Languishing franchising giant Retail Food Group has been dealt another blow in the wake of the government’s scathing franchising inquiry report, admitting it deliberately extended use-by dates on food sold through its Michel’s Patisserie business.
The admission comes after an investigation from The Age and The Sydney Morning Herald which revealed memos had been sent to stores instructing them to “disregard” use-bys on certain food items, in some cases by up to six months.
Other food products, such as chocolate cakes and spinach and feta scrolls, had their use-by dates extended between two and three months, which some franchisees told The Age was “preposterous”.
The investigation sparked a food safety inquiry from the Queensland Food Authority and has also prompted an official response yesterday from ASX-listed Retail Food Group, in which it admitted to some wrongdoing.
The franchisor admitted in the past 18 months, “less than 1 percent” of its supplier network had been directed to extend the shelf life of products “where appropriate and safe to do so”. This equated to 0.25% of the company’s supplier network spend.
“RFG follows strict standards with regard to food quality and any product date extension was granted following written approval from the supplier and with consumer safety top of mind,” the company said.
“RFG audits its suppliers and distributors regularly and will remove any supplier from its network if they are deemed to have contravened relevant food safety regulations.”
The company also withdrew all products which it had given extended use-bys to and said it would work in full cooperation with regulators.
RFG’s share price dropped 4.4% on Monday, which continues a more than 70% slide in price from the start of the year, due in part to the company’s feature in the government’s long-awaited franchising inquiry report.
The report, released in March, dedicated an entire chapter to the franchising behemoth, which owns Michel’s Patisserie, Donut King, Gloria Jean’s Coffee, Pizza Capers and Crust among others.
It recommended an inter-agency investigation into RFG, alleging the company and its directors participated in insider trading, tax avoidance and breaches of consumer law.
“It appears RFG has operated a particularly unjust business model in which shareholders and senior executives have profited at the expense of franchisees,” the report said.
Brumby’s Bakery founder Michael Sherlock told SmartCompany at the time RFG’s status as a listed company caused much of the franchisor’s issues.
“As soon as a listed company gets in there and the idea is to increase profitability and revenue, they keep all the advertising money, keep all the rebates.
“[RFG] made it unattractive to own a franchise and started charging fees for anything they could think of.”
RFG decline set to continue
Speaking to SmartCompany, senior industry analyst at IBISWorld Bao Vuong says while this scandal is less significant than the inquiry report, it’s certainly not likely to help RFG regain its shaky footing.
“It’s not helping with its reputation, and we’ve seen its share price go down because of this news. It will affect them the most in the sense they’ll continue losing customers for Michel’s, and fewer customers will only contribute to their struggle as a whole.
Vuong notes RFG has committed to closing 100 unviable stores by the end of the financial year and expects that decline to continue in the short term, believing the business will “continue to shrink”.
“It will take them a lot of time to gain back consumer trust and reputation,” he says.
He warns another significant scandal could see “drastic action” taken by RFG, which could involve further store closures or the sale of some company assets.
Broadly, the franchising industry’s image is still badly battered, Vuong says, with aspiring business owner now more likely to look elsewhere or pursue more traditional avenues to start a business.
“The relationship between franchisees and franchisors is something there’s little trust in anymore, I think people are more likely to start their own small business than buy a franchise these days,” he says.
“Some positive drastic changes might need to be made to see the sector regain trust, or at least no more controversies in the media for the time being.”