Retail Food Group's boss is confident they are positioned to withstand economic downturns
Executive chairman and CEO Peter George talks to QSR Media in an exclusive interview.
For the last year and a half, Peter George has been leading efforts in turning things around at Retail Food Group (RFG), which has been plagued with controversies over its franchising model, the quality of its product ranges and “deeply rooted cultural problems”, as described by the 2019 parliamentary inquiry report into Australian franchisors.
Now with a team of senior people from restaurant heavyweights, the franchisor’s executive chairman and CEO says its relationship with franchisees is now “stronger” as it faces its latest challenge: the unprecedented trading conditions induced by the COVID-19 pandemic.
“I believe our management guidance and financial support throughout the pandemic has proved critical,” he told QSR Media in a rare interview since joining the ASX-listed company.
“Almost overnight, foot traffic in Australia’s shopping centres plummeted and within a week, sales in our shopping centre based stores declined by 50% on pre-pandemic levels. This situation began to improve by late April and at the end of June, customer count and network sales had recovered much of this lost ground. The second wave of infections in Victoria has impacted around 10% of our total stores.”
Currently standing at eight brands, 850 franchisees and some 8,500 staff, George said the pandemic’s impact did vary when analysing RFG’s portfolio. Low-contact product offerings such as home-delivered pizza and drive-thru coffee stores fared well, as did the Brumby’s bakery businesses whilst their mall-based coffee shops were the worst affected.
“RFG’s stores are mainly located in low to medium demographic sites. With the exception of our pizza businesses, our average transaction value (ATV) is low at around $7. This positions us well to withstand economic downturns as was seen in the GFC and the 1982 and 1990 recessions,” he explained.
But their ATV, he says, offers great opportunity from them to grow earnings through new product and marketing strategies. To date, RFG said it has initiated 92 new product and marketing campaigns since restructuring, which said to have delivered over $20 million in new revenue streams.
“QSRs offer a low price point, discretionary spend that is well placed to survive a recession. With (an) average customer transaction of $7, it does not take much to increase this to $10 with a major impact on franchisee’s profitability and revenues,” he added, saying that RFG did around 70 million transactions with 17 million Australians at an average basket size of $7 in their last financial year.
Focus in having “world class systemisation”
Once slammed for acquiring already-existing franchise models, RFG says its current focus for installing “world class systemisation” across its brands is also helping franchisees through the COVID-19 crisis.
George says these systems reach include financial reporting, legal assistance, leasing negotiation, site selection, store design and store builds, partner recruitment and expansion, product development and supplier negotiation.
Other forms of support when restrictions started included the suspension of marketing levies, removal of minimum service fees, suspension of repayments on debts owing to RFG and constant updating and support on various Government initiatives and regulations.
As of 30 June, rental concessions have been achieved for 415 outlets or 49% of their total network. only 14 stores remain closed, including those affected by the second lockdown in Victoria.
Foot traffic continues to rebound, with the weighted average customer count now down 13.8% year-on-year compared to 50% for the café brands at the peak of COVID-related restrictions. With peak restrictions ending, the company intends to resume its marketing campaigns.
RFG executive chairman and CEO Peter George looks to bank on the success of their low/no contact QSR offerings. Photo: Supplied
Franchisees’ survival to remain a priority
However, George stressed that their franchisees’ survival will remain a priority, saying the pandemic is likely to impact them for the foreseeable future. At the same time, he anticipates growth opportunities to emerge from the disruption, which the group will “closely monitor.”
“The success of low/no contact QSR products during the pandemic means that we will continue to focus on these opportunities including potential investment in
ordering and fulfilment technologies,” he said.
In its latest trading update, RFG updated its earnings guidance, now estimating underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be around $35 million for the 2020 financial year. This was less than the franchisor’s previous guidance of $42 million to $46 million, which was withdrawn late March as pandemic-related lockdown measures started affecting retail and hospitality businesses.
George says the company’s forecast results “reinforces the success of our new management team’s ability to execute on the broader business turnaround at hand.”
In terms of what the future holds for the industry, George says larger and well-known brands will benefit in the medium term. Having a low ATV offering will also be an advantage, as consumers, he says, will become increasingly price-conscious.
“Inevitably, there will be many casualties in the QSR sector - particularly if the Victorian experience of a second wave is repeated in other parts of the country,” he said. “Poorly-capitalised smaller retailers, particularly those located in central business districts of capital cities look most vulnerable. The removal of Government support will likely accelerate this process.” ###
