Retail Food Group keeps making the dough

Franchise growth and facility expansion help it grow nationwide.

a woman

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This is the kind of company that you probably walk by every time you go shopping and don't really notice. The donuts, cakes, bread, pizza and coffee of Retail Food Group (ASX: RFG) are in many shopping mall food courts or local shopping plazas across Australia.

The company announced annual revenue of $117 million, up 14.8% from last year, and a 12.1% increase in net profit after tax of $32 million from $28.5 million previously. The company's franchises included Brumby's Bakeries, Pizza Capers, Crust, Donut King, Michel's Patisserie, as well as Bb's café and mobile coffee vendor The Coffee Guy.

Currently, it has 1,374 franchise outlets, predominantly in Australia and New Zealand, and this year alone added net 165 outlets to that total.

To support its franchises, it has also made new facility acquisitions in Queensland and Victoria for increasing its baking and product storage so that it can decentralise its preparation and deliveries under the company's National Baking Solution program. These facilities also house the coffee roaster works, which supply the coffee franchises and third-party customers.

Of the four major divisional brands, their revenues and earnings contributions are roughly evenly split. Michel's Patisserie has a larger share of revenue, but EBITDA earnings from each range between $10million and $15 million.

Coffee roasting and sales breaks down as 80% for franchises and 20% for third-party wholesale. This year the company acquired The Coffee Guy mobile coffee franchise for $4.1 million. It consists of 55 outlets of mobile vans in New Zealand, but in 2014 will be expanding into the Australian and US markets.

The coffee quality has garnered awards such as the Roy Morgan "Coffee Shop of the Year" in 2012 for Michel's Patisserie for the second year in a row.

The Bb's Café franchise will be converted over to the new Esquires Coffee format under the company's Project EVO platform, which is steadily upgrading and remodelling the different franchise styles to revitalise their looks and performance.

2013 also saw the acquisition of Crust Gourmet Pizza for $41 million with its current number of outlets at 141, of which 22 were added since the October 2012 purchase.

Earnings have been growing over the past eight years, and return on equity has slipped slightly from 16.8% to 13.3, yet still a good number for a growing company. Gross gearing is becoming high, so that must be controlled since a company can hurt itself by trying to expand too quickly.

Foolish takeaway

Investors can do well to search in their local areas for investing ideas amongst the very places where they shop already. Dominos Pizza (ASX: DMP) is another great example of a stock that you should have bought when you ordered a pizza. You don't have to be a financial whiz to know what people like, and that is the basis of a company's earnings.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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