Retail Food Group says it will vigorously defend itself against any class actions it may face, after its shares dropped further on the prospect of franchisees taking legal action.
Legal firm Bannister Law, which is already looking at taking class action on behalf of RFG shareholders, says it has expanded the scope of its investigation to include franchisees.
RFG is Australia’s largest multi-brand retail food franchisor: its brands include Donut King, Brumby’s Bakery, Gloria Jean’s, Michel’s Patisserie, Crust Pizza and Pizza Capers.
The group’s share price has more than halved since media reports emerged in early December with allegations the company mistreated its franchisees.
The company’s shares shed another five per cent to hit a nine-year low of $2.07 on Friday following the fresh legal threat.
RFG has consistently denied all allegations thrown at it and on Friday said it would fight any legal action.
“In the event a class action did proceed at some future point, RFG would defend it vigorously,” a company statement said on Friday.
Bannister Law said it was focusing on representations the retailer made to incoming franchisees about the profits, fees and terms of operation of the franchise store being purchased.
The legal firm’s founder, Charles Bannister, said accounts by many franchisees suggest RFG’s business practices forced some into severe financial hardship.
“Many have been left devastated – financially and personally,” Mr Bannister said.
The firm is working with action group Franchise Redress to investigate what action franchisees can take against RFG.
Franchise Redress co-founder Maddison Johnstone said more than 100 franchisees had contacted the group in recent months with concerns about RFG’s conduct.
“Some franchisees have told us that they were sold a dream and then, once they got into the store, the reality of the store’s viability became apparent,” Ms Johnstone said.
Fairfax Media began a series of reports detailing former and current franchisees’ allegations against RFG in early December, including claims RFG charged franchisees high prices for poor quality food supplies and charged exorbitant marketing fees.
The allegations, coupled with two profit downgrades in less than a month, have led to RFG’s shares more than halving in value since its $4.40 close on December 8.
RFG’s latest half-year guidance, issued in early January, has forecast net profit to be lower than the previous guidance of $22 million, down from $33.5 million a year ago.