The future of cafe chains such as Gloria Jean’s and Donut King has been cast into doubt after a damning parliamentary inquiry slammed Retail Food Group, the franchisor behind the popular brands.
The final report from the parliamentary joint committee’s Inquiry into Franchising in Australia has been dedicated to the company.
It also recommends three government watchdogs – ASIC, the ATO, and the ACCC – investigate RFG’s operations.
IBISWorld senior industry analyst Bao Vuong said RFG had been “struggling immensely” for the past 18 months. That had prompted a restructure that will involve closing 200 outlets by July 1 as the business aims to reduce its bank borrowing.
“The things that the company has been through could suggest a collapse could be likely,” Mr Vuong said.
“On the other hand, what the company has stated is that everything is fine and they’re just in the process of repairing their financial position.”
It is still not known which businesses will close, and whether they will all be from one of the company’s brands or across its full line.
RFG owns 10 brands: Michel’s, Gloria Jean’s, Brumby’s Bakery, Donut King, Crust Gourmet Pizza, Pizza Capers, Cafe2U, The Coffee Guy, Di Bella Coffee,and Caffe Coffee.
Pulling no punches
One in six franchisee submissions to the parliamentary inquiry related to RFG, the report said, making it “plausible” that the business and its brands were “the subject of multiple complaints to regulators”.
“Given the allegations made by RFG franchisees to this inquiry [including those received on a confidential basis], the committee is surprised that none of the relevant regulators appear to have undertaken any investigation that has led to court action, or, at the very least, public acknowledgement of misconduct.”
It’s not the first time RFG has come under fire for its treatment of franchisees. In June 2018, Fairfax journalist Adele Ferguson alleged in a series of exposes that the company had taken advantage of franchisee.
Those reports hammered the company’s stock price. It took a similar battering on Friday, reaching a record low of $0.16 by 11am.
One submission, from former RFG credit controller Elke Meyer, even argued the business’ model “could not possibly be sustainable long term” as both staff and franchisees became increasingly disgruntled.
“The franchisees were also expected to pay for an increasing number of services and products allegedly provided to them by RFG. This was a bone of contention due to the common opinion that they were slowly, but surely, being bled dry by RFG,” she said.
“Franchisees overwhelmingly were working for no profit at all, and were losing money hand over fist.”