Retail Food Group managing director Andre Nell has denied reports that hundreds of franchisees across its brands, including Donut King, Gloria Jean’s and Brumby’s Bakery, have been driven to the wall.
The company has been accused of oppressive business practices, including exorbitant fees and a lack of support for its franchisees, and its shares have plunged 30 per cent this week, wiping more than $240 million from Retail Food Group’s share market value.
“We fundamentally don’t agree with what has been reported,” Mr Nell told AAP on Wednesday.
“And the share price doesn’t reflect the true value of the company.”
Fairfax Media this week published the findings of its investigation and interviews with former franchisees, claiming some have walked away bankrupt, leaving stores vacant and the company locked into paying the rent.
Mr Nell said the reports lack balance, and it was not correct that many franchisees have exited and left the group paying rent.
“It is not common to have stores where franchisees have walked away and we focus significantly on working with our franchisees to enhance their business and to allow them to sell their business,” he said.
Mr Nell also said the reports ignore the many profitable franchisees in the business.
“We have a significant number of successful franchisees which is off the back of a successful symbiotic relationship we have with them.”
Mr Nell said the group conducted an extensive survey of franchisees earlier this year and not one complained about the company’s franchisee fees.
However, they did raise the need for more support due to the tough retail environment.
Mr Nell said the company has followed through with digital and product innovation, including a new Donut King app that targets young people and has helped boost sales growth.
Retail Food Group said it has four teams dedicated to helping franchisees with sales and performance, operations, resources, and training, on top of making continual improvements to the supply chain.
Mr Nell launched a two-year business-wide review in June that is focused on the company’s domestic franchise operations.
UBS analysts said in a report released on Wednesday that the review could result in the company facing higher costs, including provisions for onerous leases and increased support for franchisees.
“To take a more positive view on RFG, we would need increased confidence that its lease liability is identified and can be managed, and that the value split between franchisor and franchisee is sustainable,” they said.
“Both of these issues are currently unclear, in our view.”
UBS has cut its long-term growth rate for Retail Food Group to account for increased earnings risk following the review.
Shares in Retail Food Group were steady at $3.08 on Wednesday.