Donut King heads to China

Posted by Daniel Palmer on 4th July 2008

Leading Australian retail food brand manager and franchisor Retail Food Group Limited (RFG) today announced that they will look to grow their Donut King franchise in China.

RFG has reported that they have finalised the terms of a Master Licence Agreement (MLA) with Shanghai based Mak Brands Limited concerning the proliferation of the Donut King franchise system within China.

The Agreement is performance based for an initial term of 20 years, and growth in the Chinese marketplace is based on operating a minimum 20 stores within five years and increasing this figure by at least eight per annum from then on.

RFG Chairman John Cowley considers the move a major event for the company. “The MLA represents a significant event for RFG as a Listed company in that it is the first to contemplate expansion of the Donut King system beyond Australia’s borders,” he said. “The MLA also represents the realisation of the last of the seven strategic growth drivers identified in RFG’s May 2006 Prospectus, further confirming the Company’s resolve and ability to deliver sustained value for shareholders and other stakeholders”.

RFG CEO, Tony Alford, added that overseas growth is a key part of the growth strategy for their four franchises – Donut King, BB’s Cafe, Brumby’s Bakeries and Michel’s Patisserie. “The international expansion and commercialisation of RFG’s Donut King, BB’s Café, Brumby’s Bakeries and Michel’s Patisserie franchise systems had always been high on RFG’s agenda given our view that each possess significant potential for foreign market application,” he advised. “However, the Company has historically been unwilling to licence its systems, and risk dilution of brand value, unless it was able to partner with a robust licensee capable of applying sufficient resources, franchising expertise and resolve to ensuring the success of such a venture. Mak Brands satisfies each of these pre-requisites.”

Mak Brands founder and Managing Director, Paul Mak, is excited about working with the Australian company. “Donut King is a successful and iconic brand within Australia and we are thrilled to have the opportunity to establish and expand the concept throughout China.”

Mr Mak added that the flagship store will be set up in Shanghai before the end of the year, with ten to fifteen sites to be established before the end of Fiscal Year 2009. RFG will reap the benefits of a licence fee and receive an undefined percentage of retail sales, and indicate the Chinese expansion is one of a couple of license agreements they are seeking to enter into. “RFG remains motivated to further the proliferation of its franchise systems on the international stage. In this respect negotiations continue in connection with the grant of two further international master licence agreements,” Mr Alford advised.

RFG’s expansion into the Chinese market is symbolic of a trend which has seen many multinational companies try their luck in the booming Chinese marketplace. The decision to form a MLA with a Chinese company should assist with growth as many companies have failed in the Chinese marketplace due to a lack of understanding of Chinese consumers.

Consistent double-digit growth in the Chinese take away food industry has lured many but maintaining the same menu and same strategies can be fraught with danger and now companies are beginning to realise that to succeed the assistance of companies based in China can be of great benefit.