The Australian Competition and Consumer Commission (ACCC) is taking Retail Food Group (RFG) to federal court over ‘unconscionable and misleading conduct’ toward its own franchisees.
The consumer group has alleged that RFG made false representations in its dealings with franchisees, in breach of Australian Consumer Law, when it sold or licensed 42 loss-making corporate stores to incoming franchisees between 2015 and 2019.
The franchising group, which operates Michel’s Patisserie, Brumby’s Bakery, Donut King and Gloria Jean’s Coffee, allegedly withheld critical profit and loss information, and falsely represented the stores as profitable in order to sell or license the stores.
According to the ACCC, the business was well aware of each store’s financial position.
“The prospective franchisees simply had no way of knowing the true financial performance of the stores, and we allege that Retail Food Group took advantage of this when selling or licensing the stores,” commented ACCC chair Rod Sims.
In a breach of the Franchising Code, RFG also used funds paid into a marketing fund by franchisees to pay for non-marketing expenses, such as personal costs for non-marketing executives, the ACCC alleges.
The consumer watchdog is seeking declarations, injunctions, penalties, disclosure and adverse publicity orders, a compliance program order, redress orders, and costs to be paid. Shares in Retail Food Group plummeted 23 per cent on the announcement.
The dealings the ACCC allege are historical said RFG in response and occurred under former leadership.
“Even if the allegations did happen, let’s put them in the past, where they belong,” said Executive chairman Peter George, adding that he believes initiatives the business has implemented during the last two years have gone a long way toward improving its ‘franchisee-first’ system, such as a new strategic roadmap and increasing compliance processes.
“Our franchisees continue to suffer from this drawn-out saga. By punishing RFG, you are punishing them. Remember, we are dealing with small business people, many of whom mortgaged their houses to operate their franchises,” he concluded.