Retail Food Group now faces a potential class action from disgruntled shareholders

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The Retail Food Group, whose share price has been punished after a string of bad news including posting losses, now faces a possible class action over a franchise model allegedly unlikely to be profitable in the long term.

The company — the owner of Brumby’s, Donut King, Crust Gourmet Pizzas, Michel’s Patisserie and Gloria Jean’s — has been under pressure since a Fairfax Media investigation revealed hundreds of stores were going to the wall as “a result of a brutal business model”. The company says it has no evidence of franchisees underpaying staff.

Maurice Blackburn Lawyers today opened a online registration portal to enable aggrieved shareholders to participate in a potential recovery of some of their losses via a shareholder class action.

The company’s shares fell to a low of $1.62 in December last year from more than $4 each. And the shares dropped by another 35% when the company came out of a trading halt on Monday.

“If you’re running an unfair and unsustainable franchise business model that forces, in at least one reported instance, a franchisee to desperately try to sell her business for only $1, the market will eventually find you out,” says class action principal at Maurice Blackburn, Ben Slade.

“It’s completely unacceptable to exploit franchisees while relying on shareholder equity to pump up a poor business model. The lack of transparency of the true business fundamentals of the operation is a breach of the disclosure requirements in the Corporations Act.

“That is why shareholders are furious and have been dumping the stock, and that is why we are proposing to represent their interests in a bid to recoup some of those unfair losses.”

The company earlier this month posted a net loss after tax of $87.8 million for the first half on the back of “difficult trading” conditions.

The Retail Food Group has decided to close between 160 and 200 Australian outlets by the end of the 2019 financial year due to high rents and declining shopping centre performance.

The result for the six months to December included non-cash impairments and write-downs of $138 million. The impairments included Michel’s Patisserie ($45 million), Pizza Capers ($4.5 million) and Coffee Retail Division ($34.5 million).

Revenue was $195.5 million, up from $161.9 million. Underlying profit after tax was $24.7 million, down 31.8%.