The parent company of Gloria Jean’s, Michel’s Patisserie and many other iconic brands has announced hundreds of stores will soon close as it struggles amid cost blowouts and ballooning debt.
Announcing its financial results for the first half of the 2018 financial year, Retail Food Group (RFG) revealed an after tax loss of $87.8 million, largely thanks to write-downs on the value of its retail brands.
This came despite an impressive 20.8 per cent surge in revenue compared to the same period a year earlier.
In a bid to turn around the company’s fortunes, RFG announced it will slash store numbers by between 160 to 200 outlets nationally across its brands. The closures are due to be completed by the end of next financial year.
Among RFG’s ell-known brands are Gloria Jean’s, Brumby’s Bakery, Donut King, Michel’s Patisserie, Pizza Capers and Crust Gourmet Pizza Bar.
Operational cost savings in the vicinity of $10 million have also been flagged, and dividends to shareholders suspended, as the company tries to curb its hefty net debt balance of $259.7 million.
“This comprehensive business-wide review was initiated in response to poor trading results which were impacted by ongoing challenging retail market trading conditions, especially within increasingly competitive shopping centre locations,” the company said in its results announcement.
The drastic measures were labelled “decisive action” by RFG’s managing director Andre Nell.
“We have had to make some tough decisions about our business model, our franchise network and the value of some of our assets,” said Mr Nell.
“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.”
RFG’s announcement came just weeks after a group of disgruntled franchisees announced plans for a class action against the company.
While not addressing this action directly, Mr 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.”
RFG is not the first business to lash retail landlords for eating into tight margins, but is one of the most high-profile to attribute their struggles to rental costs.
A My Business reader said rent rises for commercial properties had become unsustainable in Australia, with rents failing to match market trading conditions.
“One particular aspect is the practice in commercial rent in Australia where most landlords will increase rent by 5 per cent each year when inflation is barely 2 per cent and interest rates flat,” the reader says.
“SMEs … need regulations with commercial rent to stop landlords locking up business profitability.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.
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