A 10-Year Versus 15-Year Franchise Agreement
Over the last few months there has been talk about the new franchise agreement coming out within the next few years. The majority of franchisees are due for an agreement renewal in 2019, so the discussion always turns to what the agreement was like when we first franchised into the system versus the agreement we currently have.
The way our present agreement is set up, franchisees face a very difficult challenge. I represented a franchisee that had to sell his store. The goodwill was close to $500,000, and the franchise fee was $550,000. Combining the two, you have slightly over a $1 million investment. It follows that every year for a ten-year agreement the first $100,000 you are earning goes back to either your account or paying back the loan, which could also impact goodwill for franchisees. A 15-year agreement similar to our 2004 agreement gives you all that, and you don’t have to worry after 10 years of having to pay a 20 percent renewal (refranchise) fee.
The vast majority of franchisees highly prefer a 15-year contract with no renewal fees versus a 10-year contract with an additional franchise fee because that’s the system we bought into. This has been echoed to SEI, and we at the National Coalition have asked 7-Eleven to involve us in the new agreement process. If they do, franchisees will have a voice, because we represent all franchisees.
Part of the National Coalition’s function is to protect the investments that franchisees put into their stores, and we have communicated numerous times to SEI upper management that we want to be part of drawing up the new agreement from the beginning. Given that over the last few months the relationship between the National Coalition and SEI has changed to where we’re communicating more openly, and we both understand each other and can discuss our issues frankly, I am optimistic that our franchisor will accommodate us.
I credit SEI for making some commitments to the National Coalition because of our true, honest communication. For example, the company put a freeze on the maintenance contract increases that were scheduled for last October as we work through it. The franchise agreement that we’re about to be offered is the next phase of our operation in which we want equal participation.
Without question we need a 15-year agreement, and I think there is a need for 7-Eleven to assure us very soon that we are going to go back to a 15-year agreement and make that compromise because franchisees are working hard in their stores and need the right to operate their stores without having to worry about what changes the next agreement will bring.
Given all of that, I sincerely hope that the company will come out with a statement very quickly that says—instead of keeping franchisees on edge about the new agreement—that they are going to revert back to the 15-year agreement with no franchise fee and bring back the spirit of the agreement that we had in the past. Franchisees can then put this to rest and be assured that their original investment with the company is going to be upheld throughout their new agreement.