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BMA735 - Management Ethics - Julia Banks Case Study - Assessment Answer
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Internal Code: 1AHIAF
Code: BMA735
Julia Banks Case Study Assessment Answer
Assignment Task: BMA735 Julia Banks will never forget the panic attacks. She still finds herself waking up in the middle of the night, heart pounding and mind racing, from the stress of running a Donut King franchise in Marsden, Queensland. As debts and losses mounted, Banks and her husband John lost their savings and family home. "It's pretty well destroyed our lives," she says. The Bankses started their Donut King store in early 2015 under a franchise agreement with Retail Food Group (RFG). Gold Coast?based RFG is the country's biggest food franchise operator, whose brands include Donut King, Brumby's, Gloria Jean's, Pizza Capers, Crust Gourmet Pizzas and Michel's Patisserie. It has a market capitalisation of about $800 million and claims to have more than 2500 stores. The Bankses are one of hundreds of franchisees who have been financially devastated after signing up to one of the high?profile franchise brands under the RFG umbrella. Days after closing, John Banks wrote to RFG's managing director, Andre Nell, telling him his Donut King had joined the growing list of stores that had either been closed, sold at a massive discount to its purchase price or become a "ghost store" – where RFG is still on the hook for rent but the shop does not open its doors to customers. BMA735 Since listing on the ASX in 2006 at $1 a share RFG has, for most of that time, produced record profits, double?digit returns on equity and fat dividend payouts for shareholders. In 2015 RFG stock hit $7.15. It built a reputation as a franchise amalgamator as it spent more than $500 million in the past decade on 15 acquisitions including Crust Gourmet Pizzas, Pizza Capers, coffee chain Gloria Jean's, Café2U, DiBella Coffee and Hudson Pacific, a food manufacturer and distributor. That scale has also seen it become one of the country's largest coffee roasters, as it sells to its Brumby's, Michel's and Gloria Jean's franchisees. In an Australian franchise sector estimated to be worth $146 billion in sales, and where there are four times as many franchisors per head here as in the US, RFG had become a serious player. But it seems this phenomenal growth has come at a cost. There is systemic wage fraud as franchisees do whatever it takes to make ends meet, the use of sham employment contracts and the underpayment of overseas workers hired on holiday visas. The evidence of gouging and underpayment comes as RFG's balance sheet is starting to show signs of stress. In June, a UBS note suggesting RFG may need to restate its accounts to meet new accounting standards sparked a market slump of 11.3 per cent. Chairman Colin Archer then issued a warning at the company's annual meeting late last month, saying that RFG had become the target of "relentless" short selling by hedge funds hoping to drive down the share price. Archer also used the meeting on the Gold Coast to announce a company?wide review aimed at ensuring franchisees were paying staff correctly. BMA735 Some of the problems facing the stores are linked to the well?documented problems shopping centres have faced over the past few years. But much is attributed to a squeeze on franchisees from crippling fees, rising labour costs as well as higher rent and food imposts. At the same time, franchisees claim reduced support from head office as RFG attempts to cut costs to preserve margins. They complain of too little product innovation, too little advertising and, in the case of Michel's, poor quality food. Documents show some stores are manipulating their sales to try to avoid the royalties charged by RFG on every transaction. RFG has been trying to manage this problem by hiring mystery shoppers, conducting audits and hiring a surveillance firm, Quantum Corp, to write observation reports that effectively spy on franchisees. If franchisees were caught they were issued with threatening letters including demand for a payment of a franchise service fee and marketing fund contribution. The network is littered with franchisees who have lost their homes, suffered marriage breakdowns and decimated retirement savings. Many lament that when they tried to sell their stores there were no buyers. One of those happy to speak is former Brumby's founder and former managing director Michael Sherlock. Michael Sherlock is the original founder of the Brumby's bakery chain. and sold the Brumby's franchise network to RFG in 2007 for $46 million. Sherlock says a good franchise business is based on happy franchisees. "This network has created a lot of human misery," he says. "They're all unhappy. I haven't met a happy one." RFG bought Brumby's at a time when there were 321 stores in the chain and had plans to grow. Now, according to RFG's most recent full?year results, there are fewer than 246 stores. Sherlock believes RFG should have had 600 Brumby's stores by now. Instead, franchisees have either walked away or become "dinosaur franchisees". These are "poor people", he explains, who have "got old, they still own it and they can't sell it, so they've just got to keep working." "RFG is run for shareholders, not franchisees," he said. "The model is to cut out all the overheads, get rebates, charge lots of fees and keep shareholders happy." Wayne Hong, who has a Michel's franchise at Knox Shopping Centre in Melbourne's eastern suburbs, says he will leave when his agreement runs out in six months. "They treat us like dogs," he says. "It was a dream to have my own business, but it turned out they treat us like shit." Devi Trimuryani, who has a Michel's in Newcastle, tried to leave last year but couldn't find a buyer. After buying a Michel's Patisserie in 2012 she has racked up debts of $100,000 to Retail Food Group. "I tried to sell the business last year but who's going to buy a store that loses money?" Hundreds of stores are for sale, or about to go on sale, on websites including Gumtree and Seek.com.au, as well as in local Chinese?language newspapers. BMA735 Michael Fraser and Maddison Johnstone run an assistance and support business for disaffected franchisees called Franchise Redress and spent 30 days on the road from October 25 this year monitoring the RFG network of brands, visiting more than 100 stores in Victoria, NSW and Queensland. Franchisees told Fraser that RFG acquired a brand, decimated the franchisee support staff, renegotiated supplier deals and collected "kickbacks" to the detriment of the franchisee's profit line, milked every possible cent out of the franchisees, before finally allowing the brand to die. Alongside a store's purchase price, which can be as high $700,000 there also is a franchise fee for the right to use the RFG brand, a training fee that can be more than $10,000 for a course run by RFG, and administration fees for the preparation of documents. There are rental costs, computer fees, project management fees and utilities. All up, it cost thousands, if not tens of thousands of dollars a year. RFG also makes money from the raw food it sells to franchisees. As a wholesaler and speciality coffee business it sells coffee beans to brands including Gloria Jean's, Michel's and Donut King. RFG also makes money from buying stores back for a fraction of their original sale price and then placing the same stores back on the market for hundreds of thousands of dollars. BMA735This BMA735: Case Study Assessment has been solved by our Case Study experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our Experts are well trained to follow all marking rubrics & referencing style.