faces other challenges such as the fluctuating wheat price and the high cost of raw materials, which can affect bread products pricing.

Bakery products is rising in Southeast Asia with a market value of US$ 13.5 billion in 2020. Regionally, the market is expecting to grow by 7.67% by 2026, according to chemical distributor

Halal certification is another issue for industry players, especially the new one. In September 2014, the government passed Law No. 33/2014 on Halal Product Guarantee (UU JPH), which stipulates that halal certification is mandatory for all food, beverage, drugs and cosmetics, as well as chemical, organic, and genetically modified products sold in Indonesia. All imported products must be registered with the Food and Drug Monitoring Agency (BPOM). The regulation is challenging for foreign players entering the market and competing with local players.

However, the future prospects and trends in bread industry remains positive for specialized and quality products. 

Journalist IBP






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