Brumby’s founder calls for Senate Inquiry in wake of Retail Food Group franchisee allegations

THIS time last year, this local retail giant was worth $1.3 billion. Now it’s less than half that and there is a call for a Senate Inquiry.

Brumby’s Bakeries are one of RFG’s famous brands.

THE co-founder of Brumby’s bakeries says a Senate inquiry is needed into the franchise system in the wake of allegations of systemic unfairness by Gold Coast-based Retail Food Group.

Weekend media reports claiming franchisees were suffering through inflated fees and costs have seen the Southport company’s value plummet.

Its shares were worth $1.31 billion in January, but yesterday the company’s value slid as low as $557 million.

Retail Food Group chairman Colin Archer.

RFG have rejected claims they are gauging franchisees, saying the company “remains confident in the strength of its franchise model”.

In a statement to the ASX it noted “the challenging and evolving retail market in which its franchisees operate, particularly within shopping centres”.

Michael Sherlock sold Brumby’s to RFG a decade ago, but said franchisees had kept contacting him for advice on how to deal with marketing and other fees they claim are not being used effectively to help them sell products and run profitable businesses.

He said franchisors should be compelled to disclose what percentage of the marketing fees went into driving network sales and there should be more clarity on the rebates franchisors receive from suppliers who franchisees are forced to buy from.

Mr Sherlock said the relationship between a franchisee and franchisor was “like a marriage” and that RFG’s relationship with its owners needed “tweaking” to make it fairer.

“Franchisees, if they work hard and follow the system, should be able to make a good return on their investment — not just a wage,” he said.

“Then at the end of their time, it should be a nest egg for themselves or to pass to someone else.”

Retail Food Group Managing Director Andre Nell.

RFG said it had support services for franchisees and had invested in business intelligence, digital capability, product innovation and supply chain improvements.

The company repeated the intentions of its strategic review of its domestic franchise operations, aimed at “driving improved franchisee profitability”, which is part of a company-wide check supported by Deloitte.

“Earlier in the year, RFG also engaged extensively with its franchisee community regarding how the Company can better improve the support it affords franchisees and the outcomes available to them from participation in RFG’s Brand Systems,” the statement said.

“RFG’s franchise operations are and remain an important aspect of the Company’s increasingly diversified business model.

“RFG remains a passionate proponent of the strength and vibrancy of the full format franchising model, and considers the benefits provided by an established brand, proven systems and ongoing support enhances the opportunity for small business owners to achieve success.”