13 Jun The Aussie Farmers Direct Debt
The business world can be unpredictable. Industries change, trends come and go, customer preferences change, and all of these factors can rattle even the most well-established business.
Some franchises have holding power, so they’re able to withstand the competition and market changes. Others have a weaker foundation and are unable to last long, despite having a reasonable amount of funding. That’s the story of Aussie Farmers Direct, which was forced to close in March 2018.
What did Aussie Farmers Direct offer?
This was a subscription delivery service which sent fresh produce and milk from local farmers to customers on a subscription basis. Farmers would deliver their produce to the company, and the company would forward it to subscribers. This allowed people to have fresh ingredients delivered right to their doorstep. There is a market for such a service, especially with people recognising the nutritional value of fresh, unprocessed local ingredients. Unfortunately, even with this advantage, Aussie Farmers Direct failed.
What is the debt?
The franchise has a debt of around $86.7 million and most creditors believe they can only recover $3.4 million, which means they will have to pay $69.2 million out of pocket, which is a massive loss. The company succumbed to Administrative Management after they failed to secure a buyer. Aussie Farmers Direct also considered getting funding by making the company public in 2017, but that didn’t work out.
They spent a substantial $70 million funding in little over 4 years, and have struggled with debt ever since. Eventually, investors removed their support after many attempts to restructure the business, which led to the company losing $500,000 each week. Administrators have found there’s no way to salvage this company and closing it was their only option. This impacts 260 employees, 100,000 customers, and 1,000 franchisees. They weren’t informed until the very last minute so suppliers, customers, as well as the employees got an unexpected, unpleasant surprise.
Why did the company face problems?
The company began in 2005 every intention of succeeding in this industry. Unfortunately, their business plan was flawed from the onset as it wasn’t scalable. The way Aussie Farmers Direct want about its expansion wasn’t healthy as it placed unnecessary strain on resources without providing any proper rewards. Experts have cited many reasons for this problem and some of them include:
- AFD focused more on sales acquisition with expensive IT infrastructure instead of its core model of delivering fresh produce to subscribers. They didn’t check whether their growth was sustainable.
- People purchased products from AFD to support local farmers. When this company added general groceries and imported items along with local produce, they lost their appeal.
- AFD couldn’t compete with supermarket chains like Coles, which already dominated this industry. If the company has stuck with fresh produce and milk, they wouldn’t have reached this point.
- Their pricing wasn’t right to compete with supermarkets. With local produce, they could charge higher rates because people considered it a justified expense. Customers were willing to pay more for it, but when the company entered the grocery market with imported goods, they had to lower costs to compete. That didn’t fit into their business model.
This shows just how important it is to create a scalable model that doesn’t compromise a company’s appeal. Lack of good planning can easily bring a business down, especially if the expansion isn’t handled well. You can read more about the different reasons why franchises fail here.
If you want to know anything more about setting up a franchise business or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435