BMA735 Management Ethics: Analyzing RFG Franchise Financial Issues

This case study delves into the financial turmoil experienced by franchisees under the Retail Food Group (RFG) banner, highlighting issues such as financial mismanagement, systematic wage fraud, and the underpayment of overseas workers. The analysis identifies key problems, including high rents and royalties imposed by RFG, coupled with poor business practices by franchisees, such as a lack of product innovation and fraudulent activities. Alternative solutions are proposed, such as reducing rent and royalty charges, implementing better oversight, and encouraging franchisees to innovate and operate transparently. The advantages and disadvantages of each solution are considered, with the reduction of financial burdens on franchisees identified as the most effective approach. Ultimately, the case study emphasizes the need for a balanced approach that considers both the financial health of RFG and the well-being of its franchisees, fostering ethical business practices and sustainable growth. Desklib provides similar solved assignments for students.

Running head: ANALYSIS OF CASE STUDY 1
Analysis of Case Study 1
Name of the Student
Name of the University
Author Note

1ANALYSIS OF CASE STUDY 1
Table of Contents
1. Identification of the Problem in the Given Scenario..........................................................2
2. Analysis of the Key Issues..................................................................................................3
3. Alternative Solutions to the Problems................................................................................3
4. Advantages and Disadvantages of the Various Possible Solutions....................................4
5. Selection of the Best Solution.............................................................................................4
References..................................................................................................................................5

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1. Identification of the Problem in the Given Scenario
The immediate problem that can be identified in the given scenario that is people
signing up for franchises under the banner of the Retail Food Group or RFG based in Gold
Coast in Queensland, are incurring huge financial losses. The once expanding list of stores
under the RFG umbrella soon began to reduce in length as many of these stores were being
sold off at massive discounts or were being considered as ghost stores. Although RFG has
experienced phenomenal growth ever since it was listed on the ASX in the year of 2006, this
immense growth rate has come at a cost that has proven to be very huge for the franchisees.
Yet the problem that has occurred is largely due to financial mismanagement by franchise
owners. Systematic wage fraud is something that the franchise owners had been partaking in
for quite some time. The underpayment of workers from overseas who were hired by the
franchises on holiday contracts and the drawing up of fake employment contracts by
franchise owners which in turn led to a huge slump or decline in the balance sheet of RFG. A
warning was issued by the chairman of RFG at a company meeting recently whereby he
stated that efforts needed to be made to ensure that franchises were paying all of the staff
members accurately and in a timely manner. Rising labor costs, crippling fees and high food
imposts as well as high rent have all made the situation much worse for RFG franchises. The
franchises on their part claim that they do not get as much support as they would like to from
the head office mainly because RFG is seen to cut costs quite frequently for preserving
margins. Bad advertising, poor quality of products and little or no product innovation has led
to the financial problems of RFG franchises being significantly magnified. Moreover, some
stores have even manipulated sales in order to prevent the royalties that are charged by RFG
following each and every transaction. Although this problem is something that RFG has tried
to manage by recruiting mystery shoppers, hiring surveillance firms and conducting regular

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audits, it has not been successful in averting its financial problems for franchisees. On their
part, the franchisees argue that RFG’s operations are limited to keeping its shareholders
happy rather than its franchises happy (based on case study).
2. Analysis of the Key Issues
The financial losses that are being incurred by RFG franchisees and its stores are those
that are aggravated because of the bad policy being pursued by RFG from its franchises. RFG
charges a very high rent, as well as high amounts of royalties on all of its transactions, and it
becomes difficult for the franchise owners to do business after paying all this rent and royalty
and to make a profit at the same given time, especially since labor costs are so high. It
appears that all that RFG is interested in doing is keeping its shareholders happy and does
little to look into the needs and requirements of its franchisees. The franchisees have also
been running their business operations poorly by failing to innovate with their products and
services, not assuring quality in the rendition of services, engaging in systematic fraud to
avoid paying the rent to RFG and hiring laborers from overseas to do work and not paying
them on time, in order to cut costs (based on case study).
3. Alternative Solutions to the Problems
 The first and immediate solution to resolve the financial crisis that is being faced
by RFG and its franchisees is for RFG to reduce the amount of rent that it charges
from its franchisees (Ballantine et al. 2018).
 The second solution is to use checks and balances system to detect suspicious
behavior on the part of franchises (Chonko and Hunt 2018).
 RFG needs to avoid charging a royalty for every transaction (Craft 2018).
 The franchisees of RFG need to innovate with regard to its products and services
in order to ensure quality. They also need to carry out financial operations in a

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more transparent manner in order to be trusted more by RFG and make it a point
to pay laborers on time, even if the labor costs are high, as not doing so can lead to
huge labor trouble and legal issues in the long run (Greenwood and Freeman
2018).
4. Advantages and Disadvantages of the Various Possible Solutions
The advantages of the solutions mentioned above is that franchisees of RFG will not feel
as financially burdened as they do at the moment if the rent and royalty charges are
reduced. They will not feel compelled to take recourse to fraud to avoid paying this rent
and royalty, or to accumulate funds by not paying its laborers on time. This lack of feeling
financially burdened will lead the franchises to focus better on the quality of products and
services that it offers. Franchisees will have the freedom to innovate more, and look into
quality assurance matters, if not consumed with thoughts of how to battle debt and the
avoidance of high rent all the time. The disadvantages of the solutions provided above are
primarily that RFG will lose out on a lot of revenue if it is not able to charge high rent and
high royalty. It will also not be able to keep its shareholders as happy as they are the moment,
if it starts to look into the interests of its franchisees (Kopina and Blewitt 2018).
5. Selection of the Best Solution
The best solution out of all the alternatives given is the reduction of the high rent and high
royalty charges by RFG as this in turn will reduce the burden on franchisees and with that the
compulsion to engage in fraudulent practices and poor business management schemes (Craft
20180.

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References
Ballantine, J.A., Guo, X. and Larres, P., 2018. Can future managers and business executives
be influenced to behave more ethically in the workplace? The impact of approaches to
learning on business students’ cheating behavior. Journal of Business Ethics, 149(1), pp.245-
258.
Chonko, L.B. and Hunt, S.D., 2018. Reflections on ethical issues in marketing management:
An empirical examination. Journal of Global Scholars of Marketing Science, 28(1), pp.86-95.
Craft, J.L., 2018. Common thread: The impact of mission on ethical business culture. A case
study. Journal of Business Ethics, 149(1), pp.127-145.
Ferrell, O.C., Harrison, D.E., Ferrell, L. and Hair, J.F., 2019. Business ethics, corporate social
responsibility, and brand attitudes: An exploratory study. Journal of Business Research, 95,
pp.491-501.
Greenwood, M. and Freeman, R.E., 2018. Deepening ethical analysis in business
ethics. Journal of Business Ethics, 147(1), pp.1-4.
Kopnina, H. and Blewitt, J., 2018. Sustainable business: Key issues. Routledge.