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Donut King and Michelle’s Patisserie owners face new legal challenges amid protracted historic controversy

If you’ve ever had coffee, cakes, or cinnamon donuts at the store, you’ve probably been to the retail food group’s stable cafe.

Franchisors have long been a staple of food courts nationwide through ownership of Australia’s most famous chain stores such as Donut King, Gloria Jeans, Brumbies Bakery and Michelles Patisserie.

But as the country’s largest cities break out of the blockade and baristas once again offer shoppers hot drinks and delicious treats, retail foods are struggling to wash away the sour taste of past controversies.

Camera iconThe Retail Food Group was booming before the spectacular decline from grace began in late 2017. credit: supply

Gold Coast-based companies this week Slapped in a class proceeding The former franchisee and the current franchisee were dissatisfied with how they were expected to run their business under their previous control.

At the heart of the controversy is the infamous “fresh to frozen” retail food added to the supply chain model in 2015 and 2016, when Michel’s Patisserie franchisees were supplied with frozen food instead of fresh food. It was a change, and many franchisees described it as a significant reduction. In the quality of the food they were trying to sell.

Retail Food intends to defend it in federal court, but the class action proceedings are the latest in a series of scandals that have been faced in the last four years in an attempt to rebuild reputation and stock prices.

Collapsed empire

Retail Food, which also owns Crust Pizza, Pizza Capers, bb’s Café, and Di Bella coffee, was booming before its brilliant grace began to decline in late 2017.

A series of blockbuster media reports accused the franchisee of being badly abused and exploited, with some shopkeepers remaining financially devastated by the parent company’s uncompromising business model and lack of support. Said.

Questions about the quality of the food offered to Michelle’s franchisee in particular added to the recognition that the company was constantly squeezing its network and prioritizing shareholders.

Two Valentine's Day mud cakes rich in Michelle's patisserie.
Camera iconRetail Food tried to reset and repair the bridge with the disgruntled franchisee, turning a profit of $ 62 million into a spectacular $ 306.7 million loss over the course of the year. credit: supply

The allegations aired on Sydney Morning Herald and the Age show that retail food is arguably at the top of its power, with a strong global store network of $ 25 million in sales of $ 350 million during the 2016-17 fiscal year. It happened when I recorded. Investors enjoying fat dividends.

But that would be the end of the $ 800 million cream ASX companies quickly plummeted in value..

The company’s stock price plummeted and bad news swirled, forcing it to close hundreds of stores and downgrade a series of earnings.

Senior executives have been revolving doors for some time, with CEO Andre Nell, his successor Richard Hinson, and chairman Colin Archer leaving in less than 12 months.

Then there was finance.

Retail Food tried to reset and repair the bridge with the disgruntled franchisee, turning a profit of $ 62 million into a spectacular $ 306.7 million loss over the course of the year.

Chairman Peter George, Those who have been in command of the company since November 2018, Retail Food has launched a “listening tour” as it announces a spectacular turnaround plan to restore profitability.

Many of the company’s problems can be traced back to George’s pre-employment period, but it certainly wasn’t a smooth voyage.

Retail Food is preparing to enter its fifth year of
Camera iconRetail Food is preparing to enter its fifth year of “recovery mode,” which is very different from what dominated the Australian franchise industry four years ago. credit: Advertiser

In 2019, the company suffered more financial losses, more store closures, and bloated debt, while at the same time entertaining donut king sales offers and being forced to decline reports calling on managers. rice field.

The terrible fairness of the franchise report by the Joint Commission on Enterprises and Financial Services Raised the company with coal“Shareholders and senior executives were running a particularly unjustified business model that was profitable at the expense of the franchisee,” Retailfood said.

The company also allowed Michelle’s franchisee to direct Ignore the expiration date of a particular product It then overturns this decision and implements a new shelf life date before removing the product from the shelves.

