Secret Recipe franchise collapses after investors spent $7 million in start-up costs

Malaysian café franchise Secret Recipes has gone into administration, putting into jeopardy ambitious expansion plans in Australia.

Secret Recipes has 240 cafés in eight countries including Singapore, Indonesia, Thailand and China and expanded to Australia with six Melbourne locations.

But the business failed to catch on in Australia and despite investors putting in $7 million to establish the franchise here it only turned over $3 million last year.

Glenn Franklin, of Lawler Draper Dillon, told SmartCompany he has been appointed as administrator of the Secret Recipe businesses: Secret Recipe Manufacturing, Secret Recipe Management, Secret Recipe Leasing, Secret Recipe Franchising, Secret Recipe Cakes & Café and Secret Recipe Australia.

“The main problem was that the investors from Malaysia had invested somewhere over $7 million into the start-up of the franchise in Melbourne and they determined after putting so much in and not seeing performance they have withheld putting further money into the business,” Franklin says.

Franklin says the administrators have been trading the business on since being appointed but have closed down three franchises for not running profitably, leaving three running.

“We are marketing the business for sale and that process is ongoing at the moment. We have had some interest in Australia and Malaysia,” he says.

The collapse follows Secret Recipe announcing expansion plans across Australia last year, with the café chain looking for potential franchisees across Australia.

At the time, SmartCompany‘s sister site, StartupSmart, reported Australia-based Secret Recipe director Ming Low’s plans to open at least three new outlets each year.

Low said Secret Recipe’s expansion would be throughout Victoria and extend to NSW, Queensland and WA.

“Franchising is the engine of growth and now is the right time for us to expand in the Australian marketplace,” he said

“Since first opening in Melbourne, we have quickly realised our concept best suits a shopping centre environment because of the family-friendly shop design and value-for-money menu offering, so they are the types of venue we will target.”

While Secret Recipe’s website currently advertises Valentine’s Day specials, on February 14 the administrators will be holding a second meeting of creditors.