Donut King Owner Plunges on Media Report Franchisees Mistreated

(Bloomberg) -- Donut King owner Retail Food Group Ltd. slumped by the most on record Monday amid reports the company squeezed franchisees with high fees and offered limited management support.

Shares in the company fell as much as 27 percent in Sydney trading, the steepest drop since listing in 2006, and wiping as much as A$217 million ($163 million) off its market value. The stock was 24 percent lower at A$3.36 at 3:24 p.m., the lowest since June 2013.

In a three-part investigation, Fairfax newspapers said franchisees paid crippling fees that ate into profits yet received reduced support from head office as Retail Food Group attempted to cut costs. The company’s business model saw some franchisees struggle, underpay workers to stay afloat, or go out of business, according to the report.

Retail Food Group, in a statement published on its website, rejected claims it failed to support its franchise partners. The company said it was working with Deloitte to review its business, including its franchisee model, to ensure it works in “a retail market that remains challenging.”

Deloitte will also review the company’s supervisory and monitoring framework for wage compliance, according to the statement.

--With assistance from Matthew Burgess

To contact the reporter on this story: Kanika Sood in Sydney at ksood9@bloomberg.net.

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, Vivek Shankar

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