Donut King is playing a key role in fuelling sales growth at Retail Food Group, but while profits are up 17% at the fast food company, experts say that finding growth in the Australian café market is a challenge.
Retail Food Group, which controls the likes of Brumby’s, Gloria Jeans, Crust, Donut King and Michel’s Patisserie, this week posted a 17.3% increase in net profit after tax for the first half of the 2017 financial year, with the business highlighting a 5.8% increase in Donut King’s contribution to those earnings.
Meanwhile, the company’s coffee retail sector, which includes Gloria Jean’s, recorded a 12.2% increase in earnings before tax to $18.7 million as the business looks to boost its drive through coffee operations.
Overall, revenue for the group came in at $161.9 million, with earnings before interest, tax, depreciation, and amortisation of $56.6 million and net profit after tax of $33.5 million.
The company says it is focused on “innovative” experiences across its brands, including mobile coffee ordering and drive-throughs, and adding “disruptive” technology to its traditional food court café businesses, like an in-store 3D chocolate printer at its Michel’s Patisserie stores.
“A significant focus for the company has been the fortification of key business drivers to realise lasting positive change,” Retail Food Group managing director Andre Neil said on Thursday.
“Leveraging cutting-edge technology, strategic third party collaborations and strong motivation to innovate across product, store design and promotional platforms, the company has implemented a number of initiatives programmed to drive CY17 performance.”
Crowded cafe market needs a targeted approach
However, there are no shortage of challenges in the fast food and café space, particularly for brands that operate in shopping centres, says Retail Doctor Group chief executive Brian Walker.
Walker says it’s possible that for brands like Donut King, menus at these establishments may not have moved fast enough.
“There’s a growing sense of wellness in the community—I think that could be starting to impact the Donut Kings of this world—we’d have the view that the menu hasn’t really evolved, but consumers have,” Walker says.
While the focus on innovation in mobile and coffee ordering taps into a strong customer appeal, particularly based on success seen in the US, Walker says any additional technology tricks, like the introduction of 3D printers, would have to be incredibly targeted to have an impact in a very crowded space.
“Coffee is a very populated category. If you look at a regional shop centre, there’s got to be 20 places that are selling coffee in some shape or form,” he explains.
Any strategies to get customers spending more time in quick-service food have to ensure that those ideas get deployed in locations where shoppers want to spend more time in store.
“It’s very very tricky, and it’s probably almost risky to treat customers in this general average,” Walker says.
“We’ve looked at this category closely. There are different segments that want quick takeaway, those that want the more experiential thing really. So, you have to figure your distribution very carefully as to where that happens.”
SmartCompany contacted Retail Food Group for further information about its innovation strategies across brands but did not receive a response prior to publication.