RFG’s Australian operation has recently received adverse media attention, along with a number of other franchise brands, as part of a wider review into the Australian franchising sector.  Below is further information regarding this and the Company’s direction moving forward.

It is important to understand that our International business model is different from the Australian franchising operations, and it continues to grow and perform well

Our International business model is different

  • RFG does not own/run/resell company outlets in the International network, unlike in Australia.
  • The International model is based on ‘Master Franchise Partners’, who maintain Brand System protocols, but operate as independent businesses, managing their own supply chain, lease agreements, franchise partners and operations etc.
  • The international support model has and is strengthened with on ground Market Development Managers in the region.
  • The international network predominantly sources its food product from local suppliers not from RFG aligned Australian suppliers.

Many international markets do not share the same external franchising pressures as the Australian market i.e. rents and wages.

Growing and performing well

  • RFG has consistently grown the number of licenced territories and outlet numbers, year on year:
    • 5% growth in outlets within the past year
    • 9% compound annual growth over the past three years
    • More than 25 new international territories over the past three years.
  • Asia, Europe and Pacific international regions have all experienced sales growth in the past year.
  • Since RFG took over GJC in December 2014, the number of GJC outlets has grown by more than 150 and, including other brands, our partners have opened more than 200 international outlets.

The RFG business is fundamentally sound. We have a new leadership team driving the turnaround in the next 12-18 months

New leadership

  • Richard Hinson joined the business in January 2018 to implement the recommendations from a strategic business review, and he was appointed Group CEO in May. He’s a 30-year veteran of the retailing industry.
  • Darren Dench was appointed CEO Di Bella Coffee Company in January 2018. He’s worked in the FMCG industry for 25 years, in Australia and internationally, including Lavazza Coffee in Europe.

Driving the turnaround

  • The RFG business is fundamentally sound, and we are delivering increased value for our franchising customers, and accelerating our growth plans for the coffee business.
  • RFG reported revenues of A$374.0m with underlying EBITDA of A$71.4m for the year ended 30 June 2018.
  • RFG has undertaken a strategic business review with Deloitte, to reset the business model. We are:
    • closing some domestic outlets mainly because of unsustainable shopping centre rents and declining centre performance
    • restructuring the corporate shared services model to reduce operating costs
    • investing to enhance the franchisee field service model
    • trialling new store concepts, reducing COGS and providing more value to franchisees.
    • Communication and transparency are the foundations for improving customer relationships.
    • Customer sustainability is the yardstick we measure ourselves by driving revenue growth and reducing cost of goods.
    • We are supporting our customers and brands with new investments in innovation and Field Service Support.

Market pressures are changing the retailing and franchising landscape in Australia and RFG is not the only company dealing with those challenges

  • Major franchise systems (Domino’s, 7-Eleven, Caltex, FoodCo, Craveable Foods as well as RFG) have been under the spotlight in the past few years.
    • The Australian Government is conducting an inquiry into the industry’s Code of Conduct.
  • Changing consumer behaviour is also creating fundamental changes for retailing.
    • Growth in the café, restaurant and takeaway sector has fallen to 3% over the past 12 months.
    • Retailing has been impacted by inflationary pressures on external costs (rent, especially in shopping centres; wages; and operating costs such as energy, insurance, motor vehicles, etc.
  • RFG is Australia’s largest multi-brand retail franchisor, and we’ve been impacted by these market pressures.

Parliamentary Inquiry

  • The Inquiry is an opportunity to improve public perceptions of franchising and educate the community about the importance of the sector.
  • RFG’s recommendation is to resist any inclination to make broad regulatory changes but ensure regulators are sufficiently resourced to enforce existing regulations.
  • There is an opportunity to improve franchisee outcomes through education and mandatory requirements for pre-contract legal and financial advice.