Donut King, Gloria Jean's, Michel's see foot traffic halved due to shutdown
About 90 domestic stores in the three chains opted to temporarily close.
Retail Food Group (RFG) brands Donut King, Gloria Jean’s, Michel’s Patisserie saw a 50% decline in customer count due to measures being employed to slow the spread of COVID-19 in the country.
“The escalation of measures to slow the spread of coronavirus within the community has directly impacted foot traffic in our stores, which is the lifeblood of our franchisees’ business, as the public rightfully observes the government’s advice to avoid public spaces and stay at home,” chairman Peter George said in an update sent to the ASX, noting that stores by the three brands were predominantly situated in shopping centres.
RFG also saw a “consistent and increasing” decline in revenues this period compared to last year, leading to franchisees of about 90 stores in these three chains opting to temporarily close their doors due to “untenable” trading conditions.
Internationally, temporary closures due to government restrictions have increased to 481, with a further 141 outlets limited to take-out orders. 51 outlets remain in operation normally, but are subject to “increasingly difficult trading conditions.”
RFG said it has implemented a number of measures to support franchisees and preserve the long-term sustainability of its network.
"The steps we have taken differ by brand system, are directed at those franchisees most in need, and include the waiver or reduction of certain fixed and percentage based fees, waiver of fixed royalty and or marketing levy 'floors' so that these are calculated solely by reference to a percentage of, albeit declining, sales, and the deferment of outstanding debt and RFG provided finance," George said.
The trading update also came just days after the group announced it would be standing down or reducing the working hours of the majority of its staff.
Rent relief measures urged
George also said that RFG is “frustrated” by the lack of progress when dealing with landlords and the “unwillingness” he has seen from lessors to provide meaningful assistance.
"The National Cabinet has encouraged landlords and tenants to engage and agree on commercial arrangements that can see both through this crisis, and has provided a list of principles which should underpin those discussions," George said.
"Whilst the key elements of this guidance are conceptually sound, they fail in terms of practical application due to the significant power imbalance which exists in favour of landlords. In reality, it is our experience that tenants have very limited bargaining power to drive meaningful and timely outcomes in these circumstances,” he added.
RFG’s chairman argues that landlords simply deferring payments of rent for its franchisees will only serve to delay a significant financial impact.
"It is abundantly clear that the reduction in foot traffic attributable to government restrictions intended to combat the coronavirus has materially reduced the benefit otherwise derived by RFG and its franchisees from their leases within shopping centres," George said. "Deferral of rent in these circumstances is simply unacceptable, and will achieve nothing for our franchise network other than to delay the adverse financial consequences arising from the current situation."
George ultimately believes the government should step in to address this concern.
"Where the government's objective is to hibernate business so that it is able to contribute to restarting the economy and preserve jobs, RFG considers that robust and urgent government intervention is necessary to address fixed cost bases such as occupancy costs, and limit the uncertainty that is necessarily influencing current decision making," he said.
