Gloria Jeans, Donut King owner accused of selling dud franchises | Ralph Lauren

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The company that owns Gloria Jeans, Donut King, Brumby’s Bakeries and Crust Pizza is facing legal action for allegedly deliberately selling unprofitable franchises.

Retail Food Group, one of Australia’s biggest multi-brand franchise operations, is accused by the competition watchdog of acting unconscionably and engaging in false, misleading and deceptive conduct when it sold or licensed 42 loss-making stores to new franchisees between 2015 and 2019.

The ACCC alleges RFG withheld important financial information from them and falsely claimed the stores were viable or profitable.

The company claimed in documents issued to the incoming franchisees that it could not estimate earnings for a particular store but actually knew the figures for each, the ACCC says, and was “well aware” they had not turned a profit in the current or previous financial year.

“The prospective franchisees simply had no way of knowing the true financial performance of the stores, and we allege that Retail Food Group took advantage of this when selling or licensing the stores,” ACCC chair Rod Sims said.

The Federal Court action also involves allegations RFG breached the Franchising Code by using marketing fees paid by all franchisees for other activities — in some cases using it for personnel costs for executives and employees who were not in marketing roles, and not disclosing the payments.

“In the case of the Michel’s Patisserie marketing fund, it is also alleged Retail Food Group paid around $22 million from the marketing fund to cover a range of operational and other non-marketing expenses, which included the cost of implementing a business model changing from fresh cakes to frozen,” the ACCC said.

Shares in RFG plunged 23 per cent to 7¢ in early trade after the action was announced, before being placed in a trading halt.

The ACCC is seeking declarations, injunctions, pecuniary penalties, disclosure and adverse publicity orders, a compliance program order, redress orders and legal costs.

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