Profits at Retail Food Group, the company running some of Australia’s best known food brands, are tanking in a “challenging” retail market and following allegations of wage fraud.

The owner of Brumby’s, Donut King, Crust Gourmet Pizzas, Michel’s Patisserie and Gloria Jean’s today issued a profit warning.

A short time ago, the shares were down 21% to $2.08. They have dropped by more than half since the start of the month following allegations of wage fraud.

“Recent negative media coverage about franchising, retail and RFG in particular has also contributed to a noticeable decline in momentum in new and renewing franchise sales,” the company said in a trading update.

“Associated revenues are now forecast to be below prior expectations and future franchise trading revenues are also likely to be impacted.”

Statutory after profit tax for the first half of 2018 is now expected to be $22 million, down from the $33.5 of the same six months last year.

The company says its domestic franchise revenues, consistent with recent trading updates of other retailers at shopping centres, continue to track lower than expected.

It says Crust and Donut King are performing to expectation. However, Michel’s Patisserie, Brumby’s and Gloria Jean’s are trading below expectations.

A Fairfax Media investigation had revealed hundreds of stores were going to the wall as “a result of a brutal business model”.

Yesterday the company issued a statement saying it had no evidence of franchisees underpaying staff.

Today Retail Food Group Managing Director Andre Nell says the company will accelerate cost-saving initiatives from a business-wide review being supported by Deloitte.

“The retail market is expected to remain challenging for the near future and we remain focused on responding to this challenge through delivering franchisee support initiatives and reducing corporate costs,” he says.

The company is also continuing negotiations with its lenders to rollover its three year loan facilities of $150 million, maturing in December 2018.

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