RFG is doing us all no favours!
Updated: Feb 6, 2019
A few months ago I met a guy who was introduced to me as "owning a cafe", and we began chatting. From the outset we had plenty to talk about, and we bonded over things like how great it was to be working in the booming coffee industry, how much we preferred it to our old corporate jobs, and even things like how annoying it was when you get that dreaded call that your grinder is playing up! For a good quarter hour, we spoke about the ups and downs and the fun of it all, all before I knew much about his business.
Then he asked me my thoughts on franchising, and whether I was part of a franchise model.
"Actually, I'm a franchisor", I said, and quickly followed up with "but one of the good ones".
A few years ago, the second part of my statement would have been unnecessary. The franchise sector was booming, led by systems designed in America and brought to Australia as the economy really got moving in the upswing after the GFC. If you've followed any of the news on the Retail Food Group's downfall in the past twelve months, you'll appreciate that the franchise industry in Australia has taken a major reputational hit in recent times, led in large part to the unethical practices of companies like RFG - owner of the Cafe 2 U brand, as well as brands such as Michelle's Patisserie and Gloria Jeans. To be fair, other companies like Dominos, 7-Eleven and Caltex haven't helped, but since we are coffee people, we'll be mainly critical of the ones relevant to our industry.
If you were a coffee drinker 15 years ago, no doubt you would have frequented those cafes - everyone did. And you would be right in thinking they were making plenty of money. Every shopping centre and corner had a Michelle's or a Gloria Jeans - in fact they are still there today! But what none of us knew, until Fairfax let the cat out of the bag late last year, is that it wasn't the franchisees - the Mums and Dads who owned the stores - that was making the money, it was the board directors and the shareholders who were taking home the money. At the very least, that has been the case since RFG has taken over those businesses.
I could see on my new acquaintance's face that my "one of the good ones" line had resonated with him, and before I asked the question, I realised my mistake. He put his head down and said "I'm an RFG franchisee".
It's funny how that one fact totally changed the way I felt about this guy's business. Originally, I thought we were on the same page. Upbeat, thrilled to be running our own show, loving the day to day ups and downs of the coffee game. But in that one swift sentence, my enthusiasm for this guy and his business turned to pity. And he accepted it too. "They're mongrels", he said. Then he told me how when he bought this cafe, it was one of the best in the state for that particular brand. It still is, he tells me. But in the past five or six years the fee's he's been required to pay, including new store fit-outs and increased franchise fees, have sucked all the profits out from under him. All whilst the board of RFG enjoyed huge remuneration packages, and whilst shareholders continued to enjoy dividends and a surging share price.
Still, he loved what he did - he just hated the trap he'd fallen into. And now instead of looking forward to work each day, he pondered ways to get out of it. "I think i'll just end up closing the doors". Sad way to end a business that you've put your heart and soul into over the past ten years, not to mention hundreds of thousands of dollars.
And yet, despite hundreds of stories just like this one being shared in the news every week, RFG come out last month and deliver huge bonuses to their corporate executives.
What a company!
No wonder its hard to sell a franchise these days! People think we are crooks! What I would encourage any purchaser to consider before the enter into any business, is, look at who owns the franchisor and what kind of people they are. Is it held by shareholders or privately owned? What kind of track record to they have? Are they in the business of actively ensuring your success, for your benefit? Or are they looking for people to ride on the back of, sucking your profits out whilst you grind it out on the ground? And if you ever meet someone who runs a franchisee business, like one of the ones RFG owns, ask them what its' like. Forget the corporate spin about the company "turning a corner", the franchisees will speak the truth.