By Catie Low
Six months after emerging from administration, Pie Face is pushing an aggressive expansion overseas but has hit a sour note as local franchisees complain of soft sales during what should be the peak cooler months.
The operation plans to open 24 new overseas Pie Face outlets by the end of 2015, including four in the Middle East; five in Singapore and Malaysia; two in South Korea, two in Japan and five in New Zealand.
During the next decade Pie Face hopes to increase its international network to about 685 stores, according to an investor memorandum shown to Fairfax.
Pie Face chief executive Kevin Waite said selling franchise licences into international territories provided the business with a “large upfront cash injection.”
The embattled fast-food franchise emerged from administration only in January after creditors agreed to a rescue deal, which kept chief executive and former Brumby’s managing director Mr Waite at the helm.
The business raised $5 million through a rights issue in April that was initially priced at 21¢ before being slashed to 1¢.
Mr Waite said these funds had put the operation in a “cash surplus position” and it was on track to pay off its major debt of $4.37 million as set out in the deed of company arrangement by May next year.
High-profile investors, including US Casino developer Steve Wynn, retail entrepreneur Brett Blundy, and Fat Prophets founder Angus Geddes pumped more than $35 million into Pie Face in the past five years through pre-IPO-stye funding.
This is not the first time Pie Face has tested the overseas appetite for its pies.
Founders Wayne Homschek and Betty Fong opened their first US store in New York in 2011 and within three years they had seven stores in the Big Apple.
But by October 2014 the shutters were down on six of its seven stores and plans for a network of 180 stores worldwide looked shaky.
Pie Face’s international focus now appears to be on Asia, the Middle East and New Zealand.
Pie sales across the business are growing, according to Mr Waite, with turnover up 3 per cent at the end of July compared with the same period last year.
After initially saying that there had “not been one month of negative growth” since January, Mr Waite said that for the months of February to July, the brand as a whole (system wide) “recorded positive, system-wide, like-on-like growth over the same period last year”.
This accords with a statement in the investor memorandum from the rights issue, which reveals sales fell 2.7 per cent in January.
“January was the brand’s first month after coming out of the DOCA and it was trying to rebuild itself after the battering it got from the press,” Mr Waite said.
It’s a tough market and Pie Face management’s decision to reduce the price of its pies from $5.75 to $4.95 earlier this year has not improved sales, several franchisees say.
“I’m not selling any more pies,” one told Fairfax Media.
“Our sales are down 3 or 4 per cent and flat at best. I’ll run the lease out and close the store, we have no chance of selling it and I would be surprised if there was anyone else who could apart form a few city stores,” he said.
Sales were down as much as 4 per cent for the all-important winter period and flat at best, he said.
One Pie Face franchisee, who is planning to quit the business once her lease comes up for renewal, said there were still fears about whether the business would survive.
“There are still some concerns about head office, there is a big rift between head office and the franchisees because there’s very little communication,” she said.
“There are a couple of really good people who are trying to do their best but there are some senior staff who don’t seem to care about the franchisees.
“And there is this big push to expand overseas and it seems a lot of effort is going into this.”
It’s an “ultra-competitive” time for the food franchising sector, says retail consultant Brian Walker.
The Retail Doctor Group chief executive said that after paying rent, wages, franchise fees and the cost of the pies themselves, many franchisees were only “buying themselves a job”.
“When you look at people in franchising that do well, it’s the master franchisees with multiple sites or the franchiser,” Mr Walker said.
Rockey Rong operated the Circular Quay Pie Face until February this year when he moved to Parramatta.
He is pleased with the direction the new management has taken and confident the brand is back on track.
“Kevin and Bruce [Wookey] are making sure their staff are working for the franchisees,” Mr Rong said.
“It’s going to take time to see if it’s effective or not, let’s see how it’s going in another six months.”
He said his sales were up 15-20 per cent and he was working hard to grow the business.
“I’m trying to display as much as possible so people can come in and grab and go as much as they want,” Mr Rong said.
“I heard the previous owner shut the store a lot and too early, and didn’t display very much stock.”
Numerous Pie Face franchisees have been in food retailing for many years and witnessed the exponential growth in competition in recent years driven by global food chains and corporate coffee groups.
First published on Australian Financial Review, 8th August 2015.