Retail Food Group shares drop, while loss narrows despite COVID lockdowns

Donut King and Gloria Jeans franchisor Retail Food Group narrowed its full-year after tax loss.

Donut King franchisee Joanne Gee with the isolation packs for families to decorate donuts at home.

Donut King and Gloria Jeans franchisor Retail Food Group narrowed its full-year after tax loss to $4m for the 12 months through June, compared with a $142.5m loss a year ago.

Still, the company said its positive momentum in the first nine months of the financial year was “heavily disrupted” by the coronavirus crisis, with many franchises forced to close and foot traffic down substantially in shopping centres.

“I think there is a halo effect particularly since stories of the Thai restaurant in Wetherill Park and so on, there’s a general reluctance particularly with older people, to sit down at a restaurant at the moment, and many of our Michel’s customers are in the older demographic,” executive chairman Peter George told The Australian.

Around half of the company’s franchise stores are located within shopping centres. Mr George said that foot traffic had improved significantly around the country, with the exception of in Victoria which remained in lockdown.

Despite the challenges presented by the COVID-19 outbreak, RFG said it managed to solidify plans for future growth and profitability through the 2020 financial year, having sold off some of its non-core businesses, including a food distribution business and a biscuit baking business.

“The positives for us are that we did a lot of heavy lifting in the preceding 18 months, just completely restructured the company, we completely refinanced it so we are now sitting on a healthy balance sheet with enough cash reserves to see our way through it,” Mr George said.

The company also merged the production of its two coffee facilities, and hired three industry veterans to head up its retail; operations and growth divisions.

“The problem with RFG is there are eight different franchise systems under one roof and to run those economically requires some red hot systems, and that’s something that RFG probably lacked,” Mr George said.

“If you want to put a new product into the network, you’ve got to go through a process, you’ve got to test it in the market; you’ve got to negotiate a decent price from the supplier so the franchisee can make money out of it and you’ve got to settle on a flavour range and then retest those.

“It’s probably a pretty dry area but it’s the most critical thing we’ve done is to bring some order to the chaos that existed around the management of our franchise partners.”

Retail Food Group had been embroiled in a series of scandals in recent years that have hit is business model and senior executives.

The company was forced to defend its conduct in March last year after a scathing parliamentary report into the $170bn franchising sector savaged the company’s culture and operations, hearing examples of RFG franchisees being bullied or mistreated.

Retail Food Group operates Michel’s Patisserie, Gloria Jean’s, Brumby’s Bakery, Donut King, Crust Pizza and Pizza Capers.

The company’s share price slumped on Friday, down 4 per cent at the close.