Company Profile

Overview

Retail Food Group Limited or ‘RFG’ is a leading Australian retail food brand manager and franchisor with (as at 23 January 2008) 1,050 franchised outlets under its stewardship.

It is currently the intellectual property owner, franchisor and manager of the Donut King, Michel’s Patisserie, Brumby’s Bakeries and bb’s cafe franchise systems.

Retail Food Group Limited was admitted to the Official List of the Australian Securities Exchange (‘the ASX’) on the 20th of June 2006 following an oversubscribed initial public offer.

Since its listing, RFG has demonstrated the strength of its unique business model and strong management by delivering on the strategic growth initiatives outlined in its May 2006 Prospectus and consistently returning significant value for its shareholders, franchisees and other stakeholders. Recent highlights have included:

• exceeding Prospectus forecasts for two consecutive years;
  
• delivering strong outlet and sales growth (both at system and store level);
  
• the establishment and successful operation of the Company’s Central Manufacturing Facility (‘CMF’) to provide for consistent quality product throughout the Donut King system;
  
• the establishment (via joint venture) and successful operation of the Company’s Coffee Roasting Facility (‘CRF’) for the supply of the Company’s proprietary coffee blends to the Donut King and bb’s cafe systems;
  
• the acquisition via off market take-over of Brumby’s Bakeries Holdings Limited, the intellectual property owner and manager of the then 321 outlet strong Brumby’s Bakeries franchise system; and
  
• the acquisition of The Michel’s Group Australia Pty Ltd, the intellectual property owner and manager of the then 346 outlet strong Michel’s Patisserie franchise system.

Franchising:

As a franchisor, Retail Food Group operates ‘full format’ franchise systems. Under full format franchising, a relationship is established between the franchisor and franchisee whereby the franchisor grants a franchisee the right to establish and operate a business under the franchisor’s brand and system in return for the payment of a fee. The franchisee is contractually bound to operate its business according to the systems, formats and operational standards specified by the franchisor and will typically pay a royalty based on turnover.

In addition to providing the ‘blue print’ for operating a franchised business, the franchisor directs the overall marketing strategy for its brands together with providing ongoing quality control, guidance, supervision and business enhancements. Marketing and promotion is typically funded by a marketing levy contributed to by franchisees.

The franchising industry, and in particular retail food franchising, has grown significantly in Australia with the total number of franchised outlets increasing by some 43.8% in the three years to 2004. Indeed, in 2004 there were approximately 850 franchise systems operating in Australia.

Franchising provides the franchisor with an avenue to grow its business without expending significant capital whilst providing franchisees with the security of a proven brand, product and business system.

Of particular note, the competitive environment of the fast food retailing sector is characterised by increasing market shares amongst ‘chain operators’ relative to independent retailers. BIS Shrapnel research indicates that the number of ‘chain outlets’ in this sector has grown by 52.3% over the 2001 to 2005 period in comparison to an 18.3% decline in the number of independent fast food retailers during the same period.

Strength in Brands:

The Company is of the view that by assembling, enhancing and growing a fortress of strong, vibrant and profitable retail food franchise systems whose menu is consumer relevant, innovative, and above anything else, demands patronage, not only safeguards RFG’s own future, but just as importantly, insulates and fortifies the franchisees of each of its systems.

‘Strength in brands’ essentially allows for economies of scale, cross pollination of products, collaborative marketing initiatives, co-branding and leveraging RFG’s proven management systems and growing national presence to take advantage of significantly increased scale.

RFG’s Systems:

There are presently four well known Australian retail food franchise systems under the RFG umbrella: Donut King, Michel’s Patisserie, Brumby’s Bakeries and bb’s cafe.

Donut King:

The first Donut King outlet was opened in Sydney in 1981 and the concept was shortly thereafter developed into a rudimentary franchise system. The Donut King system has since evolved into Australia’s largest specialty donut and coffee retailer and grown to in excess of 300 outlets nationally.

Donut King targets the ‘impulse buy’, ‘reward’ and ‘treat’ segments of the food retailing sector and attracts a broad range of customers across a diverse demographic profile.

Whilst Donut King offers a variety of products including milkshakes, Quake Shakes®, frozen beverages, hot dogs, ice creams, toasts and its own proprietary blend of espresso coffee, the signature products of the Donut King system are constituted by the popular ‘original’ and ‘classic’ donut ranges.

Michel’s Patisserie:

Michel’s Patisserie was established in 1988 before being launched as a complete franchise system in 1990. It is now one of Australia’s most successful retail food franchise systems with over 340 outlets throughout Australia and additional outlets situated in New Zealand.

Michel’s Patisserie specializes in the sale of specialty cakes, treats and savory products. The brand is also renowned for its award winning coffee blend.

Michel’s Patisserie’s iconic brand, successful franchise system and innovative distribution model are key strengths which have positioned the network for further growth in the future.

Brumby’s Bakeries:

Brumby’s Bakeries is generally concerned with the retail sale of specialty breads and is one of Australia’s largest and most successful franchise systems. Indeed, Brumby’s Bakeries was among one of the first Australian retail food concepts to embark on a franchising program not only when franchising was in its infancy, but during a period when the specialty bread market was first emerging.

Like most successful businesses, Brumby’s had a modest beginning. The first store, known then as the ‘Old Style Bread Centre’, was opened in the Victorian suburb of Ashburton in 1975. Over the next decade, the ‘Old Style Bread Centre’ was introduced to, and expanded within, Queensland.

During the 1980’s it was believed that the system would be stronger with a truly Australian identity and the “Brumby’s Bakeries” brand was born.

The system has since grown to incorporate over 320 stores situated in both Australia and New Zealand.

bb’s cafe:

The bb’s cafe system developed from the BB’s Coffee & Croissants concept first established in the late 1980s in response to growing consumer demand for espresso style coffees and complementary offerings. It is now an established brand with (as at 23 January 2007) a total of 69 outlets throughout Australia and New Zealand.

bb’s cafe outlets are specialty cafés serving the system’s proprietary espresso coffee together with fresh baked and pre-pared foodstuffs. An extension of the system, bb’s cafe Plus!, also offers alcoholic beverages and an extended menu range.

Each bb’s cafe outlet is designed with an ambience, style and menu offering targeted at a broad cross section of consumers with the objective of creating a ‘welcoming oasis’ for customers.