The Multiple Store Criteria
It may sometimes appear that the road to obtaining additional stores by existing franchisees is built upon shifting sands with no clear and consistent policy established by SEI for guidance. Undoubtedly, given the number of inquiries that I receive regarding this issue, a great deal of confusion, disappointment, and even resentment is prevalent in the franchisee community.
In fact, however, SEI has established a “Multiple Policy and Procedure” to determine if an applicant is deserving of additional stores. The most recent policy became effective on September 1, 2011, but is subject to change at any time. In fact, I am advised that a test of a new franchisee selection process will be incorporated into the multiple policy during the first or second quarter of 2012, but I cannot tell you at this time if those changes will significantly impact the multiple criteria.
Before, I let you know some of the essential requirements to obtain a multiple, it is important for you to know that the criteria is policy and was unilaterally established by SEI. Don’t look through your store agreement for any reference to the multiple store criteria—you won’t find it. Moreover, the criteria does not amend any provision of the store agreement and, to a large extent, there is an element of subjectivity by SEI personnel who can either grant or deny an application for a multiple.
Since the granting of a multiple is not guaranteed under the store agreement, SEI can make whatever rules it deems appropriate and can even waive one or more requirements for a particular franchisee-applicant without being obligated to waive the same or similar requirement for a different applicant.
So, what are the essential elements of the 7-Eleven multiple store criteria?
1. First, the requesting franchisee seeking a multiple “must have successfully, continuously, and profitably operated” his or her current store(s) for at least six months. Before additional stores are subsequently granted, all stores must be operating to the satisfaction of the market/zone leadership.
2. The requesting franchisee must actively participate in the weekly sales planning or other appropriate meetings, and embrace the 7-Eleven Business System. The question is, what does “embrace” mean? The term can be subject to varying interpretation by different SEI managers.
3. A thorough business plan must be prepared and submitted detailing the franchisee’s qualifications and plan to increase sales and gross profit and properly control both the current store(s) owned and requested store(s). The plan must also show how the applicant is utilizing and successfully executing the current 7-Eleven Business System. Again—this can be a subjective criteria.
4. Franchisee must be operating under a 2004 or later agreement for each currently operated store. This should not be a problem for the vast majority of franchisees.
5. Net worth must be at or above required minimum for each current store owned by the franchisee for the previous 12 months. As to this criteria, I have often counseled franchisees to have a substantial cushion in their net worth accounts to make certain that the account does not unintentionally fall below minimum. As you can see, the consequences can be greater than just receiving an LON or curable breach.
6. Each store that the applicant owns must have met the 85 Percent Recommended Vendor Purchase requirement for the previous 12 months. Here again, the failure to maintain the 85 percent requirement can result in more than just increasing the 7-Eleven charge by 2 percent.
7. The applicant must disclose all businesses that he or she is invested in and must not have an interest in a competing business that would impair the applicant’s “best efforts” or ability to run a 7-Eleven store—once again, as determined by 7-Eleven.
8. The franchisee’s current store(s) and the new store must be in the same geographical area and within the same zone.
9. Each additional store must have successfully trained and fully empowered managers, must be staffed with employees trained in the sale of age-restricted products (Come of Age Program), and embrace the Business System and utilize all of its processes.
10. All of the usual permits and licenses must be in place by the effective date for the additional store, with the franchisee not having any convictions for violating Tobacco and/or Alcohol Beverage Laws for the prior 12 months, as measured from the date of adjudication. If you did, unfortunately, violate any such laws, and you are contemplating applying for an additional store, it would be a good idea to get an adjudication of the violations as quickly as possible.
11. Of great importance, on the effective date of an additional store being franchised, the franchisee must not be in material breach with respect to all current stores owned. Hint: Keep your net worth account well above the minimum at all times.
12. The applicant cannot have been served (in any store currently owned) with 4 or more Notices of Material Breach within the 2 years prior to the effective date of the new store.
13. All of SEI’s then current policies relating to transfer, the half-mile option, and goodwill policies and procedures will apply to the new store.
The above points are the major factors that will be considered by SEI in determining whether or not to grant a franchise for an additional store. However, over and above these factors are general considerations by your Zone Leader, Market Manager, and perhaps other evaluators with respect to the operating history of your current store(s) including, but not limited to, customer complaints and comments, net worth and gross profit growth, inventory variations, accuracy and timeliness of accounting reports, use of the RIS System, implementation of SEI’s business system, and the appearance and presentation of the store and employees to customers. Hint: Keep your customer evaluation scores as high as possible—at least 85 percent for 4 months and no more than one month under 80 percent.
In making its determination, SEI has also created a sort of scorecard that, in some cases, imposes even more stringent and additional requirements than the above criteria. The scoring involves, among other things, merchandise ordering and interaction with your Field Consultant. For gasoline stores, SEI is looking for 90 percent price survey compliance. There are 19 requirements for non-gas stores and 20 for gas stores and, in each case, SEI is looking for an applicant passing at least 16 of these requirements.
If you should apply for a multiple, you will be given a timetable within which to submit your application and business plan. In turn, SEI has a certain timetable to accept or deny your application. If denied, your Market Manager or Zone Leader will discuss the reasons for the denial. If the application is granted, you must sign the “then current 7-Eleven Store Agreement” for the additional store, and pay the then current franchise fee without any provision for a refund. An initial denial does not necessarily disqualify the franchisee from requesting another store.
For all of you old timers (franchised in 1991) who signed the Long Term Tenure Rebate Amendment for the store you owned at that time and for all future stores to be owned, you will be required to waive the rebate for all additional stores now being franchised to you. The rebate will still apply to the original stores that you owned in 1991 and any additional stores franchised which did not contain the waiver in the store agreement.
I hope this article provides a reasonably clear and accurate picture of what it takes to become a multiple storeowner. But, as should be obvious, this is SEI’s party and it alone calls the tune. Bottom line—run a profitable and clean operation and generally accept the 7-Eleven business model and promotions, whether or not you like them, and your chances of franchising additional stores are probably pretty good. If you cannot do that, then your chances are probably slim. Always keep in mind, however, that SEI can waive any requirement in a particular situation, i.e., if management feels it is warranted for a specific applicant and under specific circumstances.