World News – AU – ACCC takes action against Donut King, owner of Gloria Jean

The Competition Guard has taken legal action against the owner of Michel’s Patisserie, Donut King, and Gloria Jeans chains for misleading franchisees The stores they bought were viable businesses.

The Australian Competition and Consumers Commission today opened a case against the Retail Food Group in federal court alleging that the group acted systemically irresponsibly and made false and misleading statements to franchisees.

‘The ACCC also alleges the company misused marketing funds paid by franchisees to promote certain brands within the RFG network. This alleged abuse includes the use of the marketing funds to pay executive salaries and other head office expenses.

The financially troubled group could face tens of millions of dollars in fines if found to have violated both consumer and franchise codes.

The promotion comes three years after The Age and The Sydney Morning Herald were released, when the Retail Food Group ran a brutal business model that put franchisees under pressure and pushed some of them to the wall.

These reports sparked a parliamentary investigation which found serious deficiencies in RFG’s dealings with franchisees and recommended an investigation by the ACCC, the corporate regulator and the tax office.

RFG went into a trading freeze after its shares fell 23 percent Tuesday morning after the ACCC announced legal action against the group

The ACCC case involves 42 RFG franchisees who were given false information by the franchise giant prior to purchasing a franchise.

The regulator claims RFG has alleged in corporate documents to incoming franchisees that it cannot estimate the profits for a particular franchise knowing that the stores sold were losing and the exact extent of those losses for each store.

« The prospective franchisees simply had no way of knowing the actual financial performance of the stores, and we claim the Retail Food Group took advantage of this in selling or licensing the stores, » said Sims.

The case also includes allegations that RFG used funds paid by franchisees for marketing and promotional activities for non-marketing expenses including staff costs.

The ACCC claims RFG paid approximately $ 22 million from Michel’s Patisserie Marketing Fund to cover a range of non-branding costs, including the cost of implementing the controversial relocation of the company’s business model Brand from fresh to frozen cakes and to cover the losses of some corporate businesses.

The ACCC seeks explanations, orders, fines, disclosure and advertising orders, an order regarding the compliance program, legal remedies and costs.

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Adele Ferguson is a Gold Walkley Award-winning investigative journalist. She reports and comments on companies, markets and the economy.

Retail Food Group, Australian Competition and Consumer Commission, Gloria Jean’s Coffees, Michel’s Patisserie, Brumby’s Bakeries, Misleading or Misleading Conduct, ASX: RFG, Franchising