Retail Food Group reveals 200 stores may close

Retail Food Group, the parent company of well-known brands including Donut King, Gloria Jean’s Coffees and Michel’s Patisserie, will close up to 200 stores across Australia.

The news came with the release of the latest figures from RFG, which showed the business had made a half year 2018 net loss of $87.8m, amidst a $138m writedown.

Managing director Andre Nell said RFG was taking decisive action to address the company’s underperformance.

“We have had to make some tough decisions about our business model, our franchise network and the value of some of our assets,” he said.

“The key to improving our performance is to simplify what we do. We have all the assets we need to deliver our diversified business strategy – now we need to make sure we make the best use of those assets. The actions we are taking now will secure a sustainable long-term future for the company and our franchisees’ businesses, and drive future value for our shareholders.”

Between 160 and 200 outlets are scheduled for closure by mid 2019. One third of these stores are company-owned.

The store shut-downs are a result of unsustainable rents and tough trading conditions in shopping centres, the company reports following a six month review of the business by Deloitte.

A spokesperson for RFG said “What the modelling shows is that between 160 to 200 domestic outlets are unsustainable on a long term basis, regardless of any additional support we may provide. A key driver of this are landlord of site factors, that is, high rents or poor locations.

“Subject to moderation of landlord rental requirements, by the end of FY19 these outlets will have either closed or lease renewal not sought.”

According to RFG a number of these franchisees have already indicated they want to leave the network, or will not renew.

“We’ll work with those remaining to help their transition, either out of the network or, in some cases, to better sites where they have a greater chance of success,” said the spokesperson.

RFG’s board remains confident in the strength of the company’s underlying business operations and its ability to support its brand systems and their franchisees.

But RFG predicts the immediate future will continue to be a challenge, particularly in shopping centres.

Michel’s Patisserie is cited as one brand facing particular challenges and this year the brand will undergo a repositioning with new menu items.

Gloria Jean’s has already taken steps into the fast casual dining space.

Nell said to achieve the goal of a simpler business model there may be further changes to “better ensure RFG is applying resources more effectively. This includes further review of our broader brand strategy and portfolio”.

Nell said, “RFG’s future profitability and growth is directly linked to the health and sustainability of its franchise network, and it is clear from the review process that RFG needs to reset its business model and enhance its support to franchisees, including accelerating the delivery of initiatives that increase their revenues, reduce operating costs, and provides them with more ‘hands-on’ assistance in the field.”

The company will inject $1.5m to boost franchisee field support.