Joint inquiry into franchise sector finds past and present Retail Food Group directors should face multiple Federal probes

UPDATE: Southport Gold Coast Retail Food Group has responded to a finding that it is at the centre of “systemic” exploitation of franchisees that should be investigated by at least three Federal agencies. What they suspect is shocking.

Appearing before the committee, former RFG managing director Tony Alford. Picture Gary Ramage

GOLD Coast franchisor Retail Food Group says it will co-operate with Federal agencies after a scathing parliamentary report into the franchise sector recommended its past and present bosses be investigated for the possibility of insider trading, tax avoidance, short selling and more.

The joint parliamentary inquiry found RFG was at the centre of “systemic” exploitation of franchisees, enabled by legislation that is patently inadequate.

The inquiry’s committee — made up of Senators and lower house MPs — was formed in March to look at the operation and effectiveness of the Franchising Code of Conduct.

In its report released this morning, RFG was mentioned 333 times and the committee recommended “that the Australian Competition and Consumer Commission, the Australian Securities and Investments Commission and the Australian Taxation Office, conduct investigations into the operations and dealings of Retail Food Group, its former and current directors and senior executives and companies and trusts they own, direct, manage or hold a beneficial interest in”.

The report said investigations should look at “Australian Consumer Law, the Franchising Code of Conduct, insider trading, short selling, market disclosure obligations (including related party obligations), compliance with directors’ duties, audit quality, valuation of assets (including goodwill), and tax avoidance”.

In a statement this afternoon, RFG said it was still examining the 369-page report but had “an established history of cooperation with regulators and takes its compliance with all of its legal obligations extremely seriously”.

Executive chairman Peter George said “The current management team and Board completely

understand that RFG’s future success is directly linked to the profitability of its franchisees”.

“We have instituted a comprehensive program of investment and improvement to materially help existing and new franchisees grow and prosper.”

RFG MOVES TO QUASH ADMINISTRATION RUMOURS

Donut King is for sale.

It recommended a multi-agency Franchising Taskforce to consider the implementation of the recommendations.

The inquiry found RFG had “churned and burned” individual franchise sites by repeatedly selling them to new franchisees despite previous owners failing to succeed in them.

Former Retail Food Group managing directors Tony Alford and Andre Nell were among those forced to front the inquiry.

Mr Alford frustrated the committee by unnecessarily prefacing every statement he made with the word “privilege” and by frequently stating he “had no insight” or “recollection” of the operations of the beleaguered franchisor.

That was despite his tenure at the company lasting decades, including stints as CEO and managing director before he left his position as a non-executive director in 2017.

His exit came before a massive collapse in the value of the Gold Coast franchisor, which owns brands including Pizza Capers and Donut King.

HOW RFG BIT OFF MORE THAN IT COULD CHEW

Appearing before the committee was former boss Tony Alford and Senior Executive Alicia Atkinson of the Retail Food Group. Picture Gary Ramage

A number of franchisees have claimed RFG operated a brutal business model that left them financially devastated, having to sell their property or declare bankruptcy.

The inquiry found existing legislation can exaccerbate the power imbalance between franchisors and the small business owners they are supposed to support.

In its report this morning, the committee found franchise agreements were largely designed by franchisors to protect their interests and that “exploitation” of contracts had caused “significant, and often lifechanging, detriment” to franchisees.

The inquiry found that while cases of franchisee exploitation was isolated when it was last examined in 2008, it had since become systemic.

“As a business structure, franchising exhibits a substantial disparity in power between franchisors and franchisees,” the report said.

“This power imbalance is inherent to the structure, given the franchisor owns the business model and has control over operations and franchisee contracts, as well as their tenancy in many cases.”

The report concluded that, despite some franchisors being publicly exposed for misconduct and exploitation, committee members had continued to receive compaints from franchisees that the behaviour was still happening.

MORE TO COME