Promoted to the role of group chief on Monday after less than six months leading the local business, Richard Hinson will be on the road in the coming months consulting with the more than 1,000 franchisees in RFG’s Australian network.
His message will seek to draw a line through years of complaints and allegations that RFG’s unscrupulous business practices have driven dozens of franchisees out of business.
“My focus is on our customers – the people who rely on us – our franchisees,” Hinson told Inside Retail on Monday.
“I am committed to delivering tangible benefits for franchisees through reduced cost of goods, new revenue opportunities and more hands-on field support.”
Hinson said he has already met the franchise advisory council for every brand in RFG’s network – including Gloria Jeans, Donut King, Crust Pizza and Michel’s Patisserie – and a “number” of franchisees.
$1.5 million has been spent since February on revising RFG’s field service structure to improve franchisee support, while 25 new roles have been created to support outlet performance and mentor successful owners.
Franchise fees have also been streamlined to reduce costs and $3.6 million is projected to be saved by the network each year from a recent price drop on supplied products.
The action comes after Fairfax media publicised a series of high profile allegations about RFG’s business practices last December, claiming that a lack of support, expensive and poor-quality products as well as misleading recruitment tactics had pushed partners to the wall.
In the months after the reports, RFG’s share price declined more than 80 per cent and trading across its business worsened, compounding what became a $87 million interim loss in February.
The fallout saw managing director Andre Nell retire on Monday, which makes Hinson the third executive to sit in the captain’s chair at RFG in as many years, following the retirement of Tony Alford in 2016.
Hinson said it will take him 12-18 months to complete a turnaround of the business, but others believe RFG will need to undertake more structural changes before it is able to deliver any meaningful improvement to stakeholders.
Responsibility yet to be taken
Maddison Johnstone of Franchise Redress, the body that helped Fairfax investigate RFG last year, said that Hinson must accept responsibility for years of unscrupulous business practice before franchisee confidence can be reignited.
“The company has yet to take any responsibility for the concerns of franchisees,” she said.
“There needs to be significant structural change, but more importantly there needs to be responsibility taken by the company for what’s happened – a lot of people have lost everything.”
While RFG has been trying to improve its model since February, Johnstone said little has changed for the hundreds of franchisees that Franchise Redress is in touch with.
“There are so many supply chain problems that haven’t been addressed, franchisees are still struggling to sell their stores … it’s the absolute bare minimum of what you would expect a company in crisis to do,” she said.
“Franchisees are still unhappy … they feel it’s being managed rather than resolved.”
Several photos of poor quality products sent to franchisees since Hinson became Australian chief in January were sent to Inside Retail, evidence that issues within the network are ongoing.
Johnstone said that Franchise Redress reached out to Hinson several months ago, but has yet to hear back.
In a recent submission to a Senate Inquiry into franchising, which was kicked off after a series of scandals in the sector (including those involving RFG), the Gloria Jeans owner dismissed suggestions that disclosure obligations to potential franchisees should be expanded, despite ongoing criticism.
Johnstone said Nell’s departure was interesting given forthcoming inquiry findings into the sector which could expose RFG to further criticism.
“It’s curious timing to say the least given the parliamentary inquiry is underway,” she said. “It seems like a strange move for a managing director to suddenly step down without any reason provided,” she said.
Debt will be an issue
Franchise veteran and Brumby’s Bakery co-founder Michael Sherlock said he viewed the leadership change as a positive and was hopeful that it would deliver improved conditions for franchisees.
“It’s what you do – clear out the previous people associated with the negativity and bring new people in,” he said.
Sherlock sold Brumby’s to RFG in 2007 and remained a franchisee within the network for several years afterwards.
He said RFG’s new leaders would have to put franchisees first and get back to basics.
“They need to get back to retail basics, improve support and development,” he said.
Retail Food Group still supplying their franchisees with poor quality cakes – deemed fit for consumption- over 5 months after their conduct was exposed. These were taken today by a Michel’s Patisserie franchisee. $RFG pic.twitter.com/SVPFWTsQWv
— Maddison Johnstone (@mhjohnstone) 3 May 2018
The market has responded well to Hinson’s appointment, with RFG’s share price rebounding by 9.7 per cent to 84 cents on Monday, but Sherlock said debt could be an issue for RFG’s turnaround timeline.
RFG carried $257.3 million in gross debt as at 30 June 2017, significantly higher than its current market capitalisation of $154.4 million.
Over the last twelve months the franchisor has been renegotiating its facilities, increasing its deal with Westpac Bank by $40 million last year.