Retail Food Group to close up to 200 stores

Retail Food Group to close up to 200 stores

9 March 2018

Shares in franchisor Retail Food Group’s (RFG) have plummeted to a 10-year low this week after the company reported an $88 million loss for six months, suspended dividends, and flagged it will close from 160-200 stores by mid-2019, reports ABC News.

The massive loss follows a $138 million write-down on the value of its franchise businesses, which include Gloria Jean’s, Michel’s Patisserie, Donut King, Brumby’s Bakery and Crust Pizza Bar.

According to UBS analyst Jordan Rogers, the company could shut up to 460 stores in the next two and a half years as it tries to honour its agreements with its bankers, says the SMH.

RFG chief executive Andre Nell blamed store landlords for the closures, saying the stores were dealing with unsustainable rents or were in poorly performing shopping centres. He also slammed shopping centre owners for replacing failing non-food retailers with food outlets, said the AFR.

However, he admitted RFG’s structure had become too complex after a string of acquisitions and he pledged to make the business simpler and more agile.

“It is clear from the review process that RFG needs to reset its business model and enhance its support to franchisees,” Mr Nell said.

Following accusations that hundreds of franchisees suffered under a brutal business model and a lack of support that led to systemic underpaying of staff, RFG promised to lift compliance on wage payments, said News Limited.

The company is now facing a potential class action from disgruntled franchisees over accusations it misled investors about how changes to its business model would affect store owners.

Maurice Blackburn has begun investigating a class action against the owner of the Gloria Jeans and Donut King chains on behalf of shareholders.

Almost 300 franchisees have also signed up for a class action with Bannister law firm.

A spokeswoman for RFG said: “In the event a class action did proceed at some future point, RFG would defend it vigorously.”

A Fairfax Media investigation reported that RFG presided over a deeply flawed business model in an industry that lost its way, due to soft regulation and a broken franchise code.

“For years it has been able to paper over the problem by buying new franchise brands as older brands crumble due to neglect. Pitching itself as a franchise amalgamator enabled it to hide a multiple of sins, but it eventually got caught out,” says Fairfax.

It added: “In a nutshell, RFG has put profits before franchisees and it is now paying the price. The quality of food it sells to franchisees who then sell to customers has deteriorated and the prices have gone up, causing customers to flee and revenues to fall.”

The RFG announcement comes days after Caltex announced it was getting out of the $170 billion franchise industry.

Pizza giant Domino’s has also been battered by investors as it battles a wage fraud scandal and a questionable business model across its franchise network.