Exploitation claim erodes RFG shares
Townsville SHARES in the owner of Gloria Jean’s, Donut King and Brumby’s Bakery have tumbled to a five- year low following claims it is charging exorbitant fees that are running franchisees into the ground.
Gold Coast- based Retail Food Group is the country’s biggest food franchise operator and also boasts brands such as Crust Pizza, Pizza Capers, Michel’s Patisserie, Cafe2U, The Coffee Guy and Esquires Coffee.
Its shares plunged 26.14 per cent, or $ 1.15, to $ 3.25 yesterday following Fairfax Media reports about the mistreatment of franchisees.
The investigation claimed hundreds of franchisees were suffering under a brutal business model which included crippling costs and a lack of support that had driven some to bankruptcy, destroyed marriages and led to systemic underpaying of staff.
One of the founders of Brumby’s, Michael Sherlock, was the bakery group’s managing director when RFG bought the franchise in 2007 – but he said he sold the last of his stake in several Brumby’s stores 18 months ago.
“The culture of the company has been destroyed and they have made it harder for franchisees to operate profitably,” he said.
Mr Sherlock said he questioned how many of RFG’s current 240 Brumby stores in Australia were “ghost stores”, where broke franchisees had walked away but RFG was still locked into paying rent.
He said he knew one store in Warwick, Queensland, had been vacant in the past two years, but RFG was still paying the rent.
RFG denied all accusations.
“We reject this assertion and reiterate the fact that our success depends on the success of our franchise partners,” the company said in a statement. RFG said it had rolled out a number of measures to improve store performance while bolstering resources to support the brands.
The company was also reviewing its entire business to see if “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 took its responsibility around wage compliance seriously and had been “educating” franchise partners for some time about their employer obligations.
Fairfax yesterday claimed that 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 overlapped.
“They have so many cafe brands and two pizza brands; there would be cannibalisation,” he said.
“Consolidating would be one way of reducing costs and simplifying the business.”