A PLATFORM FOR GROWTH INNOVATION & EVOLUTION ANNUAL REPORT 2013 Retail Food Group is one of Australia’s largest retail food brand managers, franchisors and wholesale coffee roasters. It designs, develops and manages Brand Systems and complementary businesses, and is the intellectual property owner and manager of the following retail and coffee brands: Donut King, Brumby’s Bakery, Crust Gourmet Pizza Bar, Pizza Capers Gourmet Kitchen, Michel’s Patisserie, Esquires Coffee, bb’s café, The Coffee Guy, Evil Child Beverage Company, Roasted Addiqtion, Caffe Coffee and Barista’s Choice. “The Board remains confident that increasing dividend returns, together with robust share price performance post RFG’s admission to the S&P/ASX300 Index in March 2013, continue to elevate RFG as an attractive and reliable investment, well able to deliver positive outcomes for shareholders notwithstanding the continuation of both economic and retail trading headwinds”, Colin Archer, Chairman of the Board, Retail Food Group Limited. FY13 HIGHLIGHTS TOTAL REVENUE $117.0 m (FY13) $101.9m (FY12) 14.8% CORE NPAT $34.3m (FY13) $30.3m (FY12) 13.3 % FRANCHISED OUTLETS 1,374 (FY13) 1,251 (FY12) 12 3 OUTLETS DIVIDENDS PAID 19.75cps (FY13) 17.5cps (FY12) 12.9% RETAILFOODGROUP We strive to grow a fortress of strong, vibrant & profitable Brand Systems and complementary businesses. Retail Food Group has established a well-earned reputation as a long standing and innovative participant in the development and management of retail food franchising systems throughout Australia and New Zealand. STRENGTH IN BRANDS DELIVERS - Economies of scale - Cross pollination of products - Collaborative marketing initiatives - Co-branding & leveraging RFG’s proven management systems OUR PHILOSOPHY To continue to develop as a leader and innovator in food systems management in order to provide benefits for all stakeholders through maximising complementary opportunities and delivering real value for our customers. OUR RECIPE FOR SUCCESS Is derived from the strength of our iconic Brand Systems and the many franchisees that operate under them. WE BELIEVE By assembling, enhancing and growing a fortress of retail food Brand Systems whose menus are consumer relevant, inventive and demand patronage, supported by complementary businesses which provide scale and vertical integration opportunity, we will safeguard our brands, franchisees and the future of RFG. DONUT KING FY13 constituted a watershed year for the Donut King Brand Where relevant, EVO initiatives (such as ‘toasties’ which are now System during which it established its first EVO concept ‘store of offered in c.60% of outlets) have been backfilled into the network the future’ at Marsden (Qld), in December 2012. pending proliferation of the full EVO model within existing outlets. Representing the culmination of several years’ investment of dedicated Concurrently with the EVO process, Donut King has continued resources, research and development, the EVO outlet introduced to elevate its coffee profile, driving awareness of its Royal Bean a new store design and livery, menu extensions (including new coffee blend and the significant training afforded its expert savoury categories), fun and interactive customer experiences barista complement, which has grown 20% since FY12. This via digital technologies and innovative brand communication, focus facilitated a 4.7% increase in coffee kilos sold, and delivered and a menu built on ‘make it your way’. Donut King the Roy Morgan ‘Coffee Shop of the Month’ award on four separate occasions during CY12. The EVO concept extends Donut King’s position to ‘more than just donuts’, providing a blueprint for new outlet development The foregoing initiatives have driven FY13 Average Weekly Sales and existing network refurbishment positioned to drive enhanced (AWS) growth of 4.4%, a record for the Brand System since RFG’s outcomes for the Brand System and its franchisees. Listing on the ASX in 2006, and strong Average Transaction Value (ATV) growth of 6.5%. Importantly, EVO has afforded Donut King the ability to: Donut King’s success over 32 years of operation is a product of • be destination driven, a characteristic which will be further the Brand System’s resilience and ability to adapt and maintain explored via the Brand System’s first drive thru outlet, relevancy within a dynamic and constantly changing retail treat scheduled for commissioning in 3Q14; and market. It has now truly cemented itself as an icon within the Australian retail food landscape. • proliferate outside of the traditional enclosed shopping centre environment. One of 22 forecast new outlet openings for FY14, the drive thru concept will incorporate additional Brand System advancements, including a play park and further menu