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ACCC Commences Federal Court Proceedings against Retail Food Group

Retail Food Group announced on Tuesday that the Australian Competition and Consumer Commission has commenced proceedings against the company in the Federal Court of Australia. The allegations pertain to brand franchise systems including Gloria Jean’s Coffee, Michel’s Patisserie, Brumby’s Bakery and Donut King.

It is alleged that RFG it misled franchisees into believing the stores they bought were viable businesses.

The ACCC also alleges the company misused marketing funds which were paid by Michel's Patisserie franchisees for advertising of specific brands within the RFG network that also includes the Brumby's Bakery chain, Crust Pizza and Pizza Capers. This alleged misuse includes using the marketing funds to pay for executive salary and other head office costs. The proceedings concern allegations which occurred under various senior executives who are no longer with the company.

The ACCC is seeking declarations, injunctions, pecuniary penalties, disclosure and adverse publicity orders, a compliance program order, non-party redress orders and costs. RFG notes that it is not currently possible to quantify the financial implications of the outcomes being sought by the ACCC. Although the company has highlighted several initiatives taken by new management over the last two years to support its franchisees:

  • the adoption of a new strategic roadmap — which involved refocusing core operations to retail food and coffee as well as divesting non-core underperforming business units;

  • substantial improvements to marketing — which have driven increased demand and sales;

  • investments in and redesign of RFG’s field service model — which involved the redirection of substantial head office costs to field service support;

  • improved recruitment processes — which incorporate direct executive involvement in new franchisee selection and approval;

  • enhanced monitoring of franchise performance — which involves enhancing RFG’s customer relationship management tool; and

  • ongoing focus on delivering tangible cost-of-goods-sold improvements — including significant reductions in wholesale coffee pricing, annualised flour range savings for Brumby’s franchisees, and cost reductions across the QSR Division’s core ingredient range.

No allegations have been made regarding other brand systems operated by RFG — including Crust Pizza, Pizza Capers and The Coffee Guy.

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