ONE LUMP OR TWO SPECIAL REPORT

Angry operators boycott franchise fees as RFG loses half its value, again

OPERATORS of some of Australia’s biggest brands are refusing to pay franchise fees as the fallout from the Retail Food Group crisis hits new depths.

The Gold Coast giant, which operates Gloria Jean’s, Michel’s Patisseries, Brumby’s, Donut King and Pizza Capers, lost $184.6 million when it resumed trading at its lowest price in a decade yesterday. It followed a $87.8 million first-half loss on Friday and revelations up to 200 outlets would be culled.

RFG yesterday said Gold Coast operators would be spared the axe. However, it refused to elaborate.

Fed-up franchise owners facing financial ruin told the Bulletin they had not been told which stores were closing.

A Gloria Jean’s operator, who declined to be named, is among a number of franchisees who says they will not pay their franchise fees, worth about $5000 a month. “I think there are probably 500 franchise partners (in our group) and if half of them boycott, that’s $1.2 million a month.”

DISGRUNTLED operators of some of the nation’s biggest brands are boycotting franchise fees as Retail Food Group lost almost half its value – $184.6 million – when it resumed trade at its lowest price in a decade yesterday.

The company said no Gold Coast outlets would be forced to close under its mass culling of Australian stores.

However, it refused to outline which 160-200 were earmarked to close.

RFG shares, which were suspended from trade on Wednesday after failing to release its half-year results on time, hit $1.03 cents yesterday morning, their lowest mark since December 2008. They were trading at $1.295 when the market closed yesterday.

Its market capitalisation, $236.7 million when trading closed, was lower than the company’s $267.6 million of debt revealed in Friday’s results.

The company has lost more than half a billion dollars of its market capitalisation since stories of a damaging franchise model broke late in December.

RFG’s lenders, Westpac and National Australia Bank, lifted their debt-to-earnings ratio to three times to allow the company to remain within its lending requirements. The franchisor, which operates Gloria Jean’s, Michel’s Patisseries, Brumby’s, Donut King, Pizza Capers, Crust Gourmet Pizza and more, posted a $87.8 million firsthalf loss on Friday, down more than $120 million on last year’s $33 million profit for the same period.

Retail Food lost $100.8 million before interest, tax, depreciation and amortisation in the six months to December, compared with earnings of $55.4 million in the same period.

It also announced plans to take hits totalling $138 million for writedowns and provisions.

Shareholder dividends were suspended.

One Gold Coast Gloria Jean’s operator, who won’t be named for fear of retribution from the company, said franchisees had not been told which stores were closing and that they were worried about the future.

The operator is among a number of franchisees who hope to send a message to RFG by not paying their franchise fees, worth about $5000 a month.

“They need to listen to us and to take us seriously,” they said.

“There has been talk for 12 months, saying ‘we are listening to you, we take your concerns on board’ – but it doesn’t match up to action.

“I think there are probably 500 franchise partners (in our group) and if half of them boycott, that’s $1.2 million a month.”

RFG maintains “the majority of” the closures are run by franchisees who did not want to renew their leases.

It said “the majority of” the remaining stores were owned

by the company and that it would work with franchisees operating the “small number” of remaining stores.

It refused to give specific numbers for “the majority of” or “a small number” and would not say whether the full list would be released to the public or shareholders. When asked “how many

stores make up the small number that aren’t corporate stores or non-renewals?”, RFG’s media department replied: “a small number”.

“RFG will be discussing this with the affected store owners,” the response said.

Another Gloria Jean’s franchisee, who also declined to be named, said they had

chosen not to pay their franchise fees this month as it came down to a choice between paying RFG or paying rent for the store.

“We always say you’ve got to run the business like it’s your business, because they’re not going to help you.”