The Retail Food Group, whose share price has been punished after a string of bad news including posting losses, now faces a possible class action over a franchise model allegedly unlikely to be profitable in the long term.

The company (ASX:RFG) — the owner of Brumby’s, Donut King, Crust Gourmet Pizzas, Michel’s Patisserie and Gloria Jean’s — has been under pressure since a Fairfax Media investigation revealed hundreds of stores were going to the wall as “a result of a brutal business model”.

The company says it has no evidence of franchisees under-paying staff.

Maurice Blackburn Lawyers today opened a online registration portal to enable aggrieved shareholders to participate in a potential recovery of some of their losses via a shareholder class action.

The company’s shares fell to a low of $1.62 in December last year from more than $4 each.

The dropped another 35 per cent when the company came out of a trading halt on Monday. The company is now valued at about $208 million.

“The proposed shareholder class action relates to a string of damning revelations about the company that were exposed from December 2017 to 3 March 2018,” Maurice Blackburn states on its website.

Retail Food Group shares (ASX:RFG) over the past six months.
Retail Food Group shares (ASX:RFG) over the past six months.

“The information, including revelations of an exploitative and unsustainable franchise model, saw the company’s share price go from well over $4 to under $1.30 when the company came out of the trading halt it entered on February 28, 2018.

“Publicly available information suggests that RFG adopted an exploitative business model as early as June 2015 yet it failed inform the market of its true state of affairs.

“This is information the market should have been made aware of in order to fairly price the stock.”

The company earlier this month posted a net loss after tax of $87.8 million for the first half on the back of “difficult trading” conditions.

The Retail Food Group has decided to close between 160 and 200 Australian outlets by the end of the 2019 financial year due to high rents and declining shopping centre performance.

The result for the six months to December included non-cash impairments and write-downs of $138 million. The impairments included Michel’s Patisserie ($45 million), Pizza Capers ($4.5 million) and Coffee Retail Division ($34.5 million).

Revenue was $195.5 million, up from $161.9 million. Underlying profit after tax was $24.7 million, down 31.8 per cent.


This article first appeared on Business Insider Australia, Australia’s most popular business news website. Read the original article. Follow Business Insider on Facebook or Twitter.