Townsville Bulletin

Retail chain cops a caning

- STUART CONDIE

THE company behind the Gloria Jeans and Donut King chains has been savaged by a parliament­ary committee over its treatment of franchisee­s.

Management of the company, Retail Food Group, may either have been “unethical” or “incompeten­t”, MPS said in a report yesterday.

Following an inquiry into the franchisin­g sector, the parliament­ary committee said Retail Food Group should be investigat­ed by the competitio­n regulator, the corporate regulator and the Australian Taxation Office over a raft of possible breaches of the law.

Shares in the company have plunged 98 per cent over the past three years amid allegation­s it mistreated franchisee­s.

In the report, the parliament­ary committee said Retail Food Group, or RFG, “has damaged the reputation of franchisin­g more broadly within Australia”.

It recommende­d regulators look into the company and its former and current executives in relation to possible insider trading, short selling and tax avoidance along with other potential legal breaches, including possible breaches of market disclosure obligation­s.

The inquiry found Retail Food Group opened, closed and transferre­d about 200 outlets a year across three years, suggesting it knowingly engaged in “churning and burning” franchisee­s.

Churning refers to the repeated sale at a site of a failed franchise to a new franchisee, while burning is continuall­y opening new outlets irrespec- tive of their viability or impact on existing sites in order to profit from upfront fees.

Retail Food Group repeatedly refused requests from the parliament­ary committee for documents.

“One possibilit­y is that RFG is seeking to avoid providing data that would in fact substantia­te the allegation that RFG churned sites … (and) if this is the case, then RFG may not only have engaged in unethical business practices, but may also have misled parliament,” the report said.

“The other possibilit­y is that RFG, its board and management were incompeten­t.”

The committee was troubled by the effect a stock market listing could have on a franchise-based business, noting that maximising shareholde­r value could conflict with franchisee­s’ best interests.

The report said RFG acquired 10 franchise brands over seven years after listing on the Australian Securities Exchange in June 2006 and that evidence suggested rapid growth came at the expense of existing franchisee­s.

“Franchisor­s have spoken of the harsh realities of the current retail environmen­t, and the particular difficulti­es involved in operating in shopping centres,” the report said.

“Neverthele­ss, it appears that RFG has operated a particular­ly unjust business model.”

Retail Food Group, which will close 250 stores by the end of this financial year, said it supported any changes that would benefit franchised businesses and that it took its legal obligation­s seriously.

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