tail Food Group Retail Food Group owns the Donut King, Brumby’s Bakery, Michel’s Patisserie, BB’s Café, Esquites, Gloria Jean’s Coffees, It’s A Grind, The Coffee Guy, Café2U, Pizza Capers Gourmet Kitchen and Crust Gourmet Pizza Bar franchise systems. The Gold Coast-based business is also a large wholesale coffee roaster supplying existing brand systems and third-party accounts under the Di Bella Coffee, Evolution Coffee Roasters Group and Roasting Australia coffee manufacturing brands. Justin Grey: How has business been for Retail Food Group this financial year? Gary Alford: We’re very busy. We have a lot of initiatives happening at the moment, which is keeping us very focused. We called our half-year results; we’re on track for our forecasts and nothing’s changed since then. We’ll end up with pretty much with around where we said we’d end up. JG: Last month, Retail Food Group finalised the purchase of adjoining properties at Ashmore on the Gold Coast, where you will establish RFG’s new global headquarters. What necessitated the move to new facilities? GA: We purchased our main facility six or seven years ago. Since then, we’ve had to buy another building. On the Gold Coast we’ve got two office buildings, plus we’ve got a manufacturing facility. We’ve been searching now for probably three or four years for something this size that will actually take us through to the next 10 to 20 years. Fortunately, the old Bulletin building came up and that fits our purposes perfectly. There are two separate buildings on the property. One will be an administrative building, the other one will be manufacturing. We think that for us to get into the administrative building could be up to two years [away], because there’s a lot of work to do be done. The manufacturing building is really a function of when we would start some manufacturing in there. I would think within probably three to four months, and then we’ll just build on that. JG: How much manufacturing across RFG’s brands is done in-house? GA: We’re probably focused today purely on the beverage side of the business. We’ve got coffee-roasting abilities obviously in Brisbane, Sydney, Auckland and Los Angeles. We also have a chocolate powder blending business up in Yatala [on the Gold Coast], so our intention is to migrate the powder business to the new building almost immediately. So that should be commissioned within three months. We are looking at acquiring some kit for the roasting facility out of Italy. Now that could take another 12 months before the first of those roasters arrives, and then we’ll progressively build that to the scale that we require. JG: Can you clarify if RFG is officially the biggest QSR group in the country? GA: It depends how you qualify ‘QSR’, I guess. What we do say is we’re the biggest multi-brand franchise in the country. Everybody else who might be bigger than someone else in a particular little area will claim they’re top too. We’re not that concerned. We just put our head down and do what we do. JG: RFG has some very strong brands, such as Donut King, Brumby’s, Michel’s Patisserie, Crust Gourmet Pizza and Gloria Jean’s. Which of the brands is the dominant force in the group in terms of revenue and store count? GA: We probably own gourmet pizza in this country. From a coffee perspective – and coffee just drives so much of our business – when you look at Gloria Jean’s and Michel’s and Donut King, they’re all coffee-based businesses. They are just huge. You have a look at the international footprint as well. From a coffee business, certainly from Australian-ground [coffee], we’re very deep. Obviously we have a significant presence in the bakery business as well. JG: Donut King would arguably be the leader in donuts in Australia, and Brumby’s and Michel’s are very strong in bakery and desserts, respectively. These brands have very strong presences in shopping centres throughout Australia… GA: There are a lot of them, and they do lead. Donut King is actually an interesting one. There is really no other donut chain [in Australia] at this point in time – it’s not to say there never will be – that really competes with them on a national basis. JG: Gloria Jean’s was a great acquisition for RFG last year. And you’ve done some interesting things there with increasing the drive-through branches… GA: Yes, the drive through is just a natural progression for Gloria Jean’s. It just has so much equity in that coffee area. A lot of our brands have been domiciled in shopping centres, which Gloria Jean’s is, but it also has a strong high street footprint and presence as well. The next step clearly for Gloria Jean’s is to move into the drive-through space. We’re looking at about 25 sites by end of calendar year 2016. We’ve got almost 20 confirmed at the moment. It’s going to be a large growth drive for us. JG: Are there any other acquisitions that you might be looking at that you can mention? Or are there any QSR brands from overseas that you may consider partnering with to launch in Australia? GA: We get approached often by domestic vendors, [and] we get approached quite often by overseas brands. One thing we’ve always done and have always been fairly proud of is we own all our own IP. So we’d never count anything out, but there would have to be a compelling reason for us to take master rights, for instance, as opposed to owning the IP and then actually selling out the master rights to other territories. JG: Approximately how many individual franchisees do you have across the country in the entire group? GA: We’ve got circa 1750-odd outlets. My guess would be that 1720 or 1730 would be franchised. JG: So you’ve got 20-odd corporate stores? GA: Corporate stores, yes, for various