Franchisor’s lesson learnt

It’s the simple rule that many entrepreneurs live by: No surprises.

You never want to surprise your board. You never want to be surprised by your employee. You rarely want to surprise your customers. And you never, ever want to surprise your investors.

Which is why many in the franchise sector were shocked earlier this year when respected listed franchise brand manager Retail Food Group made a highly unusual takeover play.

While RFG has made its name managing brands including Donut King, Brumby’s Bakeries and Michelle’s Patisseries, the company’s management, led by chief executive Tony Alford and chairman John Cowley, clearly had ambitions beyond that.

In May, with the floods in RFG’s home state of Queensland still in the minds of the Australian business community, the company launched a shock takeover move on listed accommodation provider Oaks Hotels & Resorts.

Oaks was in a shocking state. It’s founder and CEO Brett Pointon had been kicked out of the company after the collapse of parts of his private empire, but shareholders were divided after Thai firm Minor International was seeking to buy the company and reinstate Pointon.

Was RFG’s big move opportunistic? Was it a move to diversify beyond food? The company promised a fulsome explanation, but just seven days after making its play it killed off the bid.

A quick read through Friday’s annual general meeting address of new RFG chairman Bruce Hancox, who was appointed in September, makes it clear RFG has learnt some hard lessons from the bid – the biggest being that investors were mighty displeased that the company had broken the “no surprises” rule.

Hancox told investors while the “bid may have appeared clumsy”, actually “the transaction was the subject of widespread investigation and modelling”.

But he acknowledged that the bid had been the subject of “considerable adverse commentary, much of which was unfortunately uniformed and incorrect” and that sentiment quickly went against the company.

Hancox said RFG had taken two big lessons from the incident.

Firstly, “RFG will avoid transactions of strategic, logistic and regulatory difficulty which prevent or severely restrict its ability to fully engage with relevant stakeholders and the market”.

Secondly, “market sentiment is such that RFG is viewed as a specialist company in the retail, food and franchising sector and that ventures beyond this skill set should be embarked upon only following appropriate stakeholder consultation”.

In other words, not only is the “no surprises” rule firmly in place, but the company will be careful not to allow itself to be put into a position where it might be forced to keep big strategic moves confidential.

Interestingly though, RFG has put the market on notice that a deal outside the world of food franchising remains in place.

“At the outset, and even with the benefit of hindsight, RFG remains of the firm view that its intention to acquire Oaks was commercially prudent and the strategy sound,” Hancox said on Friday.

“As a company, we do not opine to the view that RFG’s core competency is limited only to retail food franchising, but rather, is attuned to licensing system development, enhancement and management of which franchising is but one facet.”

At least next time shareholders will know it’s coming.