The ACCC’s unconscionable conduct case against Gold Coast’s Retail Food Group has been delayed until 2022
A make-or-break case against Gold Coast franchisor Retail Food Group has been delayed until next year after the consumer watchdog sought to adjust its claims against the company.
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AN unconscionable conduct case against Gold Coast franchisor Retail Food Group has been delayed until next year after the consumer watchdog sought to adjust its claims against the company.
RFG, along with subsidiaries linked to Donut King, Gloria Jeans, Brumby’s Bakeries and Michel’s Patisserie, is being pursued over its treatment of franchisees under previous management.
The future of the ASX-listed company as a going concern hinges on the severity of fines and
compensation that could be ordered in the case.
The case was set for a case management hearing on Friday, but new orders were made on Wednesday, setting a new case management hearing for a date to be set in February.
The ACCC was given an extension until November 12 to file and serve affidavits from witnesses, and has until November 19 to serve an amended statement of claim.
RFG then has a week to indicate whether they consent to the new ACCC claim being filed, and if it does, the company has until December 22 to file a new defence.
The proceedings, lodged in December 2020, concern alleged misuses of marketing funds as well as the sale or licence of 42 stores.
RFG is pushing for an “early resolution” but says it will defend the matter if a settlement cannot be reached.
EARLIER: October 22, 2021:
THE coming year will be sink or swim for recovering Gold Coast franchisor Retail Food Group, with its future hinging on factors largely beyond the company’s control, according to its annual report.
Despite rigorous cost-cutting and a complete overhaul of its approach to franchisees, executive chairman Peter George said RFG remained at the mercy of Covid-19 restrictions and a looming unconscionable conduct case brought by the Australian Competition and Consumer Commission.
Despite the setbacks, the group, which operates brands including Donut King, Gloria Jeans and Brumby’s Bakery, reported network same store sales growth of 3.2 per cent as it repositioned itself for the shift in consumer trends related to the pandemic.
The report was released days after a new class action was lodged by former franchisees of Michel’s Patisserie, who are seeking damages over RFG’s conduct and operations in 2015-16.
The company famously introduced a “fresh to frozen” model in its supply chain, a model which has since been dumped.
In the report, Mr George said the past 18 months had been “tough” for franchise partners, customers and investors.
“Despite this, we have made considerable progress in our turnaround and remain committed to those things we can control,” he wrote.
“The economy will open in full again, and we are positioning our Brand Systems and network to be in the right place to respond when it does.
“Pending that, the ongoing uncertainty associated with COVID-19 and the ACCC proceedings continues to make difficult the prediction of future financial outcomes.”
The ACCC matter is due back in court for an administrative hearing on November 5.
The proceedings, lodged in December against RFG and five related companies, concern alleged misuses of marketing funds as well as the sale or licence of 42 stores.
RFG is pushing for an “early resolution” but says it will defend the matter if a settlement cannot be reached.
As well as RFG Ltd, respondents include Brumbys Bakeries, Donut King, Michel’s Patisserie, RFGA Management and Jireh International Retail, which operates Gloria Jeans.
EARLIER: September 3, 2021:
WHAT’S better than hot cinnamon donuts and a coffee?
Donuts, coffee and wheels are the latest combination Retail Food Group hopes will drive profits for franchisees as they roll out a fleet of Donut King mobile vans.
An insatiable appetite for drive-through and delivered food this week saw Retail Food Group turn its first profit in four years, and it’s a trend executive chairman Peter George believes will continue post-pandemic.
Reporting a net profit of $1.5m – its first black ink since 2017 – RFG revealed it sold 600,000 more pizzas at its Crust and Pizza Capers stores than the previous year, with same store sales growing an average 3.2 per cent across its brands.
Standouts included a 17.8 per cent sales increase at its Gloria Jeans drive-throughs and 9.1 per cent growth at its Brumby’s Bakeries.
Underlying earnings for Brumbys rose an impressive 39.1 per cent.
The sweet spots were countered by depressed results in its shopping centre-based stores including Donut King, Gloria Jeans and Michel’s Patisserie, which continued to suffer from prolonged lockdowns in NSW and Victoria.
“It was a mixed year where we had half of the businesses exceeding expectations,” Mr George said.
“Brumby’s bakeries had a cracking year as people returned to their local baker instead of the supermarket.”
RFG revealed 85 outlets had permanently closed in the past year, while 40 had closed temporarily due to lockdowns. Meanwhile, 17 new stores were opened.
It’s a positive turnaround for RFG compared to the 305 that closed in 2017-18, when no new stores launched.
There are currently 750 RFG outlets – a modest portfolio compared to the 2516 stores it boasted at the 2017 peak of a costly acquisition spree.
RFG’s strategy is likely to follow a consumer shift towards drive-through food, accelerated by Covid-19.
“There’s no doubt that the drive-through model is much more lucrative if you get the entry price right,” Mr George said.
“For example a Gloria Jeans in a shopping centre might make $20,000 a week, whereas our most successful drive-through in western Sydney made $100,000 a week during Ramadan and $70-80,000 in a regular week.”
The group has been in recovery mode for more than three years, with its future hinging largely on two factors beyond Mr George’s control – Covid-19 and the Australian Competition and Consumer Commission
In the wake of a damning parliamentary inquiry into franchise operators, the ACCC brought an unconscionable conduct case against RFG, which remains before the Federal Court.
The commission alleges RFG breached Australian Consumer Law by engaging in false, misleading and deceptive conduct when it sold or licensed 42 loss-making corporate stores to incoming franchisees between 2015 and 2019.
Mr George expects an adverse finding, but the degree of adversity remains unclear, with significant fines and other penalties very much on the table.
The company has filed a detailed defence in response to the allegations and is hoping for a swift result.
He said the previous management’s model of acquisition couldn’t be further from today’s approach.
“It’s not our business model to bring aboard anyone who’s not going to make it,” he said.
“We’re setting people up for success, not failure.
“We’re only as strong as our weakest link.”
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