When food in­ter­ests turn sour

Shares in food fran­chises have been a poor in­vest­ment over the past cou­ple of years, writes An­thony Keane

The Western Star - - MONEY SAVER -

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.

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