“Unsustainable” – RFG flags asset sales, pledges improved franchisee support

By Nick Hall | 30 Nov 2018 View comments

Newly appointed Retail Food Group (RFG) chairman, Peter George has indicated the embattled franchisor may be in for an asset overhaul as the group urgently tries to reduce its crippling debt.

Speaking at the ASX-listed company’s Annual General Meeting on Thursday, George, a corporate restructuring and turnaround specialist, acknowledged the enormity of the task facing the group.

“The company is in a position where reducing our bank borrowings and refocussing on our customers are our top priorities,” George told shareholders.

“To reduce our bank borrowings, it is likely that we will need to sell assets, recapitalise the balance sheet and reduce our cost base by a large amount.”

Addressing the group’s financial results, the chairman confirmed that both the board and senior management were acutely aware that the company had not performed as it should, describing the current financial status as ‘unsustainable’.

On Wednesday, Inside Retail, a sibling publication to Inside Franchise Business confirmed that RFG had engaged corporate advisory firm 333 Capital to explore recapitalisation options, including assistance in a small number of potential sales.

Months of speculation have followed the company’s $306.7m loss posting in August, with industry commentators suggesting the sale of staple brands such as Crust and Donut King was imminent.

However, Richard Hinson, RFG CEO told shareholders that the company’s primary concern was franchisee retention, indicating an improved satisfaction rating would kick-start the turnaround.

“We have also been focused on improving the profitability, capability and engagement of our franchise customers, and therefore ultimately strengthening our own financial performance,” Hinson said on Wednesday.

The 12 to 18 month strategy will see RFG reduce duplication, streamline systems and redesign the organisational structure, highlighting improved group buying power and discounted franchise fees as essential initiatives.

Hinson said the group was working on delivering over $4.5m in annualised cost of goods savings for franchisees, discounting ‘new store’ and ‘renewal’ fees, investing over $1.5m in additional field support and providing an ongoing yearly investment of $1.2m in franchisee compliance support.

“An important part of delivering change to the network is also about us working together with our franchise customers more closely and asking them to actively play a part,” Hinson said.

The CEO also said the group had been working with franchisees to identify potential revenue growth opportunities.

“These initiatives include piloting concept stores at Michel’s Patisserie, Brumby’s Bakery, Donut King and Gloria Jeans, and digital promotions and loyalty programmes,” Hinson said.

The AGM comes just a few days after former RFG CEO Tony Alford fronted the parliamentary inquiry into franchising, addressing allegations he misled franchisees.

Hinson, who faced the inquiry himself in September, acknowledged that while the past year had been tumultuous for RFG, he remains positive for the future, indicating a dedication to new product, service and operational initiatives would help restore trust in the struggling franchisor.

“FY18 was a tough year, however I believe it is now time that we start looking toward the future,” Hinson told shareholders.

“Based on our operational priorities for the year ahead we expect to see our brand systems begin to stabilise, allowing us to start to transform our franchise business.”