Investor Presentaiton
Key risks (continued)
Risk
Description
RETAIL
FOOD
GROUP
Supply Chain
Food safety and
quality
Competition
Reputation
RFG's wholesale coffee business and the stores within RFG's network are reliant on designated suppliers for ingredients and other products utilised in that business or those stores. Any disruption to
the supply chain (including restrictions or delays in the delivery of key ingredients, non-renewal or termination of supply contracts or renewal on less favourable terms, inflationary pressures, material
equipment failure or increasing costs to key inputs, such as green coffee beans, due to environmental or other factors) could impact on the Group's ability to efficiently and cost-effectively supply or
procure value-added products to or for its customers or on the Group's or its franchisees' ability to successfully operate corporately managed and franchised outlets. This could have a material effect
on the financial and operating performance of the Company or its network, which in turn would have a material effect on the financial and operating performance of RFG. Furthermore, contracts with
third party suppliers may contain limitation of liability clauses or other contractual terms to the similar effect; therefore, there is a risk that the losses suffered by RFG or its franchisees as a result of a
failure of a third party supplier may not be fully recoverable from that third party supplier.
Food quality and safety issues, arising from an operational lapse in food safety or sanitation, or contaminated product (including malicious tampering), could result in harm to consumers and adversely
impact performance and or reputation of the Company, its brands and its franchise network.
RFG competes in a number of markets, including the Australian and international coffee and retail food sectors. The performance of the Company and its franchise network could be adversely affected
if the actions of competitors (e.g. other participants in these markets) become more effective or new competitors enter these markets.
The reputation of RFG and its brands is critical to the success of the Company, its master franchisees and franchisees. Reputational damage could arise from a number of circumstances, including
crystalisation of any other risks outlined in this Presentation. RFG's reputation and standing was adversely impacted by the reference to it in a 2019 Parliamentary Joint Committee Report in
connection with the franchising industry, the Australian Competition & Consumer Commission's (ACCC) investigation and subsequent legal action against the Company and a number of its
subsidiaries (summarised above), and the heightened media scrutiny that these matters attracted. Reputational damage may have significant adverse consequences for RFG, including in relation to
the Company's share price, its ability to raise capital, and its ability to attract and retain capable staff, franchisees and customers.
Lease Obligations Various members of the RFG group are currently the head lessee for the majority of stores across the domestic network. There is a risk that RFG group members' leases may be terminated, lost, or
renewed on less favourable terms. As head lessee in relation to the majority of sites across the network, regardless of whether the franchisee at those sites continue to operate the store or are
otherwise able to make royalty and other payments to RFG, the RFG group members remain principally responsible for compliance with the lease terms, including making lease payments to the lessor
for the remainder of the lease. Therefore, sustained underperformance by franchisees could have a material adverse effect on the financial and operating performance and financial position of RFG.
A large portion of RFG's revenues are derived from royalties and marketing levies calculated by reference to outlet sales reported by franchisees and master franchisees, together with sales generated
by corporate stores operated by the Company or its related bodies corporate. There is a risk that both franchised and corporate outlet sales may be under-reported to the Company erroneously,
negligently or intentionally (including as a result of staff theft or other dishonest conduct) which may adversely affect the revenues derived by the Company from its network.
Systemic under
reporting
Corporate Store
Operations
Franchisee
network
performance
The successful operation of viable corporate outlets represents part of the Company's strategy to grow its existing domestic outlet network. As at 30 December 2022, the Company, via subsidiaries,
operated 29 corporate outlets. A failure to successfully and viably operate corporate outlets, including at scale, may result in a material adverse effect on the financial and operating performance and
financial position of RFG.
RFG's financial performance is dependent to a large extent on the success of its existing and future master franchisees and franchisees, and on continuing to attract high quality master franchisees
and franchisees to operate new stores within domestic and international markets, together with the Group's ability to successfully operate existing and potential new corporately managed outlets. RFG
and its franchisees and master franchisees operate within competitive environments and often have a high cost base due to factors such as labour, supply inputs, rents, utilities and other costs. A
failure by franchisees to operate their franchise, or by master franchisees to manage their designated licensed territory, in accordance with relevant terms and conditions may also have adverse
implications for the Group, including reputational damage, regulatory sanction, reduced franchise fees or exposure to, or crystalisation of, onerous lease obligations including rent or make-good
obligations (given in many cases across RFG's domestic network, RFG or its related bodies corporate will hold the lease from which franchised outlets are conducted).
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