reasons. If we want to try out a new concept for one of the brands, we refine those under our own initiative. So when we feel we are ready, that’s when we’ll look at moving initiatives out into the franchise network. JG: In light of the repercussions from the 7-Eleven wages scandal, how realistic is it that executives at the helm of a large franchisor with a large franchisee network can keep tabs on all of their franchisees and ensure they are following the rules? GA: Our business just continually evolves and the way we run the business evolves. This is my 20th year, so years ago, for instance, I would be undertaking so many roles within the business. As each year goes by, you get a little bit bigger, and obviously you need to bring specialists in. We’ve been able to continually change and segment our business, so we moved from a pure shared services platform into basically the brands. Then the next iteration of that is really putting in divisional structures so that the focus and the strength of each of the brands and divisions means that you can actually focus on the operation and the compliance issues that you need to at the store or franchisee level. I think the other thing, which is very, very critical, is that we don’t – and really not too many others do – run a model like 7-Eleven. JG: Across RFG’s different brands, which ones are you focusing on the most in terms of growing the store network? Have any already reached maturity in terms of how many stores the Australian market can accommodate? GA: If you look at domestically, you would have to suggest from the experience of other brands that you look at, across most of our brands you [can] get to somewhere around the 600 outlet mark. And on that basis, none of our brands are anywhere near maturity. The QSR brands, or the pizza brands, I would suggest are probably never going to number that many. All going well, but we’ve still got a long way to go. JG: Pizza is a tough market, given there’s a very dominant player in the form of Domino’s… GA: I guess with all of our brands, one thing that we have been steadfast on over the many, many years is our reluctance to enter into the whole discounting end of retail, which unfortunately has tended to proliferate from more retailers in this country. I think if you look at the discount area of pizza, that is one segment. If we’re selling a gourmet pizza, we know our target is going to be the household that wants to treat themselves with a pizza. We know if they’re going to invite six neighbours over and buy pizza for everybody, they’re probably not going to buy our pizzas. [Crust pizzas] are a special occasion, absolutely. JG: International expansion is becoming an increasing focus for RFG. What are the latest developments outside of Australia? GA: We got to a stage in Australia where the natural progression for us was international. We had contemplated a number of smaller acquisitions that were domiciled outside of Australia. We clearly had our eyes on Gloria Jean’s for a number of years. The Gloria Jean’s acquisition just gave us the entrée, or the vehicle, immediately to drop into a number of different countries with an immediate presence. The further beauty of the Gloria Jean’s network is that a number of the master franchisees in other countries are so big that they’re corporations in their own rights. What we’re now finding is they’re actually looking to take some of our other brands. We’ve got a really exciting four months ahead of us … [there’s] a number of countries that we look like we will begin to develop. JG: Which of the brands has got the most overseas potential other than Gloria Jean’s? GA: Without giving too much away, we’ve had a number of parties here the last couple of months. The appetite has been for, certainly, Michel’s. Donut King always comes up; Crust is always top of mind, and there’s been a lot of strong interest also in Brumby’s. Depending on the country, some of our mobile brands, particularly Café Euro, has also got a bit of interest internationally as well. To be fair, it [international interest] is probably across most of the brands. Certainly Michel’s and Gloria Jean’s leads the way. There are still a number of countries that they’re not in yet. Most of our brands tend to have an interest for a number of these people. JG: Sounds promising. It will be interesting to see how that pans out for the business… GA: I think it’s going to be positive. In fact, I have no doubt it’s going to be positive. We have a number of parties that have been through this office in the last six months. [We’re] in various stages of negotiations; some of them closer to finalisation than others. The other area that does really excite us is the US. We’ve got, I think, 80-odd stores in the US; we own those directly. We also have our own coffee roasting facility over there, so we’ve had a lot of interest in the US. Our focus is to obviously grow the Gloria Jean’s brand over there … a lot of exciting things happening off shore. JG: You are currently commercial CEO for RFG, but from the beginning of the coming financial year you’ll become RFG’s group CEO. Is that going to change much for you, or is it more just a reshuffle of the executive position titles? GA: What will happen is, Tony [Alford, Gary’s older brother], the manager director of retail programs, will move into a non-executive role. Andre Neil will succeed him as managing director, and I’ll assume the group chief executive officer’s role. Those two roles used to be combined under Tony. As part of that transition plan some time ago, it was decided that he would relinquish the CEO role. And that is when Andre and I took up the CEO roles to different parts of the business.