Retail Food Group (ASX: RFG) has signalled its turnaround strategy is coming to an end after the franchising group announced the appointment of a CEO to lead the company for the first time in more than four years.
RFG has elevated head of retail Matthew Marshall to the role to work alongside executive chairman Peter George, the turnaround specialist who has also been granted a two-year extension to remain in the executive chair’s role.
The appointment of Marshall, which is effective from 1 July this year and comes 18 months later than RFG planned, was accompanied by the company affirming its forecast FY23 underlying EBITDA guidance of between $26 million and $29 million.
However, Marshall says the final result is likely to be at the lower end of the forecast amid a deterioration of trading conditions in the second half.
“We’ve seen year-on-year growth of 8.5 per cent (for the year to date) in total network sales domestically,” Marshall says, adding that this has come back to 2 per cent growth in the second half.
“Obviously the macro-economic conditions have been difficult for all retailers in the second half, but we remain really confident in the resilience of (our) brands and their low transaction values that mean people are still spending in the brands that we’ve got.”
“The only exception is pizza which we have seen trade moderate in the last six months.”
RFG’s franchise brands include Donut King, Gloria Jean’s, Brumby’s Bakery, Michel’s Patisserie, Pizza Capers, Crust Gourmet Pizza and Di Bella Coffee.
The easing of pizza sales follows an announcement this week by Domino’s Pizza Enterprises (ASX: DMP) that it is either franchising or closing down up to 70 underperforming corporate-owned stores, along with plans to exit its store network in Denmark.
Marshall says the easing of sales from its pizza division reflects the elevated sales experienced by the category over the past few years. He also notes that RFG has no corporate owned pizza stores.
RFG sees inflationary pressures as the key issue facing the retail food sector at present, while labour availability has improved in recent months.
Marshall also notes a fall in customer visits to shopping centres has been an emerging trend in the second half.
“The foot traffic fall is not to the point where it is impacting our underlying earnings,” Marshall says.
“We expect the continuation of conditions in the next 12 months and we’re planning for that.
“The majority of our brands have a transaction value below $10 and we’re seeing that spend maintained through stores.
“Our confidence remains in the spend holding up and growing so that’s customer still spending more inside our stores.”
Meanwhile, George will continue to work alongside Marshall over the next two years with a view to accelerating growth for the business.
George has been in the role since December 2018 following the unexpected resignation of the company’s last CEO Richard Hinson.
George says the new CEO's appointment has come ‘about 18 months later than schedule when I took this job’.
The executive chairman's turnaround task since 2018 was made more difficult by a lengthy legal battle with the Australian Competition and Consumer Commission and the pandemic.
The case brought by the ACCC involved allegations of unconscionable conduct and false or misleading conduct in RFG’s dealings with franchisees. RFG settled the claim late last year with an agreement to pay $13 million to franchisees.
“RFG has come out the other side with its brand systems intact, resilient and ready for growth,” George says.
“Its systems and processes have been redesigned and it’s an opportune time now for me to hand the reins over.
“Many times over the past few years we doubted that we’d get there and now we’re looking to the future with great confidence.”
Among the growth plans for the company are ambitions to expand its Gloria Jean’s coffee network in the US by 100 stores over the next three years.
“That project is well advanced and under way,” Marshall says.
“Domestically we are engaging and looking at growth opportunities, most of that linked to our ability to leverage the systems we’ve created to pick up capital light opportunities that can build partnerships to incrementally grow the business.
“We’ve been actively working with franchisees around managing retail pricing strategies to combat the impact of inflation. We’ve got plenty of headroom to go before inflation really impacts the profitability of our franchisees.”
RFG posted a 15.3 per cent increase in revenue to $60 million in the first half of FY23 and a 28 per cent increase in underlying EBITDA to $14.4 million.
The bottom-line loss of $1.09 million largely reflected impairments relating to the agreed settlement last year with the ACCC.
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