Who Is the Customer, Anyway?
In my high school and college years, I proudly worked in retail. Each of my employers reminded me to always respect the customer, because without them, they would correctly say, I would not have a job. In my later years as a shopper, I have rarely encountered someone who did not treat me with the same measure of respect that I, having been once been in their shoes, always give them. On those occasions when I’m not properly treated as a customer I pause and say, “Excuse me. I’m a bit confused. Perhaps you could help me? Please remind me: Which one of us is the customer?”
In the case of SEI and the relationship between McLane, FM Facility Maintenance, TNG GP, and other vendors on the one hand, and the franchisees on the other, your franchisor has been saying one thing and doing another. “Watch what we do, not what we say,” was the famous advice President Richard Nixon’s first Attorney General, John Mitchell, gave the press at the onset of the Nixon presidency in 1969. This is good advice for us to follow in examining what SEI is saying and what it is doing in this area.
What SEI Says
Your franchise agreement makes plain that you are the customer of McLane and other suppliers. Section 15(g) of the franchise agreement describes the franchisee as the purchaser of the inventory for the store. SEI takes the position that the franchisee bears the risk of loss, theft and spoilage with respect to that inventory, all of which are attributes of a purchaser and owner of that inventory. In addition, under the franchise agreement, SEI pays McLane, the CDCs and other vendors “on your behalf,” meaning that it is paying your debt to those vendors. This makes you the buyer and the customer.
These provisions of the franchise agreement must be read in concert with section 2 of the franchise agreement, which states clearly and conspicuously that the franchisee is an “independent contractor” who is not only permitted, but required to “control the manner and the means of the operation of the Store.” Of course, one of the central aspects of the operation of the store is the purchase of inventory.
For its part, SEI has repeatedly stated that the franchisee and not SEI is the customer of McLane. For example, in emails sent by the Logistics and Demand Management Team on July 17, 2012 and March 26, 2013, SEI stated, “The 7-Eleven Franchisee is the customer of McLane… We want McLane and the Franchisees to develop the relationship as business partners…”
In addition, under the franchise agreement, SEI is required to use commercially reasonable efforts to obtain the lowest cost products and services from each vendor on a market basket basis. The market basis analysis is based upon product mix, service area, payment terms and frequency of delivery. In its letter to all franchisees dated July 25, 2011 announcing the five-year renewal of the McLane contract, SEI represented that all franchisees would have the opportunity to improve their overall wholesale net cost, stating “we are committed to working aggressively to continue to lower our cost of goods…”
What SEI Does
Increasingly, SEI has been acting in a manner that contradicts their assurances that the franchisee is the customer, as if its assurances had never been given and the relevant provisions of the franchise agreement did not exist. SEI leverages the fact that it has the contractual relationship with McLane, not to mention with many other similar vendors who see SEI as the gatekeeper, and thus has become the party to whom these vendors must listen and accommodate. This means that the terms and conditions of the economic relationship between the franchisee as the customer and the supplier as the seller have been taken over by SEI. This has resulted in higher costs of goods, increased labor costs, and many inconveniences and operating inefficiencies to franchisees.
• SEI has taken to actually placing orders with McLane for inventory, to be delivered to a store, without any prior notice to or the consent of the franchisee. This is not a case of SEI trying to be helpful, because in many circumstances the inventory ordered is excessive, and thus does not meet the needs of the Store.
• Some franchisees are being told that they cannot add items to their McLane order without permission of their FC. In one case, the franchisee requested an opportunity to speak directly to McLane, and was refused.
• SEI is exercising increasing control over when orders must be placed with McLane and other suppliers—what day of the week, as well as what time of day they will be delivered and the route McLane delivery trucks will travel in making deliveries to franchisees.
• On May 27, 2014, a Category Manager for SEI announced that SEI has decided to move the magazine wholesale supply for all store locations to TNG GP. This change, which again, was implemented without any consultation with any franchisee, will result in higher costs of newspapers to franchisees. In addition, it violates the provision of the franchise agreement that allows the franchisee to purchase up to 15 percent from Bona Fide Suppliers of his/her choice.
• On July 31, 2014, a Zone Merchandiser for SEI announced a new order and delivery schedule for New England Ice Cream, which was to take place 11 days later, and about which no franchisee had been consulted.
• One portion of the new FM Facility Maintenance contract requires all franchisees to pay $62 per month as a service contract for lighting. For some franchisees, this is as much as 300 percent of the actual cost of lighting maintenance services for their locations.
• SEI repeatedly fails to ensure that franchisees receive the kind of service to which they are entitled from suppliers and vendors as their customers. For example, McLane deliveries often occur inside the blackout windows (early morning and lunchtime) and drivers frequently fail to scan inventory in the store, often doing it in the truck in order to save time, which often create discrepancies that are nearly impossible to resolve.
• Prices charged by McLane and the CDCs are in many instances higher than the price at which the franchisee could buy the same product at retail. One franchisee (who shall remain nameless for obvious reasons) reported that McLane charged him $229.10 for a candy shipment that could have been purchased at Costco for less than $200. This may violate the provision of the franchise agreement that requires SEI to make a commercially reasonable effort to obtain the lowest cost of products and services.
It is well past time for SEI to match its actions with its words, to treat franchisees as independent contractors, to insist that vendors and suppliers treat franchisees as the customers they are, and to stop treating franchisees as if they were store managers. In the coming weeks, we intend to bring these issues front and center to SEI and all Recommended Vendors.