Distribution Tender - Good News

The article below was published in AFR today.

This is great news. The distribution tender is the second big operational improvement following the closure of under performing stores.
The tender is great news for franchisees as it will provide a better more reliable service, lower prices and greater stock availability. For RFG it is a massive opportunity to cut back office costs. For the new food service provider it will provide an opportunity to lock in a large customer base with around 1500 outlets to service.

Having worked in fast food in a long ago past life I can understand the significance of this tender, it is certainly a great opportunity for RFG to rebuild its relationships with franchisees.



AFR article.

Retail Food Group tenders distribution to cut suppliers, products and costs

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Retail Food Group CEO Richard Hinson has tendered the entire distribution business as part of a strategy to cut costs and simplify business for struggling franchisees. Peter Braig
by Sue Mitchell
Food franchisor Retail Food Group has tendered its entire distribution business, which is worth between $100 million and $200 million a year, as part of a strategy to cut costs and simplify business for struggling franchisees.
Retail Food Group's new chief executive Richard Hinson wants to cut the number of distributors for food and non-food products sold to franchisees from 16 to one or two.
The former Metcash, Goodman Fielder, Mars and Wrigley executive also wants to reduce the number of products sold from 15,000 to around 3000 SKUs to better leverage the group's buying power, reduce cost of goods and improve product quality.
Mr Hinson, who took the helm in May, said it was one of the biggest changes at the company, which owns the Michel's Patisserie, Gloria Jeans, Donut King, Brumby's Bakeries, Crust Pizzas and Pizza Capers brands, in 10 years.

"We've historically behaved as 10 small brands under the one halo so our buying has been fragmented across 10 different brands," Mr Hinson told The Australian Financial Review. "We haven't taken the opportunity to integrate those businesses to leverage the buying power.

"We have launched a tender for distribution which will see us for the first time operating as one single business, leveraging the buying power across all of our brands, condensing our pantry of products down to economic run sizes, so franchisees will start getting great quality products through a distributor that has national capability and can deliver a service better than we are seeing at the moment."
For example, there was scope for franchisees to receive deliveries and invoices once a week rather than two or three times a week, minimising disruption and paperwork, and improved trading terms.
The tender is expected to attract interest from large food service companies and wholesalers with national distribution capabilities and the ability to supply a wide range of products including fresh foods, packaged foods and non-food supplies such as paper cups, napkins and cleaning products.
Significant component

Offers are expected to be finalised in November or December and Mr Hinson said it was too early to forecast cost savings.
"It's too early to tell but from the experience I've had with Metcash there is an opportunity for us to save percentage points [from the cost of goods]," he said.
"It's not purely about choosing the cheapest possible outcome, it's about the service that's attached to it and the frequency of deliveries and how often and when [franchisees] have to pay.
"Price is a significant component but I'd like to think that at the end of it we get a more simplified and more efficient service outcome for our franchisees than we have today."

For example, the group currently distributes 140 different SKUs for syrups. While there are only eight flavours, each flavour comes in multiple pack sizes, increasingly complexity and reducing buying leverage.
It's a similar story in banana bread, where the group now  has eight suppliers across Australia.
With a single supplier, the product would be the same across all of RFG's cafe and coffee shop brands but each brand would merchandise the product differently to meet customer demands.
"There are lots of those examples throughout the business," he said.

However, analysts said RFG would need to tread carefully in the way it rationalised products and suppliers, pointing to the fact that three of its brands had been expanding menu options and introducing new products, such as Donut King's new "ungrown-up" range and Brumby's artisanal breads.
"They seem to be conflicting messages," said one analyst, who declined to be named.
Mr Hinson was hired by former group chief executive Andre Nell in January to run the group's struggling Australian franchise business and work directly with franchisees. He was appointed CEO in May after the abrupt departure of Mr Nell, who had succeeded long-serving CEO Tony Alford less than two years earlier.
RFG shares have fallen 90 per cent since last year, when a Fairfax Media investigation revealed hundreds of franchisees were struggling to keep their businesses afloat due to rising costs, falling sales and lack of franchisor support.

Mr Hinson  has moved quickly to reduce costs and help franchisees reinvigorate sales, appointing 30 new field support staff, cutting franchisee fees and launching pilot schemes for new merchandising initiatives.
The company, which has warned that underlying net profit will fall 54 per cent in 2018 and is forecasting bottom line losses of $87.6 million, is closing between 160 to 200 of its 1545 domestic stores, cutting head office costs, and selling non-core assets including properties to reduce debt.