They’ll sing - but they won’t talk. Photo: Supplied
They’ll sing - but they won’t talk. Photo: Supplied

Franchisee revolt as company’s value plummets

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.

Donut King.
Donut King.

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 ration to three times to allow the company to remain within its lending requirements.

The franchisor, which operates Gloria Jeans, Michel's Patisseries, Brumby's Donut King, Pizza Capers and Crust Gourmet Pizza and more, posted a $87.8 million first-half loss on Friday, down more than $120 million on last year's $33 million profit for the same period.

RFG DISPUTES DEBT

Retail Food Group chairman Colin Archer.
Retail Food Group chairman Colin Archer.

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 Jeans 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.

Retail Food Group managing director Andre Nell. Photo: Regi Varghese
Retail Food Group managing director Andre Nell. Photo: Regi Varghese

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."

Some Gloria Jeans operators are not happy.
Some Gloria Jeans operators are not happy.

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.

RFG operates Pizza Capers.
RFG operates Pizza Capers.

Another Gloria Jeans 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."

 

WHO'S RUNNING RETAIL FOOD GROUP

 

Managing director Andre Nell

Joined in 2007 as part of the acquisition of Michel's Patisserie. Since then, he has held a variety of roles including head of commercial, chief operating officer and CEO - Franchise. He is a member of the Institute of Chartered Accountants in Australia.

Chairman Colin Archer

Joined the company's board in 2006 and has been in the top job for five years.

An accountant by trade, he is a founding partner of accountancy firm Archer Gowland and Archers The Strata Professionals. Archer Rural Pty Ltd, a North Queensland beef producer.

Director Stephen Lonie

Joined the board in 2013 as an independent non-executive director. He is a chartered accountant by profession and was managing partner of KPMG's Queensland operations. Mr Lonie is chairman of RFG's audit and risk management committee, and also serves on the remuneration and nominations committees.

Director Kerry Ryan

Joined the board in 2015 as an independent non-executive director. She is a director of the Richmond Football Club and its health and fitness business, Aligned Leisure, and a member of the advisory board of Lexvoco, a legal services and consultancy business.

Director Russell Shields

Experience includes management positions with ANZ and HSBC. He joined the RFG board as an independent non-executive director in 2015. Mr Shields is currently a fellow of The Australian Institute of Company Directors.

Director Jessica Buchanan

Founder of market research firm Consumerology, Ms Buchanan joined board in 2012 as an independent non-executive director. She was brand director at Boost Juice, and helped to grow the chain to 120 stores, and a turnover of $78 million.