How American Fast-Food Chains Have Succeeded in Indonesia
American fast-food chains have spread far beyond the borders of the United States. While not universally loved, these enterprises have become a common feature of high streets, shopping malls, and transport terminals around the world.
Indonesia is one such place. McDonald’s and KFC (Kentucky Fried Chicken) – arguably the two best-known fast-food chains globally – have become an increasingly present feature in the world’s largest archipelagic state.
As of September 2020, KFC had 738 outlets across Indonesia, with 443 located in Java, 136 in Sumatra, and smaller numbers elsewhere in the country. The pace of growth is impressive. Just five years before, KFC Indonesia – which was established in 1978 – had just 493 stores. As of 2020, there were 227 McDonald’s restaurants across Indonesia.
Moreover, Indonesia’s growing population, particularly among its middle class, and high rate of urbanization have led to changing dietary patterns such as increasing demand for wheat-based products like cereals, red meat, as well as fast food. More Indonesians are also choosing to eat prepared food and beverages, especially with the boom of online delivery services.
The growth of the global fast-food industry
Fast-food chains grew exponentially in the years following World War II when the US experienced its steadiest economic growth. The American economy grew by 37 percent during the 1950s and unemployment remained low, at about 4.5 percent.
During this period, Americans grew wealthier and this, combined with an increasing desire for convenience, particularly around food, propelled the growth of the fast-food industry. McDonald’s and KFC, like several of their peers, even became synonymous with the American dream, reflecting a broader vindication of the US’s free enterprise economics.
The international growth of these chains has been equally phenomenal. McDonald’s and KFC are the world’s largest and second-largest restaurant chains respectively. McDonald’s locations numbered more than 38,000 in over 100 countries around the globe. Meanwhile, KFC has more than 25,000 KFC restaurants in over 145 countries and territories around the world.
Both companies operate franchise models, meaning individuals or businesses apply to operate under the brands’ umbrella and deliver services in accordance with their standards. However, it is worth noting that not all restaurants are franchisees. In Indonesia, PT Fast Food Indonesia Tbk is the only franchise holder of the KFC brand.
How American fast-food chains took off in Indonesia
US fast-food chains have been successful in molding their offerings to suit their customers in different countries. This reflects their realization that cultural and economic considerations overlap when operating outside of the US or North American markets. For example, in parts of the Middle East, McDonald’s hamburger bun is replaced with flatbread. Meanwhile, in Israel, the fast-food chain has opened Kosher restaurants. In Indonesia and Pakistan, the restaurants are certified Halal.
This cultural awareness is reflected in how McDonald’s operates in European markets as well. In Germany, Belgium, Austria, and France, McDonald’s customers can purchase a beer or wine to go with their meals. In France, customers can also select from six flavors of macaron, while in Switzerland, diners can add Toblerone to their McFlurry. McDonald’s even operates a test kitchen in Europe that allows them to further refine their menu to meet local tastes.
In Indonesia, both KFC and McDonald’s have created menus that reflect local people’s interests and desires for American fast food, while offering a range of local and traditional cuisines.
These hybrid or localized menus serve to achieve cultural and economic interests simultaneously. McDonald’s started these practices in the 1980s, according to a 2020 academic work. One of the most noticeable manifestations of this strategy was the introduction of rice within its Asian franchises – a move that demonstrated their understanding of the importance of rice as a staple food in the region.
McDonald’s in Indonesia now offers dishes like ‘Bubur Ayam McD’ – rice porridge with chicken – and ‘Nasi Teriyaki McD’ – rice and chicken grilled with Japanese condiments. The dishes appear alongside more familiar McDonald’s cuisine on the menu. Meanwhile, KFC serves rice with crispy fried chicken or spicy wings using Indonesian spices.
Within the month of Ramadan, in which Muslims observe fasting during daylight hours, KFC offers Paket Dug Dug – a cheap meal package of chicken drumsticks. The name of the product resembles the sound of the ‘bedug’ – a large drum used to summon people to prayer or to signal the end of fasting at sunset.
KFC has also been utilizing a mobile restaurant model – mounted on the back of a truck or lorry. The method allows the franchise holder to service areas where there is insufficient demand to sustain a permanent store. The mobile restaurants provide KFC with access to more rural communities and develop an interest in the chain.
In addition, all Western fast-food chains are Halal-certified in Indonesia and the likes of McDonald’s, KFC, and Pizza Hut, among others, benefit from having a first-mover advantage. These brands have also developed significant Halal supply chains in the country. Indonesia’s domestic spending on Halal products and services stood at US$186 billion in 2020 and is expected to reach US$281 billion by 2025.
International brands or just larger organizations, such as KFC and McDonald’s, have likely also benefited from the perception that chain restaurants provide a standardized quality or service across their locations. For example, the quality of a McDonald’s burger is likely to be similar throughout its restaurants. This can be a particularly powerful marketing tool, especially in countries where quality can vary considerably between local restaurants due to factors like the availability of ingredients from week to week.
A winning strategy in Indonesia
With its domestic consumption-driven economy, a fast-growing middle class, and the world’s fourth-biggest population, Indonesia is considered an important market by global consumer goods companies.
But KFC and other global brands also must compete with local companies. Local companies have low marketing costs and no royalty payments to the brand owner, unlike franchise holders. And while KFC runs costly TV and billboard advertisements, local brands use much cheaper promotional channels, such as social media, and benefit from word-of-mouth.
Indonesia also hosts restaurants and cafes from companies like Starbucks, Domino’s Pizza, and Burger King – the latter is already a major player. But these newer entries to the market will be well served if they follow the example set by market leaders, McDonald’s and KFC. The latter has successfully channeled interest in the American fast-food segment while combining it with cultural associations that have served to enhance its brand image in Indonesia.
Practical insights for F&B businesses in Indonesia
As noted by Humaniora (2020), the business activities of American fast-food chains like KFC and McDonald’s in Indonesia have diversified the fast-food sector, creating new and innovative takes on traditional menus and recipes, while enhancing economic activity from the gig economy and service industry jobs to professional services and sourcing. These chains demonstrate their ability to implement a winning business strategy that combines their corporate brand and organizational philosophy with a cultural understanding of the local markets where they operate – which has been a recipe for high business performance and resilience.
Further, these fast-food giants are already replicating their strategy elsewhere around the world, creating greater affinity with their customers by adopting local recipes and practices where possible.
As such, culturally appropriate strategies may be best implemented when the host culture differs considerably from that of the company entering the market. These strategies are perhaps more applicable to the service industry, such as restaurants and hotels than other retail services, but nevertheless underline that when dealing with consumers, one size does not fit all.
