Shares in the owner of Gloria Jean’s, Donut King and Brumby’s Bakery have tumbled to a five-year low following claims it is charging exorbitant fees that are running franchisees into the ground.
Gold Coast-based Retail Food Group is the country’s biggest food franchise operator and also boasts brands such as Crust Pizza, Pizza Capers, Michel’s Patisserie, Cafe2U, The Coffee Guy and Esquires Coffee.
Its shares plunged 26.14 per cent, or $1.15, to $3.25 on Monday following Fairfax Media reports at the weekend about the mistreatment of franchisees.
The investigation claims hundreds of franchisees are suffering under a brutal business model which includes crippling costs and a lack of support that has driven some to bankruptcy, destroyed marriages and led to systemic underpaying of staff wages.
One of the founders of Brumby’s, Michael Sherlock, was the bakery group’s managing director when RFG bought the franchise in 2007 – but he said he sold the last of his stake in several Brumby’s stores 18 months ago.
“The culture of the company has been destroyed and they have made it harder for franchisees to operate profitably,” he said.
“Many people are miserable.”
Mr Sherlock said he questions how many of RFG’s current 240 Brumby stores in Australia are “ghost stores”, where broke franchisees have walked away but RFG is still locked into paying rent.
He said he knew one store in Warwick, Queensland, has been vacant in the past two years, but RFG is still paying the rent.
RFG has denied all accusations.
“We reject this assertion and reiterate the fact that our success depends on the success of our franchise partners,” the company said in a statement.
RFG said it had rolled out a number of measures to improve store performance while bolstering resources to support the brands.
The company is also reviewing its entire business to see if “our franchise model remains appropriate for a retail market which remains challenging”.
Managing director Andre Nell launched the review earlier this year.
The company said it takes its responsibility around wage compliance seriously and had been “educating” franchise partners for some time about their employer obligations.
Fairfax on Monday claimed that RFG had warned franchisees not to air complaints publicly.
Vertium Asset Management equity analyst Daniel Mueller said a number of RFG brands were located in shopping centres that were rolling out eateries, restaurants and cafes to lure more customers.
Not only were RFG’s brands facing that pressure, he said, but he believed they have too many brands that overlap.
“They have so many cafe brands and two pizza brands; there would be cannibalisation,” he said.
“Consolidating would be one way of reducing costs and simplifying the business.”