Introduction

To the dismay of thousands of chocolate loving Australians, the chocolate restaurant and chocolatier Max Brenner announced they were entering into voluntary administration late last year. While the directors claimed that everything would be business as usual while they attempted to save the company, the current situation is far from normal.

What is Voluntary Administration?

Voluntary administration is the process where an insolvent company is put under the control of an independent person known as an administrator whose job is to review the company’s assets and finances, and generate the best result for both the company and its creditors.

Voluntary administration is different from liquidation as the ultimate goal is to save the business rather than finalise its affairs and eventually dissolve it.

Max Brenner

Max Brenner began its story in Israel in 1996 as a small retail shop selling handmade chocolates. The first Max Brenner Chocolate Bar opened in Australian in 2000 in Paddington Sydney. The chocolate company displayed rapid growth in Australia, opening its 35th store in 2013 and another 3 since. The company has also grown rapidly in the international market, having opened stores in Singapore, China, USA, Russia and Japan.

Despite having the best Italian Thick hot chocolate ever made, the company announced it was entering voluntary administration in early October 2019, citing rising costs and poor sales (though a costly renovation of their head office is thought to have played a large role). While the directors claimed the business would operate as normal while they assessed their prospects, 20 out of their 37 stores were swiftly closed.

Since then, the Israeli master franchise owner, Max Brenner Industries Ltd, withdrew the local business license and successfully applied to have liquidators appointed. There was some hope for the business with the announced buy out by a company named Tozer & Co, however they were dashed just a day after the initial announcement, when it was confirmed that the deal had fallen through with no explanation.

The administrators determined that the chained owed more than $33 million to creditors, and approximately 700 former staff have claims for unpaid wages and superannuation dating back as early as 2016. Receivers have also been appointed by one of the companies secured creditors, Glenn Wein, who supposedly has security over “any real property or any leased owned or held” by Max Brenner Australia. At this stage the future of the company is not clear.

Doughnut Time

Max Brenner isn’t the only sweets café to experience such problems. The Brisbane born chain Doughnut Time entered liquidation in March last year after a very turbulent year of business. They first showed signs of problems in late 2017, with unpaid rent on their stores and unpaid wages to staff. Initially the directors attempted to save the company by closing half their stores and selling the company to its former CEO. This sale ended up falling through and the company was forced into liquidation, leaving close to 500 employees unemployed with unpaid wages and superannuation. These employees are now having to rely on the Fair Entitlements Guarantee to claim lost wages, although there is speculation that up to 75% of the staff may be ineligible, due to being in Australia on work visas. The Doughnut Time founder explained that the financial hardships were due to his expanding the business too quickly, opening 15 stores in as little as 3 years.

But this is not the end of the Doughnut Time saga, with an announcement made last July by new business owner Peter Andros that the iconic store will be making its comeback in the near future. At this stage the business has plans to open 8 stores across Brisbane, the Gold Coast and Melbourne, with further plans for Sydney in the future. The new owners are committed to not making the same mistakes as their predecessors, preferring a “’start small’ approach to operations”.

Other Examples

Oliver Brown, the Belgian-inspired chocolate café have also experienced financial hardships this year, entering voluntary administration on the back of a reported $29 million owed to creditors. The company’s 52 franchised stores faced uncertain futures until it was announced that the creditors voted in favour of a deed of company arrangement, thus ending the administration. This isn’t the first financial crisis the company has faced. 2 stores were placed into administration and liquidation earlier this year and the whole company was in voluntary administration back in 2012 due to a dispute between shareholders.

Other businesses such as Koko Black, Darrell Lea and even Australia’s oldest chocolate makers Ernest Hillier have entered voluntary administration in the last 6 years, which displays an alarming trend.

Fortunately, it’s not all bad news in the chocolate industry. Some cafes such as San Churro are still going strong with no reported financial stress. Giro Maurici, co-founder of San Churro, places great importance on keeping up with tech trends such as Uber Eats and focusing on long term sustainability, rather than fixating on expanding the business as quickly as possible.

Conclusion

While the history of Australian dessert cafes may look rocky [road], there are some examples of sustainable business models, and many lessons to be learned by prospective businesses. A common thread between the some of the newer chocolatiers who’ve collapsed is an over-eagerness to expand, and biting off more [chocolate] than they can chew, which should serve as a warning to others not to overburden a relatively young company.