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Following creditable FY21 results, Retail Food Group is adapting its business to meet the demands of an evolving economy, says Executive Chairman, Peter George.

 

Having recently announced Retail Food Group’s results for the Financial Year 2020-21, it’s a good time to assess what to expect over the next financial year.

 

The dominant theme of the past 18 months has been the government responses to COVID-19 which have included lockdowns, trading restrictions, border restrictions and personal limitations such as wearing masks and social distancing.

 

Our supply chains have remained open during the COVID responses, allowing our franchise partners at Gloria Jean’s, Donut King, Crust, Pizza Capers, Brumby’s Bakery, Michel’s Patisserie, Café2U and The Coffee Guy, to continue trading. However, the COVID environment – including more people working from home, lockdowns, and trading restrictions – all helped to suppress foot traffic in normally high-activity retail areas.

 

The 2020/21 financial year generated statutory Net Profit After Tax of $1.5 million, which was a 135 per cent increase on FY20’s result and represented the Group’s first statutory profit since FY17. Excluding discontinued operations, FY21 statutory NPAT was $7.4 million. Our underlying earnings (EBITDA) of $26.9 million were down on the FY20 result of $31.7 million.

 

While this is a creditable mix of results given the conditions, it’s worth looking at the bright spots of FY21 because in them we can see what consumers are really demanding in the emerging ‘COVID economy’ and how our brands have responded.

 

The first thing we notice with RFG’s results is that domestic Same Store Sales (SSS) across the network increased +3.2 per cent over the FY20 result. This means that despite the fear about a pandemic and trading restrictions, consumers were drawn towards retail food brands they trust and like. Our hundreds of Australian franchisees really drove those results, which were helped along by innovative marketing programs, new product launches and a revised approach to franchise partner support. The year’s growth in Average Transaction Value (ATV) of 5.7% – along with growth in Same Store Sales – indicated those new marketing and product launches are gaining traction and delivering results for franchise partners.

 

Driving the sales performance were three brands and services: Same Store Sales at Gloria Jean’s Drive-Thru outlets grew +17.8 per cent, Brumby’s Bakery grew +9.1 per cent, and the QSR brands (Crust and Pizza Capers) experienced +4.3 per cent Same Store Sales growth, including around 600,000 extra pizzas sold during the year.

 

The Gloria Jean’s Drive-Thru results confirm for us that Australians want the convenience and safety of buying coffee and snacks from their cars – a consumer demand we’ll be meeting over the coming years. The Brumby’s results reflect consumers looking for fresh, locally-made bakery goods and the result with our pizza brands was buoyed by the new price points: Crust’s $11 pizza (pick-up), and $13 pick-up at Pizza Capers, for what are premium gourmet pizzas. Both offers were supported by new $5 sides and desserts menu.

 

Positive indicators were also evident amongst the Group’s coffee-based franchises where regional outlets, less impacted by COVID-19 restrictions, performed well. In these regions Gloria Jean’s and Donut King grew Same Store Sales +6.6%, and Michel’s Patisserie Same Store Sales grew +0.5%, demonstrating the potential of these brands to deliver positive outcomes for franchise partners across the wider network once the pandemic’s impact subsides.

 

Underpinning FY21’s performance has been a lot of corporate and financial restructuring that has given RFG a leaner structure and smaller overheads during the pandemic. This includes debt reduction, elimination of management layers at head office and divestment of non-core assets such as Dairy Country and Hudson Pacific Foodservice. We also committed to a successful new general manager structure as COVID started last year, which positioned Brand System GMs as the first point of contact for franchise partners, ensuring challenges were promptly actioned and network feedback quickly provided to national office. To that I would add that the customer is clearly at the centre of RFG’s efforts as we head into 2022.

 

Further changes will emerge in this financial year. They include Donut King Mobile, where franchise partners with branded vans sell freshly made coffee and made-that-day DK cinnamon donuts; Gloria Jean’s is trialling fresh food made in-store; our Crust ‘Satellite Stores’ initiative will allow Crust franchise partners to expand sales within existing territories without having to purchase a new franchise; and we are exploring the potential for lower cost Gloria Jean’s Drive Thru outlets that will provide opportunities for more franchise partners to invest in the fast-growing drive-thru channel.

 

The past 18 months has been tough for franchise partners, investors and customers, but the economy will open again and we are positioning our eight brands to be in the right place to respond when it does.

Peter George is the Executive Chairman of Retail Food Group.

 

(1)   This column should be read in conjunction with RFG’s other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange (ASX), available at asx.com.au