RFG. New growth plans, or are they flogging a dead horse.....

Lwowiak

I came across this Fairfax article, and was wondering what others thought of it:

https://www.afr.com/business/retail/fmcg/retail-food-group-hopes-di-bella-push-will-give-growth-a-caffeine-hit-20180709-h12fb9

Apart from it being a simple regurgitation of the CEO's sales pitch to try and stop the share price falling even further, the typical Farifax reporter did not add any insight or breadth to the story. Basically I read it as RFG are trying to push sh*t uphill.
The new CEO seems to have achieved very little and is grasping at straws to keep his job. Hoping that the Di Bella arm will topple Vittoria as market leader, is pretty far fetched. My humble opinion is that RFG have no clue as to the true state of the market and have hired the wrong people.
Some questions to ponder....
If Di Bella was to topple Vittoria as market leader, why didn't it happen under Phil's leadership?
What are they going to do that hasn't already been done?
Are the other large roasters going to sit around and let RFG take their market share?
What is their strategy to increase market share?

Personally I see nothing other than a lot of hot air, and the possibility of another "price war". If they really wanted to increase sales of coffee, they should start in their own backyard. All of their franchises could easily increase their coffee sales, if they improved their offering in the cup to start. Revitalizing their stores with more modern food offerings would also potentially bring in more customers. Increasing sales by opening more stores is not going to happen (not with their reputation), so how will they increase their wholesale division? When RFG bought Di Bella, the other roasters took steps to protect their market share, fearing such a move would happen. So many years later, expansion plans are finally being announced by a CEO who is out of his depth.

Not only has the horse bolted, but their reputation is so badly tarnished that RFG have a very difficult journey ahead of them. Their only ray of hope would be to lump all of their coffee roasting under one brand, and heavily promote it. They could also sell that product to the public via their stores, as long as it is fresh. Potential is there, but do they have the leadership to make it happen?

mycuppa

Yep, LW, I think you have it pretty well observed. Can’t read the AFR article without a subscription which I cancelled a while back due to crappy journalism. As a suffering RFG shareholder watching 90+% of my capital disappear, its been a daily ritual of disappointment - bad news followed by even worse news as the real stories of deception emerge. Here’s the thing. RFG are done.....it’s all over red rover. Millions and millions have been siphoned off by the people that are no longer standing there being held to account. The piggy bank has been raided and emptied. RFG have demonstrated incompetence in retaining talent which is what generally happens in takeovers - the typical arrogance of a deluded serial acquirer. Gloria Jeans had some really smart people working there that could find the perfect locations for cafes.......what did RFG do, sack them, or treat them badly so they leave and install their own inexperienced and unqualified stooges. What happens, the brand fades,  loses the plot and it’s relevance. Look at DiBella today, word is that it’s been stripped of talent (although some have been poached by Phil and his related investments). Some say the DiBella you see today is but a shadow of its past in terms of skills and capabilities. There is even talk in the industry about their cafe accounts being an easy, soft target, but that's just the bitchiness of the trade. RFG sent out press releases last week promoting a new coffee product guru who’s experience and skills were somewhat exaggerated, a part time barista and part time roaster on a small system for a small cafe.  Found it quite a bizarre move actually. It signaled a need to get their coffee house in order and unconsciously sent a message they could do much better in terms of their coffee product. RFGs roasting volumes are in a nose dive. Whilst still large in terms of kilos, it’s more important to consider the product in the context of it being out of step with the Australian cafe coffee drinker. I’d go so far as to say they have too much competition from Mocopan, Veneziano and Grinders - companies that are pushing out much bigger numbers each week than what outsiders really know, or should know because quite frankly its all highly secretive. Journalists have no idea what volumes come from what companies...........Mocop, Venz and Grindz are all expanding and running flat out 24x7......they continue to grow, week on week. One of them is building a new roasting plant that is double the size of any other platform in Australia. There is absolutely no growth runway for RFG today, just shrinkage from closing outlets and franchisees that don’t renew. Relying on the cafe industry is high risk, a segment that has become utterly dysfunctional and completely stuffed. Too many suppliers and too many cafes that can’t pay their bills......it’s nothing but a mugs game, a game that in reality RFG can’t afford to play. The industry has shifted a lot since the halcyon days when Vitoria built its business on the back of supermarkets and DiBella ran amok in the cafe segment against weak competitors or buying business through rampant discounting and incentives. After all, it’s a fickle market. Vittorias business in Australia has contracted from declining supermarket sales and the rise of private label, so they have focused most of their growth plans on the US market. If in fact RFG have only one card to play......the rather dangerous dance of reverting to rupturing the market by unsustainable discounting, then it's a short term strategy that will certainly shake up the market, but won’t deliver the critical $$$ (earnings, which are not top line revenue) RFG needs for supporting their broader business interests. Buying market share is capital intensive for the first 18 months of a typical cafe contract to fund the equipment and incentives. RFG has a current, vulnerable, serious debt problem and that does not get solved  by spending more money buying market share at thinner margins dealing with the hospitality segment that detests paying bills on time. A price war is already underway and it’s going to result in casualties. It's probably a good thing to bring some sense and structure to a fragmented market segment. All because of desperation on the part of a few large players that suffer from bad execution and looming financial challenges. My prediction is that RFG will become so desperate for cash and serving debt that it will be forced to offload valuable assets. Phil will be on the sidelines, getting wound up about performance and eventually will return to the fold, possibly taking back control of his empire at a decent discount to what was paid. Watch this space.

Koffee_Kosmo

Pardon the pun But bean counters should stick to the accounting side and let the experience of professionals guide the direction a business model should take Phil has moved on and now runs ICT ( International Coffee Traders ) KK

Lwowiak

For those who could not access the article. 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. Related Quotes RFG RTL FOOD FPO (RFG) $0.460.000.00% volume 0value 0.0 5 YEARS 1 DAY Last updated: Thu Jul 12 2018 - 9:47:30 AM View full quote ASX Announcements Expand 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.

Lwowiak

Thanks for the Response MyCuppa. I believe Phil is too astute to let an opportunity to buyback his brand, pass by. As Kerry Packer said, you only get one Alan Bond come along in your lifetime. He sold his TV Channel to Bond, and then bought it back at a huge discount. As predicted, I can see the same thing happening with DiBella. What you said about loss of talent is rife in many industries. There are many executives holding positions that they acquired through attrition or mate-ship. They are under qualified for their positions and tend to stuff up many companies. I have seen it firsthand. Poor leadership, lack of vision, lack of skills to deal with dominant (successful) salespeople, pandering to a few key clients (who make ridiculous demands), bowing to snowflakes etc, etc.. Many companies have lost talented people who have moved on to smaller competitors. Those competitors are now growing quickly and eating up market share through innovation and service. As they grow, the large players (sometimes global) then buy them out to "increase" market share, and the cycle starts again.