The ACCC is taking Retail Food Group to federal court over “unconscionable and misleading conduct” toward its own franchisees.
The consumer group alleges 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.
RFG has previously said it couldn’t estimate earnings for a particular franchise, even those it owned, but the ACCC said 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,” ACCC chair Rod Sims said.
Additionally, the ACCC alleges RFG used funds paid into a marketing fund by franchisees to pay for non-marketing expenses, such as personal costs for non-marketing executives, breaching the Franchising Code.
For example, Michel’s Patisserie’s marketing fund was allegedly used to pay costs associated with changing the business from fresh cakes to frozen cakes in franchise stores, as well as to pay down the losses at some corporate stores.
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.
Retail Food Group, in response, said the dealings the ACCC allege are historical, occurred under former leadership, and are narrow in scope and focus compared to what the watchdog was initially investigating.
Executive chairman Peter George said 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.
“Even if the allegations did happen, let’s put them in the past, where they belong,” George said.
“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.”