Retail Food Group earnings hit by floods, public holidays

Leading franchise brand manager Retail Food Group has warned that its earnings growth will take a hit from the impact of the Queensland floods and public holiday chaos over Christmas which saw a number of franchisees shut up shop rather than face big wage bills.

RFG, which manages brands including Brumby’s, Donut King, Michel’s Patisserie and bb cafe’s, had told investors that profit in the six months to December 31 would be 10-15% ahead of the previous corresponding period.

However, the company warned investors that growth was likely to be at the lower end of the range due to a number of issues over Christmas.

While wet weather in Queensland and northern New South Wales hurt sales at some franchisees, the company also revealed that the public holiday schedule over Christmas and New Year – where some employees received public holiday pay rates for as many as four days – had also caused some franchisees to shut.

The company says “significant number of franchisees…did not trade on some or all of the four designated or declared public holidays over Christmas as a result of the significantly increased wage cost brought about by the recently introduced Modern Awards under the Fair Work Act”.

However, the floods in Queensland and northern New South Wales are likely to have an even bigger impact on the company, with up to 320 of its stores in the area expected to be affected in some way.

Of the 108 franchise outlets directly affected by the floods, 100 have re-opened thanks to what RFG described as the “amazing and unselfish support provided by RFG personnel, franchisees and their staff, together with members of the community”.

But exactly when the remaining stores re-open remains an open question. 

RGF yesterday warned investors that there is a possibility the stores could never re-open, as franchisees struggle to cope with the financial costs of the disaster recovery.

The company has also warned that it could face increased bad debts from affected franchisees and some interruption to its planned expansion efforts in the area.

“Many franchisees will experience a long period of revenue reduction, and in some cases, this may result in a permanent reduction in retail sales within those communities worst affected by flood. This may have long term adverse affects for those franchisees concerned,” RFG chief Tony Alford said in a statement.

“Quite apart from the consequential direct loss of revenue RFG will suffer as a result of the floods, the company has resolved to provide necessary ongoing financial and resource assistance to impacted franchisees. Whereas RFG has no contractual obligation to do so, and leaving aside the compelling moral obligation, it is in the medium to long term economic interests of all stakeholders, including shareholders, that this assistance be provided.”

On a brighter note, Alford said the floods could have some benefits, including a speeding up of the process of converting damaged stores to new formats, and even increased sales.

“There are positives that have emanated from these devastating floods with significant uplift in sales amongst some outlets due to demand for consumer staples such as bread and stock shortages amongst supermarket vendors. Indeed, we have reports of customer lines extending beyond shopfront doors amongst a number of Brumby’s outlets.”