Retail Food (ASX:RFG) share price sinks 23% this morning. Here’s why.

Retail Food share price has dropped 23% this morning, after the company announced it will face court over misconduct allegations.
The post Retail Food (ASX:RFG) share price sinks 23% this morning. Here’s why. appeared first on The Motley Fool Australia. –

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The Retail Food Group Limited (ASX: RFG) share price has plummeted 23% today, after the company announced the competition watchdog ACCC will take it to court over alleged “unconscionable conduct” and “misleading representations” to its franchisees.

At the time of writing, the Retail Food share price has dropped to 7 cents.

Why is Retail Food share price sinking today?

The Australian Competition and Consumer Commission (ACCC) announced that it has started proceedings in the Federal Court against Retail Food and five of its related entities.

The ACCC alleges that the food and beverage franchise company engaged in unconscionable conduct, and made false or misleading representations in its dealings with franchisees – in breach of the Australian Consumer Law. 

In addition, the ACCC alleges that Retail Food engaged in deceptive conduct when it sold or licensed 42 loss-making corporate stores to incoming franchisees between 2015 and 2019, by withholding important financial information from the incoming franchisees.

Retail Food has maintained that it could not estimate earnings for a particular franchise, but the ACCC alleged that Retail Food knew the earnings of each loss-making store.

The ACCC case also involves allegations in relation to the franchise marketing funds. All franchisees are required to pay marketing fees to Retail Food, to be held and administered by the franchisor, to pay for marketing and advertising activities.

The ACCC alleged that Retail Food used these marketing funds to pay for non-marketing expenses in breach of the Franchising Code. In some cases, this allegedly included personnel costs for executives and employees who were not in marketing roles. 

Quick take on the Retail Food Group

Retail Food Group is the holding company for a group of companies that operate one of the largest multi-brand franchise operations in Australia.

It owns well-known franchise brands such as Crust Pizza, Pizza Capers and The Coffee Guy, Michel’s Patisserie, Brumby’s Bakery, Donut King and Gloria Jean’s Coffee.

About the Retail Food share price

The Retail Food share price had lost 12% prior to today’s drop. After today’s massive fall, the share price is trading 50% lower on a year-to-date basis.

The company has a market cap of $193 million.

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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Retail Food (ASX:RFG) share price sinks 23% this morning. Here’s why. appeared first on The Motley Fool Australia.

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