Retail Food Group caught in use-by-date scandal

Despite generating an avalanche of negative publicity about wages scandals, the 7-Eleven convenience chain and Domino’s Pizza have managed to keep consumers spending. There were significant consequences for both the high-profile franchise chains, including reduced profits, but as far as customers were concerned, the brand damage has been contained.

Customers, apparently, have taken the view that as long as they themselves weren’t being ripped off, there was no reason to boycott the chains and to stop shopping at their stores.

But the embattled Retail Food Group is more likely to test customer loyalty after the damaging revelation that at least one of its brands has been tampering with consumer product information.

Food safety concerns

Many consumers are increasingly product label readers and rely on the information on them in making their purchase decisions. While the value of details on the percentage of sugar, fats, salt and preservatives might not be of much interest to many shoppers, the use-by date is another story.

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Consumers may by their own choice be prepared to eat products from the refrigerator or pantry at home that are past their use-by or best-before dates but they expect the information offered in stores to be accurate.

Retail Food Group continues to struggle for survival with ongoing disgruntled franchisee issues, heavy debt with nervous banks, unprofitable sites and continuing investigations by regulatory agencies.

A disassociation by consumers of the retail brands Donut King, Crust Pizza, Gloria Jean’s and Brumby’s with Retail Food Group, the publicly listed entity that actually owns them, has afforded some protection against a customer backlash.

That disassociation – and, no doubt, the 7-Eleven and Domino’s Pizza experience – has been crucial to banks and financiers of the beleaguered company extending grace on debts.

The support of those banks has also been reliant on Retail Food Group selling off some of its retail brands to reduce debt levels, but their nerve has been tested with sale negotiations with one party ending early last month.

Retail Food Group, which posted a $111 million loss for the first half of the 2019 financial year, is far from secure in its business-to-business problems and in the aftermath of scathing criticism in the franchising report of the Senate committee inquiry.

However, it now faces a significant new and dangerous problem, with the revelation that franchisees in its Michel’s Patisserie bakery chain were allegedly instructed by the franchisor to alter expiry dates on products.

The Michel’s Patisserie chain was the first crack in the wall for the previously well regarded Retail Food Group, and the franchisees still trading under the brand have not been satisfied with management’s responses to their concerns.

One of those franchisees was the whistleblower on the alleged instruction to disregard use-by dates on cakes and other products and to extend the expiry dates by between two and six months.

The practice has prompted food safety investigations, but is also likely to generate a new round of visits from the Australian Competition and Consumer Commission and state consumer agencies over deceptive labelling.

The practice of extending the use-by dates, even if food handling processes do not result in any health threat, will result in reputational damage for Retail Food Group and provides reason enough for regulators to take action.

However, there is also a broader and more important issue for regulators which must protect the integrity of the universal food industry use-by and best-before labelling that consumers rely on.

Franchisees of Michel’s Patisserie have complained about the falling quality standards of products supplied by Retail Food Group under their franchise agreements. They have blamed this for their declining sales and for losses incurred when some products were unsaleable and had to be thrown out.

Back to the bankers

Retail Food Group’s debt covenants have been extended by banks to October 31 this year, but the financiers are monitoring trading figures and operational activities very closely.

The financial respite afforded the retailer could well be tested at an earlier date as a result of investigations by the Australian Securities and Investments Commission, the ACCC and the Australian Taxation Office by the Senate committee inquiry.

The difficulty in selling off the Donut King chain and QSR brands – or any of its other chains – has already increased the pressure on banks, and this new consumer issue adds further cause for concern.

As the old saying goes: Don’t bite the hand that feeds you and, in this case, Retail Good Group has added to its misery by testing the trust and loyalty of customers.

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