Higher average spend, overseas growth boost Retail Food Group’s first half

Retail Food Group says an increase in average transaction values across its franchised cafe and restaurant chains shows its ‘franchise first’ turnaround strategy is paying off.

Bookended by different waves of the Covid-19 pandemic, the company’s half-year was marked by falling customer footfall in many of its mall-housed outlets, especially in NSW, Victoria and the ACT where varying degrees of lockdown and social-distancing measures were in play during the six months.

But despite the challenges, the company increased its net profit after tax by 31.4 per cent over the previous comparable period to $5.1 million, a feat RFG executive chairman Peter George noted was all the more remarkable for the lack of $3.7 million in government JobKeeper support received the prior year.

A first-half statutory EBITDA of $11.8 million, was slightly down on the $12.2 million of the December 2020 half. Improved performance in overseas markets contributed to the overall result.

Retail Food Group operates Gloria Jean’s, Donut King, Brumby’s Bakery, Michel’s Patisserie, Crust Gourmet Pizza, Pizza Capers, Cafe2U and The Coffee Guy. It also roasts and wholesales coffee under the Di Bella Coffee brand.

The average transaction value grew by 7.4 per cent across the company’s Australian network, which contributed to a 20.8-per-cent increase since the first half of the 2019 year when the strategy to get customers spending more when they visited stores was first introduced.

“Not only does this significant improvement validate the marketing and new product strategies which have been implemented by the group as part of its ‘franchisee first’ turnaround strategy, but it also positions RFG’s Brand Systems well to respond to less volatile trading conditions in the future,” said George.

Retail Food Group reported robust operating performance across its quick-service restaurant business, the Gloria Jean’s Drive Thru and Brumby’s Bakery networks. Growing momentum generated by the international division also contributed.

“The first half of [FY2022] was a challenging period for the group, its franchise partners and customers,” he said. “The full impact of Delta induced lockdowns, border closures, vaccine mandates and other trading restrictions took effect during Q1, particularly in NSW, Victoria and the ACT which endured extensive and sustained lockdowns. The subsequent emergence of the Omicron wave and the resulting close-contact isolation requirements further influenced consumer shopping habits and operational effectiveness, including lost trading days or hours for many outlets,” George said.

Coffee-based systems, like Michel’s and Muffin Break, were particularly impacted given they are predominantly based in shopping centres or metro locations, where worsening customer count declines were increasingly evident.

On the domestic front, same-store sales fell by 2.5 per cent during the half, significantly less than the 9.2-per-cent decline in customer count. However, its QSR business achieved same-store sales growth of 6.8 per cent, boosted by promotional value propositions launched in the Crust and Pizza Capers networks during the 2021 financial year.

New products, including Crust’s first plant-based protein range, also contributed to sales growth, said George, driving a 7.7-per-cent increase in Crust’s same-store sales.

At Gloria Jean’s, Drive Thru outlets boosted sales by 11.6 per cent on a same-store basis, while Brumby’s Bakery achieved a 0.5-per-cent same-store-sales increase.

“These outcomes partially offset Covid’s significant impact on coffee brand system performance, best illustrated by the customer count declines on the prior comparable period experienced in NSW, where a large proportion of outlets are based,” said George. Donut King’s sales fell 31.5 per cent, Gloria Jean’s by 26.1 per cent, and Michel’s Patisserie by 27.9 per cent.

While Covid cost customer traffic, isolation requirements had an operational impact on the chains, contributing to lost trading days and hours.

“The onset of Covid-19 has contributed to a circa 13-per-cent decline in trading hours across the group’s coffee brand systems since the first half of 2020, further diluting network sales during this period,” he said.

Moving forward, Retail Food Group will pursue opportunities to expand its networks of outlets. Just four new outlets opened during the first half two of them mobile Donut King stores, following “a warm reception” to the concept’s launch last August.

“The company has developed a strong pipeline of potential new franchise partner candidates, with 20 having passed the initial review/approval stage and more than 50 pending further vetting,” said George.

During the coming months, Donut King will launch a new ‘mini kiosk’ concept that incorporates a smaller footprint and establishment cost, providing access to non-traditional site locations. The design of a Gloria Jean’s Drive Thru container model has been finalised and is expected to be opened in Southeast Queensland later this year.

International division sales, profit grow

George said master franchisee partners in most overseas markets where the company has stores are reporting they are in post-Covid recovery. Underlying EBITDA for Retail Food Group’s international division grew by around 200 per cent to $1.5 million.

As of December 31, the company had 570 outlets across 55 licensed territories in 42 countries. The half saw 36 new stores open, including the first new Gloria Jean’s outlet in the US since 2018 and the launch of a new network in Vietnam. However, 56 stores were closed, about one-third of those in the UAE, where the business is now said to have stabilised.

George says more than 50 outlets are on track to open across 16 countries during the second half of the financial year, which ends in June.

“When coupled with the recent establishment of a supply-chain solution for the Donut King brand that will enable entry into the Middle East, North African and Central European markets, the company continues to maintain considerable optimism regarding the potential contribution of international operations to RFG’s future success”, he said.

This article was first published on Inside Retail, a sibling website to Inside Franchise Business Executive.