Franchise fears hit RFG

GOLD Coast franchise giant Retail Food Group has had its share price eaten away following revelations that its domestic franchise system is struggling.

Yesterday its share price opened at $3.79 and closed down 26.14 per cent at $3.25 – a loss of more than $210 million from Friday’s market capitalisation of $804.08 million

The stock was hammered in the wake of Fairfax media reports about the impact of its business model on franchisees.

Shares in the company, which has brands including Donut King, Gloria Jeans, Pizza Capers, Crust, Brumby’s Bakery and more, fell to as low as $3.21 in intraday trading.

The stock closed at $4.40 on Friday.

Fairfax reports claimed hundreds of franchisees were being charged unsustainable fees, which had led to staff underpayment and bankruptcies.

The reports claimed the Southport-based company had prioritised profits for shareholders above the livelihoods of their franchisees, many of which have been forced to sell their stores at a loss.

The media organisation said it had received more than 100 calls since Saturday with more examples, including one which compared life as an RFG franchisee to slavery.

RFG reported FY17 revenue of $349.3 million, up from $275.1 million the previous year for a net profit of $75.5 million – 14 per cent higher than FY16.

Shareholders of RFG received total dividends for FY17 of 29.75¢ per share, an increase of 8.2 per cent on the prior period. It rejected the Fairfax claims of a “brutal business model”.

“We reject this assertion and reiterate the fact that our success depends on the success of our franchise partners.”

The firm said it had rolled out a number of measures to improve store performance while bolstering resources to support the brands.

“We’ve implemented a new strategy focused on better assuring the long-term sustainability and profitability of not just our own business, but those of our franchise partners and other customers,” it said.

“We’ve appointed Deloitte to support us in conducting a whole of business review, a key aspect of which is ensuring our franchise model remains appropriate for a retail market which remains challenging.”

Managing director Andre Nell launched the review earlier this year. The company said it takes its responsibility around wage compliance seriously and had been “educating” franchise partners for some time about their employer obligations.

Fairfax on Monday claimed RFG had warned franchisees not to air complaints publicly.

Vertium Asset Management equity analyst Daniel Mueller said a number of RFG brands were located in shopping centres that were rolling out eateries, restaurants and cafes to lure more customers.

Not only were RFG’s brands facing that pressure, he said, but he believed they had too many brands that overlap.

“They have so many cafe brands and two pizza brands; there would be cannibalisation,” he said.