extension. CRUST GOURMET PIZZA Acquired in late CY12 to complement the Pizza Capers Brand The success of this campaign will influence FY14 strategy, with System, Crust provided the additional national footprint necessary marketing plans poised to drive further consumer engagement to position RFG as the undisputed market leader in the niche with the Crust Brand System, whilst also recruiting new customers gourmet pizza Quick Service Restaurant (QSR) segment. via increased spend on above and below the line activities. Appealing to an affluent and trend centric consumer, Crust has An enhanced customer loyalty program, coupled with additional carved a distinctive position within the QSR market through the new product development which ensures continuing market uncompromised adoption of high quality ingredients to create relevance, will also be features of the Brand System’s FY14 strategy. on-trend flavour combinations that are viewed by consumers as exciting and unique. Having finished FY13 with a network population of 141 outlets across Australia, New Zealand, Singapore and the USA, Crust Taking advantage of RFG’s cross functional resources and franchising is positioned to build upon its market share via aggressive expertise, the Brand System boasted an exceptional FY13, with organic outlet growth and a renewed focus on exploiting net new outlet growth post acquisition of 22 outlets and FY13 international markets. network sales growth of c.8%. FY13 witnessed implementation of a new ‘degustation’ themed menu which included unique pizzas, lamb ribs, black forest crumble and the introduction of new pasta options. Supported by the subsequent ‘Sensational’ marketing campaign, the Brand System’s most successful, Crust has reaffirmed its market position and brand identity whilst encouraging online ordering platforms, resulting in record digital orders representing c.29% of sales during the promotional period. BRUMBY’S BAKERY Brumby’s delivered a commendable FY13 result having regard Emphasising the health and wellbeing benefits of Brumby’s to the significant impact of third party (savoury product) supply- preservative free bread range, these initiatives have been supported side challenges which impacted trading for the majority of the by the introduction of kilojoule labelling at store level, and the financial year. launch of a redesigned website that incorporates a new look and feel, consumer friendly navigation systems and extensive product A 1.1% decline in Average Weekly Sales (AWS) for the six months information. Brumby’s fresh, new style has also been adapted to ending 31 December 2012, was converted to full year AWS social media platforms, resonating with customers. growth of 0.4%, supported by FY13 Average Transaction Value (ATV) growth of 5.1%. In order to further authenticate Brumby’s new strategic direction, in September 2013 the Brand System unveiled an exciting FY13 AWS and ATV were driven by a robust Easter campaign, partnership with Australian sporting hero and food craftsman, which facilitated a 50% sales increment on the prior year, and Matthew Hayden, who has assumed the role of Brumby’s an innovative national savoury promotion throughout May and ‘Bread Ambassador’. June which propelled the Brand System to a 13% unit increase across hot cabinet, beverage and sweet categories. The foregoing initiatives have reinvigorated Brumby’s, instilling a fresh, new direction and strong momentum for FY14 that will FY13 highlights also included the Brand System’s most successful continue to keep the Brand System top of mind and well ahead Go! concept new outlet launch, with a peak retail sales week of of consumer trends. $55,000, and the roll-out of ready-made sandwiches and rolls across the network, fortifying Brumby’s ‘grab and go’ lunchtime offer. Pending launch of its EVO concept outlets in December 2013 (traditional) and June 2014 (Go!), Brumby’s has focused on new product development, enhanced ‘above the line marketing’ and operational excellence. PIZZA CAPERS GOURMET KITCHEN The winner of Canstar Blue’s ‘Most Satisfied Customers’ in the Introduction of the Little Ice Cream Shoppe within Pizza Capers’ pizza category for the third year running, and one of the more dessert range resulted in a 142% increase in category sales, the recent Brand Systems to reside under RFG’s banner, Pizza Capers interesting and quirky ice-cream flavours (including ‘Salted Caramel achieved a number of milestones during FY13. & Malt Crunch’ and ‘The Flavour So Crazy It Doesn’t Even Have a Name’) proving a hit with consumers. These included the launch of an innovative new menu, enhancement of the Pizza Capers’ dessert platform, pilot of the ‘Slice’ concept Collaborating with the Esquires Brand System, Pizza Capers and completion of the Brand