Retail Food Group’s (RFG) shares were monstered yesterday after two days of adverse media reports (in Fairfax Media papers and websites) eroded investor confidence in the country’s biggest listed franchise operation.
RFG denied the extensive media reports, but investors were not listening and the shares ended down 26% at $3.25 amid a major loss of confidence in the company is is management.
That took the loss so far in 2017 to more than 50%.
Two Fairfax Media reports revealed hundreds of Donut King, Brumby’s and Gloria Jeans stores were going to the wall as a result of a what Fairfax claimed was a brutal franchise model.
The company also faces claims that RFG spies on franchisees and charge crippling costs, including franchise fees, which is damaging the value of its stable of brands and chains.
Fairfax also reported on Monday that RFG had warned franchisees not to air complaints publicly.
Retail Food brands include Gloria Jean’s, Crust (pizza), DCM, Donut King,Pizza Capers and Michel’s Patisserie and Brumby’s Bakery brands.
Yesterday’s fall saw the shares hit five-year lows thanks to those accusations it is running its franchisees into the ground.
Fairfax Media investigation claimed RFG is charging crippling franchise fees and other costs to boost profits, allegedly driving some franchisees to bankruptcy, destroying marriages and leading to systemic staff underpayment.
RFG has rejected the accusations.
“We reject this assertion and reiterate the fact that our success depends on the success of our franchise partners," the company said in a statement yesterday.
RFG said it had rolled out a number of measures to improve store performance while bolstering resources to support the brands.
The company is also reviewing its entire business to see if "our franchise model remains appropriate for a retail market which remains challenging".
Managing director Andre Nell launched the review earlier this year. That was reported by Fairfax on Saturday and expanded on in Monday’s report.
The company said it takes its responsibility around wage compliance seriously and had been "educating" franchise partners for some time about their employer obligations.