Michel’s Patisserie franchisees protest rising store costs

Retail Food Group, the company behind franchises including Donut King, Brumby’s and Michel’s Patisserie, has been forced to reach out to its franchisees after receiving an anonymous letter purportedly from a Michel’s franchisee complaining that head office changes were driving customers away.

The move by the company, which also owns pizza franchises Crust and Pizza Capers, follows a recent uprising by franchisees in the ranks of RFG’s competitor, pizza chain Eagle Boys.

The Gold Coast Bulletin recently reported RFG is facing a similar revolt from its franchisees over costly refurbishments and supply price rises.

The seven page letter to Michel’s franchisees, of which there are more than 300 across Australia, was reported to concern the rebranding of the chain, which was apparently driving up the cost of coffee and other product lines, as well as the cost of making over of the stores, which was making it difficult for some franchisees to sell up.

RFG confirmed to SmartCompany that its director of franchise, Gary Alford, penned the letter, but could not release its contents given it was an internal communication.

“In the open letter distributed to Michel’s Patisserie franchisees, we made it clear that RFG and Michel’s executive management team are open to constructive feedback and suggestions for bettering the business,” Alford told SmartCompany.

“Indeed I have offered to chair a working committee, comprising franchisees and Michel’s management to work through any concerns.”

“In the interests of balance, both the article printed [in the The Gold Coast Bulletin] and a number of subsequent contacts made by franchisees has supported the efforts and direction of the brand.”

“We would also note that there is change being instituted. We are also aware that change can be unsettling for some people. We are very cognisant of managing that change in order to provide guidance and comfort where required.”

SmartCompany understands at least two Michel’s Patisserie stores are operating at a loss and such added costs are creating financial hardship for a number of franchisees.

Alford says RFG has “robust support structures” in place to assist franchisees that “are in need of additional support”.

Franchise Advisory Centre principal Jason Gehrke told SmartCompany while upgrades and refurbishments are common provisions in franchise agreements, the need to upgrade after the franchise relationship has commenced can be a potentially unexpected surprise for franchisees who have otherwise not factored for it or do not want to upgrade.

“They question the value of it or the timing may not be consistent with their long-term tenure with the franchise,” says Gehrke.

“If returns are lower than desirable for a franchise, they will resist the idea until they are happy with it [the turnover].”

Gehrke says that under changes expected to be introduced with the new Franchising Code of Conduct next year, a franchisor will be required to submit a business case for future capital expenditure. It is anticipated a ‘group approval’ provision, allowing franchisees to vote on the expenditure, will also be put in place.

“The franchisor’s requests should be to the ultimate benefit of the group as the whole, but also to an individual franchisee as well.”