Retail Food Group takes write-down, restructures after acquisitions

Sue Mitchell
June 3, 2015
The Age
Retail Food Group (RFG) will take a $18.5 million hit to earnings this year and has put in place a new structure to speed up overseas expansion and streamline its Australian operations after splashing out more than $200 million on acquisitions in the past year.
The fast food franchiser, which owns the Donut King, Brumby’s Bakery, Michel’s Patisserie, Gloria Jean’s and Crust Pizza franchise systems, and coffee wholesalers Di Bella, Cafe Palazzo and Barista’s Choice, has reaffirmed forecasts for a 50 per cent increase in underlying net profit to $55 million this financial year, buoyed by recent acquisitions.
But managing director Tony Alford said the company would rationalise and write down the value of sub-scale and underperforming brands such as bb’s Cafe and Esquires Coffee by $18.5 million, with most of the writedown to be booked in 2015, denting bottom-line profits. bb’s Cafe and Esquires stores will be converted to Gloria Jean’s stores or Michel’s.
RFG, Australia’s largest multi-food franchise operator, has also established a dedicated international division to support overseas expansion, set up a commissariat to service existing and future third-party customers, and reorganised its management structure to maximise the potential of recent acquisitions such as Di Bella Coffee and Gloria Jean’s.
The managing director and chief executive roles will be split. Mr Alford, who has been managing director and chief executive since 2003, will remain MD and will focus on the group’s broader strategies, including acquisitions, international development and new market penetration.
Former chief operating officer Andre Nell has been appointed joint CEO Franchise, with responsibility for brand systems, and former director of franchise Gary Alford has been appointed CEO Commercial, with a focus on global growth of the company’s non-franchised operations.
New directors
RFG is also looking for two new non-executive directors to rebuild its four-person board after non-executive director Jessica Buchanan resigned from the board to take up an executive role as RFG’s chief brand officer.
“The initiatives outlined today enable RFG to consolidate its business streams and operations in order to reset its strategic direction and redefine the company’s position within the markets in which it operates,” said Mr Alford, whose stake in the company has been diluted from 30 per cent to 13 per cent after a series of share issues to fund acquisitions.
“The company’s significant growth opportunities require and will be enhanced by the demarcation of roles and responsibilities. I have absolute confidence in Andre and Gary, and believe the creation of joint CEO functions will ensure that appropriate resources are focused on driving the entire complement of RFG’s growth initiatives,” Mr Alford said.
Mr Alford said RFG would continue to search for acquisitions while exploring expansion opportunities overseas.
Earlier this year the company established a joint venture with Tian Jin Sen Yong Tai, a subsidiary of Chinese based GouBuLi Group, to open Gloria Jean’s and It’s a Grind coffee shops in China. The first joint-venture outlet opened last month and 25 new outlets will open in the next 12 months.
RFG owns the global IP of most of its 12 brand systems and 12 wholesale coffee brands. It now has 58 licensees in about 200 regions, including the United States, China, South Africa and Indonesia. By the end of 2018, new international outlets are expected to represent about 70 per cent of new outlets across the group, reducing RFG’s reliance on Australia.
RFG expects a record 200 new outlets to open this year, 81 overseas and 119 in Australia, compared with a previous forecast of 150. However, 204 outlets will close this year, more than twice the number that closed last year.
Same-store sales across the group have risen by 2.9 per cent in the year to date, fuelled by solid growth at Gloria Jean’s, and average transaction value has grown 3.4 per cent, underpinned by new menus and store upgrades.
Mr Alford expects synergy benefits from recent acquisitions to rise $3 million to $16 million over the next three years, with a one-off cash cost of $16.3 million to be booked in 2017, compared with a previous estimate of $13 million.
RFG shares, which have risen about 10 per cent this year, fell 13¢ to $6.36.