Meanwhile, in mid-2019, law firm Corrs Chambers Westgarth announced the possibility of a class action proceeding against retail foods on behalf of Michel’s Patisserie franchise stores.

That is the proceeding finally filed this week.

By the end of 2019, the company had last-minute funding grace, but was wondering if the new debt restructuring deal could ultimately fix the ship.

Of course, the concept was completely blown out of the water by the coronavirus.

Pandemic mess

It was familiar to many retailers in 2020 and 2021, as stay-at-home orders and sporadic blockages meant closing shopping centers and running out of revenue.

In July of this year, Retail Food reported a $ 9 million delinquency claim.

All states and territories except Tasmania continue to be affected by the blockades of previous new fiscal years, with the largest store network in New South Wales and Victoria particularly affected.

“This contributed to the temporary closure of many stores, along with a decline in network customer numbers and existing store sales,” said George.

On the plus side, according to the company, Brumbies Bakery, Crust and Pizza Capers, and Gloria Jean’s Coffee Drivethrough stores “because customers have returned to their local bakeries or are looking for home delivery or low-contact service models.” , Covid achieved positive growth during the period.

Retail Food Group
Camera iconIn 2019, the terrible fairness of the franchise report raked up the Retail Food Group over coal. NCA NewsWire / Gaye Gerard credit: News Corp Australia

But as Australia’s competition watchdog begins legal proceedings in federal court on suspicion of unconscionable conduct, more pain may await, not from Covid.

In the case of a case that has not yet appeared in court, ACCC is a falsely misleading scam when selling or licensing 42 deficit-financing stores to the next franchise in the four years from 2015 to 2019. He states that he violated Australian consumer law due to his conduct.

Retail Food says it intends to protect itself and hopes for an early resolution, although large fines and other penalties leave real potential.

“Given the historical nature of the allegations, and the issues outlined in our defense, we believe that early resolution of the proceedings should be achieved for the benefit of all franchise partners.” George said.

“Above all, it helps us to recognize the reality that some positive initiatives have been developed under our new leadership and will continue to be developed. Pandemic.

“If such a resolution cannot be achieved, we promise to keep our position.”

“Careful self-confidence”

Retail Food is preparing to enter its fifth year of “recovery mode,” which is very different from what dominated the Australian franchise industry in 2017.

Currently, there are about 1500 stores in the global network and about 940 stores in Australia, including non-trading sites.

Its total value is now about $ 170 million, or $ 630 million less than it peaked, and is now worth eight cents each from a peak of more than $ 7 four years ago.

Morningstar’s latest quantitative equity research report, released shortly before the class proceedings, shows that retail foods remain at very high levels of uncertainty, with no economic moat or competitive advantage. I have.

However, he also mentioned that retail food is in a “moderate” financial position and is probably undervalued.

QLD_CP_NEWS_DONUT_14JUN21
Camera iconCurrently, Retail Food Group’s global network has approximately 1500 stores and Australia has approximately 940 stores.Brendan Radke credit: News Corp Australia

Surprisingly, the company’s latest financial results show a slight profit of $ 1.5 million for the first time since 2017, but George said that as Australians break out of the blockade, they streamline their business, franchisees. He states that he is focusing on support and adopting a customer-first approach.

“The economy is once again fully open and we try to put our branding systems and networks in the right place to respond when that happens,” George said.

“While waiting for it, the ongoing uncertainties associated with the Covid-19 and ACCC procedures continue to make it difficult to predict future financial results.”

Meanwhile, Collins Street Value Fund portfolio manager Michael Goldberg told Livewire in July that retail food management faced major challenges before them, but the future looked bright.

“There is also a clear path for entities that have begun to recover dividends, have been redesigned and rebranded, to be objectively judged on what they are doing, not what they used to be,” Goldberg said. Says.

Donut King and Michelle’s Patisserie owners face new legal challenges amid protracted historic controversy

Source link Donut King and Michelle’s Patisserie owners face new legal challenges amid protracted historic controversy

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