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Could Retail Food Group Limited buy Eagle Boys Pizza?

Credit: Dennis Wilkinson

Following an announcement on its website that the Eagle Boys pizza franchisor has been placed into voluntary administration after around 30 years in business, a couple of names have been put forward as potential suitors.

According to reports in the Australian Financial Review, both Retail Food Group Limited (ASX: RFG) and Domino’s Pizza Enterprises Ltd. (ASX: DMP) may be interested in buying one of Australia’s biggest pizza chains.

Retail Food Group may be best known as being the master franchisor of Gloria Jean’s coffeehouses, but it also has a strong position in the pizza industry with its Crust Gourmet Pizza and Pizza Capers brands.

The reports states that Deutsche Bank estimates Retail Food Group to hold a 20% to 25% share of the $3.7 billion Australian pizza market, compared to Domino’s estimated 50% share and Eagle Boys’ 10% share.

Whilst I can understand that Retail Food Group might wish to close the gap on Domino’s by purchasing the 127 Eagle Boys outlets, I’m not entirely convinced it would be a great move. I was disappointed with the half year performance of Retail Food Group’s quick service restaurant segment.

Network sales in the segment dropped 4.5% in the first half of the fiscal year, at a time when Domino’s produced incredible sales growth of almost 24% in its Australia and New Zealand network.

Personally, I’m not sure buying a struggling pizza brand would be the best thing management could do with its money at this point in time. Not when its own pizza brands are underperforming and it is already focused on the expansion of Gloria Jean’s into the China market through its joint venture with GouBuLi.

In a recent presentation management stated that it expects its international segment to provide 25% of total EBITDA by FY 2018, up from 16.8% as of its FY 2016 half-year results. It is these plans and its strong coffee businesses which I think make Retail Food Group a great investment today, not its pizza businesses.

Lastly, I think Retail Food Group is a great investment and if you own one of these three rotten ASX shares it might be a great time to swap them out for it.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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