Victoria's lockdown sends Retail Food Group coffee sales plunging

Victoria's lockdown sends Retail Food Group coffee sales plunging

Victoria's strict COVID-19 restrictions have bitten a big chunk out of franchise operator Retail Food Group's (ASX: RFG) first quarter results.

The Gold Coast-based group, which counts Donut King, Crust Gourmet Pizzas and Gloria Jeans among its stable, saw same store sales for the first quarter dip by 2.5 per cent on the prior corresponding period.

However, this was exacerbated by results from the Victorian market where that figure was about 18 per cent.

When the Victorian figures are removed, the group reported modest growth of 0.2 per cent.

Gloria Jean's, which a reported a sales decline of 41 per cent, and Di Bella coffee were hit by Victorian residents making their cuppas at home.

RFG executive chairman Peter George said the company was anticipating increased competition within the independent wholesale coffee market.

"These factors also lend themselves to potential market consolidation and rationalisation of existing industry players which may present future opportunities for RFG's coffee busines," George said.

Across the group's domestic franchise network, total sales to 1 November were about $162 million - 14.5 per cent down on the prior corresponding period.

The announcement comes one day after funds manager Washington H Soul Pattinson (ASX: SOL) grabbed a $10 million slice of the franchisor.

Crust and Brumby's Bakery kept the dough rolling in for the company, with RFG executive chairman Peter George saying the two have been standout performers.

"Brumby's has enjoyed year-to-date same store sales growth of 10.8 per cent, underpinned by strong average transaction growth of 9.2 per cent, and Crust has sustained 7.4 per cent SSS growth," he said.

The impact of lockdowns was apparent, particularly in Victoria, where 18 per cent of the Group's domestic outlet population is based.

43 per cent of the difference between total sales in in the first quarter compared to the previous period was attributable to reduced performance in Victoria.

George said brands in shopping centres were particularly impacted, as seen in results for Donut King where Victoria accounted for 47 per cent of the sales decline.

The group first revealed the toll the pandemic lockdowns were having in June, pointing out customer counts in shopping centres had declined by about 50 per cent at one stage.

George said temporary outlet closures attributable to COVID-19 peaked at 36 stores during early September.

"While seven of these outlets remain temporarily closed, the remainder have reopened for trade," he said.

"We anticipate additional positive momentum as Victoria's COVID-19 measures are further eased, marketing activity returns to more normal levels, and the group continues to execute on its broader turnaround plan."

George said the group had also fielded new franchisee interest, with the group involved in advanced discussions for 15 potential new sites or territories across the Donut King, Crust and Gloria Jean's brands.

RFG shares were trading at 8.5 cents this morning as the company continues to slowly rebuild its reputation with franchisors.

In June corporate watchdog ASIC announced it would not be taking any enforcement action in relation to two concluded investigations of the franchise operator.

In September RFG announced it would shed its Victorian cheese business Dairy Country, which was devoured by New Zealand-based dairy giant Fonterra (NZX: FCG) for $19.23 million.

Updated at 11.48am AEDT on 12 November 2020.

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