COVID-19 shutdown hits Donut King, Gloria Jean’s, Michel’s Patisserie

By Sarah Stowe | 03 Apr 2020 View comments

The spread of the coronavirus continues to wreak havoc in cafes and retail, the latest closures striking Retail Food Group brands Donut King, Gloria Jean’s and Michel’s Patisserie.

About 90 per cent of Australian-based franchisees in these three chains have opted to temporarily close their doors as “existing trading conditions simply become untenable”, said RFG executive chairman Peter George.

The COVID-19 shutdown has hit shopping centre-based franchisees hardest.

“The situation is most acute within shopping centres and is demonstrated by a c.50 per cent reduction in customer count amongst the company’s Donut King, Gloria Jean’s and Michel’s Patisserie brands,” he said.

It’s a similar tale internationally for RFG. Government restrictions around the world have resulted in temporary closures of 481 outlets. Forty one stores are operating as takeaway only, and 51 in the global market are continuing to operate normally, subject to increasingly difficult trading conditions.

RFG support for franchisees

George said the business has taken steps to preserve the long term sustainability of its franchise network. The franchisor is directing support to those franchisees most in need, and the measures adopted will differ according to each brand.

Measures include:

  • waiving or reducing certain fixed and percentage based fees
  • waiver of fixed royalty or marketing levy floors so these fees will be calculated as a percentage of sales only
  • derferment of outstanding debt and RFG provided finance with no interest charged

George said the recent cost-cutting measures implemented to deal with the coronavirus crisis and the company’s recapitalisation have provided “increased scope” to deliver the extra support franchisees require.

RFG calls for tougher rent measures

However George revealed frustration with the lack of progress in persuading landlords to provide relief to tenants.

He said the National Cabinet’s guiding principles on which landlords and tenants could negotiate crisis-friendly commercial arrangements have failed to take seed.

“Whilst the key elements of this guidance are conceptually sound, they fail in terms of practical application due to the significant power imbalance which exists in favour of landlords.

“In reality it is our experience that tenants have very limited bargaining power to drive meaningful and timely outcomes in these circumstances.

“This is particularly the case within franchise systems such as RFG’s, where the company or its subsidiaries are in many cases the tenant under the lease, but neither own nor operate the business conducted from the premises.”

Careful to acknowledge the financial and strategic difficulties put on landlords by the coronavirus crisis,  George nonetheless called for stricter government measures to ease the pressures on all retail parties.

“Where the government’s objective is to hibernate business so that it is able to contribute to restarting the economy and preserve jobs, RFG considers that robust and urgent government intervention is necessary to address fixed cost bases such as occupancy costs, and limit the uncertainty that is necessarily influencing current decision making,” he said.