I hope to bring some balance to the sensationalism recently reported regarding RFG, something sorely lacking on these boards and in the media up until now.
The Fairfax article is full of emotive language designed to paint the worst case scenario. They have reported only on a few cases, where in one case the due diligence of one franchisee was clearly below that required for running their own business, so calls into question their overall abilities to succeed in this competitive market. The second example didn’t clearly state why the Donut King business was sold for $1, given their emotive language they led us to believe the reason was that it was an unsuccessful business.
Regarding the Bankses, who buys a business without checking the full accounts? Who buys a business because they are, “Told it is a goldmine?” With this level of business acumen regarding due diligence what faith would one have of them being able to make a success of their business if these are the practices with which they started out? So did the business fail because it was a bad business or because they did not apply good business practices? The only evidence provided by the article was that the owners were not thorough and diligent in their practices so this fact lends itself towards the answer, contrary to what the article is leading us to believe by its emotive language.
Regarding the Donut King for sale in Currimundi for $1. No mention was made of why this business was being sold for $1, so what is the reason? Is it because the owner was ill? No mention of that was made in the article, which would have you believe the reason was that it was because the store was making no money, given the overall tone of their article and its title. However the reason claimed by the owner for the sale was because she had a bad back and had to sell the business because she could no longer stand on her feet as required by the business. So why does the article not state this clearly, as claimed by the franchisee wanting to sell?
If the owner was not being truthful and if the real reason was not a health problem and that it was a loss making business then we may not rely on what the franchisee was saying. If the business was not profitable, then what could be the reasons it was not profitable?
Was it because the owner was choosing not to open the store for half of every weekend? This store in fact remained closed every Sunday, on perhaps one of the busiest trading days of the week when people flock to shopping malls.
https://www.cqnews.com.au/news/buy-my-business-for-one-dollar-please/3178489/
What is clear from the article is that the business practices of some of the franchisees on whom they are reporting are duplicitous. The article claims that these franchisees are cheating by fiddling with the numbers to cheat RFG out of its franchise fee. This is downright dishonest and if this is the case how can anything that these franchisees are claiming be believed? Furthermore if it is known that certain franchisees are cheating the company are the company not then justified in using surveillance to bring such owners to book? According to the article, if the franchisees were caught cheating they were sent letters asking them to pay that of which what they had cheated the company. Sounds perfectly fair and reasonable.
It is the Franchisees who are fiddling with the wages, not RFG.
Through these examples in its own article Fairfax shows that it is some of the franchisees who are in fact dishonest and incapable, not that RFG is a poor business. So if these failing franchisees are failing because they are bad business people who are upset at losing their investments, who are dishonest in their practices, are cheating and lying, and may well have an axe to grind then why would we believe anything in the Fairfax article upon which it is predicated?
How did Fairfax get confidential documents, again from the same franchisees who have behaved unethically? How can any reliability be placed on the word of people such as this?
How about the many happy and successful franchisees that have made and continue to make money from their businesses. There are written endorsements online of many happy franchisees, which you may go and find for yourselves. The fact that so many stores continue to trade and contribute to the increasing profitability of RFG bear testament to the very many successful franchisees out there as well.
I am not claiming that RFG is without blemish, and there are undoubtedly improvements to be made by them in a number of fields, but the Fairfax article is clearly not accurate nor representative of the reality of the situation. The truth as usual lies somewhere in between. Surely we are all aware that the media in general is by and large sensationalist and tends to over exaggerate in order to sell copy. Why should this be any different? The facts are that if the situation were as bad as Fairfax claimed then RFG would not exist, but this is clearly not the case. The business exists, the business has grown and continues to do so and year on year the business increases its profits. A few bad apples will not change the facts. To those who read an article which may well be seen to be inaccurate, sensationalist and unrepresentative of all of the facts and then base your investing decisions on the same whilst ignoring the fundamentals of the business itself, I wish you luck in your investing futures, you will need it.
The truth by facts and figures shows that over the last 10 years the facts are:
Sales: UP
Cash flow: UP
Earnings: UP
Dividends: UP
Revenues: UP
Operating Margin: UP
EBITDA/EBIT: UP
Forecast from the company for profit growth: UP
It may not be the most of dynamic growth companies out there, and it does have some challenges as many businesses do, but I believe it is certainly in far better shape than the sensationalist media article would have us believe. I for one am buying what I consider to be a steadily growing company.
