When food interests turn sour
Shares in food franchises have been a poor investment over the past couple of years, writes Anthony Keane
FOOD franchise investments are leaving a bitter taste in Australians’ mouths.
Whether you hold shares or run a specialty store, chances are you’re not happy.
Shares in Retail Food Group – which operates brands including Michel’s Patisserie, Brumby’s Bakery, Donut King and Pizza Capers – have nosedived from $5.20 to 92c in the past year amid threats of a class action from franchisees who feel exploited.
Former market darling Domino’s Pizza Enterprises has dropped from $60 to $41 a share in a year, and from $77 since 2016, amid sluggish growth. And now franchise companies are being targeted by a parliamentary inquiry into their agreements with franchisees and their industry code of conduct.
Nationals Senator John Williams, who pushed for the inquiry, said he had met people who invested their life savings only to walk away with nothing when the business failed for factors beyond their control.
Amid this negativity, you’d think that any idea of investing in food franchises should be spat out quickly, but there are some successes.
The share price of Collins Foods – which owns 223 KFC stores and 14 Sizzler restaurants in Australia – has trebled in five years, while global food giant McDonald’s is up 27 per cent on Wall Street in the past year and has trebled in a decade.
Baker Young Stockbrokers managed portfolio analyst Toby Grimm said low interest rates since the global financial crisis had helped food companies grow and attract franchisees, but the outlook was now uncertain.
“The sentiment has certainly turned against them – we would be pretty cautious in that space,” he said.
“Taco Bell is talking about making a significant push into Australia, and anything that increases competition is going to be a negative as well.” CMC Markets chief market strategist Michael McCarthy said fastgrowing companies found it hard to maintain their pace, and slower sales in recent times for Domino’s was not enough to justify its booming share price. Despite the Domino’s drop, anyone who bought the stock for $3 nine years ago has still increased their investment many times over.
Senator Williams said there were thousands of franchise success stories, and industry specialists say anyone looking to buy a food franchise should:
• Check and research all equipment, agreements and leases;
• Understand the industry’s issues and outlook;
• Know the training requirements. For example, McDonald’s requires up to a year of unpaid job training.