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Retail Food Group is pouring its growth aspirations into coffee and hopes a wholesaling push under the Di Bella coffee brand will provide a counterpoint to its troubled franchise operations.
Chief executive Richard Hinson said bringing together four wholesaling brands – Di Bella Australia and US, Roasting Australia and Evolution Roasters – will allow RFG to better take advantage of its strong position in the coffee-roasting market and underline to investors that there is diversity in the overall group.
"We hope to leverage a part of our business that hasn't been spoken about as much as we need to," he told The Australian Financial Review. "Our aim in calling out the diversity across our portfolio [is to show] we are more than just a franchising business."
The company's Australian franchise chains, including Donut King, Brumby's Bakeries and Crust Pizza, contributed 37 per cent of the company's $45.7 million in first-half earnings before interest, tax, depreciation and amortisation. Coffee wholesaling to independent cafes contributed 12 per cent, while distribution of coffee to RFG's own franchise networks contributed 26 per cent, making the combined operations a similar level of importance to franchising.
Poor performance of the chains, store closures and a franchising sector on the nose caused RFG to flag a halving of underlying net profit and a statutory loss of $87.6 million in 2017-18. Fleeing investors, who are also concerned about the company's debt level, pushed the stock down 89 per cent in the 2018 financial year, making it the worst-performing stock in the All Ordinaries Index.
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Tarnished industry
Alongside other big brand names like Domino's Pizza, 7-Eleven and Caltex, RFG has been the subject of claims that its franchisees have been pushed to the wall and system employees have been underpaid. The tarnished $170 billion franchising industry is under the spotlight and is the subject of a live Senate inquiry.
Mr Hinson, who replaced Andre Nell as CEO in May, said consolidation within RFG's coffee operations and a clear communication strategy will educate investors that the company is "a global coffee and franchising business that is very actively supported through manufacturing and distribution". He denied it was in response to RFG's tarnished reputation as a franchisor but said it was a positive development "amongst the noise".
The coffee division will be run by former Ferrero and Lavazza executive Darren Dench, who joined the company a year ago, originally to help with the international expansion of franchise brands like Gloria Jeans.
Mr Dench said building up the fast-moving consumer goods side of RFG was a sound strategy. "It's always important for any company to have as many legs on the stool as they can," he said.
The combined wholesaling operations provide coffee to just over 1000 independent cafes and restaurants in Australia, of the overall market of about 6500, and also supply beans to RFG's coffee franchises. Mr Dench said he hoped Di Bella would rise to be the country's largest coffee roaster, toppling the market leader Vittoria in the process. The wholesaling division, which will have its performance reported separately in RFG's results, buys about 3600 tonnes of coffee a year.
Potential asset sales
The four businesses have a combined 120 employees and Mr Dench said the consolidation would "absolutely not" lead to job cuts. "I would only see [staff numbers] growing into the future," he said.
New RFG group chief executive Richard Hinson.
New RFG group chief executive Richard Hinson. Supplied
No extra investment will be dedicated to helping build up Di Bella, as RFG still eyes potential asset sales to pay down its debt pile, which stood at $267.6 million at December 31. "By bringing [the coffee brands] together it allows us to use existing funds to grow our business in a way we haven't been able to do before," Mr Hinson said. "Those funds will be found within our existing business model."
At its peak in December 2016 RFG had a market value of $1.2 billion, but it has slumped to $84 million.
RFG bought Di Bella Coffee, which was established by former Young Rich lister Philip di Bella, in 2014 for $47 million.
Alongside franchising and coffee wholesaling, Mr Hinson said RFG would also seek to educate the market about its food manufacturing and distribution capability, stemming from the acquisition of Hudson Pacific in 2016 for $88 million.