Retail Food Group Under Scrutiny, Stock Tanks!

Retail Food Group Under Scrutiny, Stock Tanks!

The multi-brand food franchise player, Retail Food Group Limited (ASX: RFG) shares are trading down by a more than 10% (as at 2:35 pm, 15 March’19) post the 300+ page Parliamentary Inquiry Report release. The report finds corporate misgovernance such as company not adhering to disclosure obligations, insider trading and tax evasion. The report recommended the concerned government bodies like tax office, and competition watchdog investigate the company’s behaviour.

The report comes as a significant wake-up call for the ~$170 billion franchise industry on the wake of the parliamentary committee findings. The committee found a lack of cooperation from the former and current management personals of RFG and they were not available for the hearing until a court order was pressed. The report also informed that RFG did not provide the committee with its operational information as sought by the committee.

The report drew a comparison to the corporate governance issues spotted in the franchise business to that in the financial world. They observed blatant abuse of power by the franchisor.  The report highlighted the power imbalance within the industry. The committee found RFG of “Churning and burning,” i.e. frequent sale of the franchise to the franchisee of a single outlet of a failed franchise and opening unviable new outlets just in order to collect the upfront fees at the cost of the older outlet’s economics. The report stated that RFG opened, moved, and closed around two hundred outlets over three years.

On the wake of these findings, the committee made few recommendations such as regulatory changes to incorporate further transparency, accountability, and whistle-blower protections. The committee also recommended ACCC to be provided with more powers to investigate the issues cropping up in franchise businesses.

The company had recently refuted the media speculation on RFG.

In reply to the report, RFG submitted its response to the exchange today. The company stated that it supports any changes which would benefit the franchising industry. The company also highlighted that it has implemented a Board renewal strategy and has significantly changed and strengthened its senior leadership team. It is currently led by expert Executive Chairman Peter George. Mr. George commented that the company has taken steps to help the new franchisees to grow and prosper and acknowledged that RFG’s future success relies directly upon the profitability of its franchisees.

Recently, RFG was removed from the All Ordinaries Index. More on this could be read here.

Stock Information:

The stock has been in a downtrend in the recent past. The stock has moved down by 63.00%, 41.27%, and 36.21%, in the past six months, three months and one month respectively (as on 14 March 2019).

The shares of RFG were trading at A$ 0.165 on ASX, down by 10.811%, (As at Fri 15 Mar 19 02:35 PM)

Retail Food Group Limited’s (ASX: RFG)  market capitalization stands at circa A$33.81 million. The Stock has noted the 52-week high price of A$1.220 and 52-week low price of A$0.160. As per the latest ASX declaration, the company EPS stood at -1.813 AUD.


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