Pizzas & Donuts for thought...., page-11

The elephant in the room for RFG is, can they demonstrate they can run these corporate stores profitably. This is the only way that they can provide any confidence to extremely cautious franchisee's and the bankers that would finance them.

RFG made a lot of money from selling and managing franchisees. Many took the financial burden of the stores either with sweat equity, working long hours and days to reduce the staffing costs and supplementing with cash injections until they ran out, and then the unprofitable store was sold to a new franchisee and repeat. During this cycyle after cycle, RFG would bank their income, fees, rebates and marketing costs as if all was running well. The rebates, or kickback from every item sold to a franchisee was signficant and did not rely upon the profitability of a huge volume of stores who were losing money and now have all been closed. Cash flow continued from finding new franchisees. This part of the model is dead.

Now they need to rely on the stores paying rent, wages, and expenses and still provide a profit to the owners after paying all dues to RFG.

I had access to the financial performance of the individual corporate owned stores, many ran at an operating loss, due to staffing costs, even when they performed on similar sales metrics to the franchised stores.

So now and going forward the model is really a lot less profitable let's be honest.

So in order to get back to the glory days is going to take some time as they cannot expand with only corporate stores, it will take too much capital, which they dont have. I believe they are a long way from providing the right environment to convince franchisees to come back, remebering to be succesful you need a good operator.

A Mcdonalds for example seek out well capitalised and business savvy franchisees. They often go on to be multiple store owners. RFG has been more known to pick up battlers who have lost their job and looking to buy their own job for "freedom"! They are not well capitalised and relied upon heavy bank funding against their home or the business itself. This did not work out well for the franchisee or bank. Find a bank that has an RFG on their franchise list!

RFG do appear to be going in the right direction but they are being contained as a much smaller business based on the above factors. Until there is any signficant positive change in the above it will take many years to build a strong profitable franchise group again.