The population of jakarta is increased by 2.8% per annum ; at the same time the number of supermarket grew from only one in 1970 to 57 in 1987; it is estimated by the local government of Jakarta that the city will need about 76 supermarkets. The evidence provides Kemchicks management to expand it's outlet in the near future. However, it is also observed that in this business, competition is now becoming more intense.

The lack of adequate fund the planned expansion by it's own, brings about Kemchicks management to consider franchising system as an alternative of growth, and to be directed in achieving the following objectives : (a) increase economies of scale, (b) personnel development.

The strategy brings about several probelms to be overcome such as the requirement of the franchisee, franchising arrangement and the term of franchising.

The result of financial analysis indicates that the expansion as an investment, is profitable. It potents to generate the internal rate of retun of more than 25%. However, the analysis also shows that the level of sales and costs are the determinants to the level of profitability. One should really care to maintain product mix such that cost of good sold stays as it is or even make it lower if possible.

There are alternatives of franchising arrangement, namely (a) product distribution arrangement, (b) product licensing, and (c) entire business format arrangement, which commonly practiced in the business. After taking into consideration the objectives of the expansion, company's strengths and weaknesses, and the industry situation, we recommend that Kemchick adopt the entire business format arrangement.

In the implementation of franchise, Kem Chicks should require franchises with sufficienct financial capability and those who recognize and be confident with the ability and competence of Kem Chicks in supermarket business.

With regard to the term of franchising, we recommend that Kem Chicks consider and keep it's control on the following aspects :

(a) hold the right to choose the location'

(b) production and supply of the meat products

(c) similar supplier to Kem Chicks and franchisee

(d) hold quality control on mechandise goods and services

(e) proportion of meat products in the product mix

(f) pricing strategy



The timing of making decision is also crucial, in mind the competitive situation and the exposure of government regulation on the location and license.



Research Location : Kem Chicks

Supervisor : Abhinandan K. Jain

Accepted on July 2007



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