Two Issues Will Affect Our Future
As we begin 2016, perhaps the two biggest issues facing franchisees are the new franchise agreement coming our way in three years and the minimum wage increases occurring in states and cities across the country. There’s no denying our business environment is changing, so it is essential that SEI and franchisees work together to overcome these and other obstacles to ensure the continued success of our brand.
I’m sure everything you hear these days—whether it has to do with co-employership between franchisor and franchisee or the changing labor laws—is going to have some impact on what the 2019 agreement looks like. Throughout 2015 we have been talking to SEI about the gasoline commission, credit card charges, the GGPS, the length or term of the contract, maintenance, and many other topics.
In regards to the current gas commission structure, the reality is that it’s not equitable anymore because the costs associated with it—minimum wage, gas island maintenance, everything associated with managing and maintaining a gas facility—has gone up tremendously and franchisee commission has stayed the same. The National Coalition has hired experts to conduct a gas study and they found that at a penny and a half almost all low volume gas stores are upside down. The gas stores that have higher volume—100,000 plus—literally break even or make only a small profit after paying for what it takes to manage and operate a gas facility. That’s the bigger picture of gasoline.
Over the last year we were told these matters would be addressed as part of the new agreement discussions, and we are hoping franchisees can get some relief. I hope the NCASEF leadership continues to pursue SEI for a seat at the table to provide franchisee input on the new agreement. SEI must understand that our main goal is to make sure the system stays viable and the brand stays relevant. It’s about what’s good for everyone so the system can sustain. If we continue the path we are on, many of these factors will affect franchisees more than SEI, and that’s when the business model gets impacted negatively.
The minimum wage is a totally separate issue that is only going to get bigger as more states and cities implement increases. It’s a popular issue among legislators and is impacting only a few municipalities now, but will most certainly spread in the near future. Many cities, like Seattle, San Francisco and Washington, D.C. are seeing minimum wages as high as $15 per hour, which appears to be the norm as more states and municipalities follow suit. At some point it’s going to have a serious affect on our business model and we’ll really have to figure out how we’re going to cope with it.
So far our approach has been to make adjustments to our SRPs and CRPs, but we can only adjust retails to a certain degree before we start sending our customers to the competition. Our system is very unique in that we share gross profit with SEI, so each additional dollar we bring in as gross profit by increasing our retails doesn’t get applied to our bottom lines nor go towards paying the higher minimum wage—half of it goes to SEI. A franchisee has to collect twice as much as the competition to be whole. If the competition raises the price by a dollar, they keep the majority of it. We only keep 50 percent of the gross profit. That’s a big differentiation between the competition and us, so we really have to be on top of this issue. Franchisees and SEI have to be innovative and open to different ideas and different solutions.
The more issues we address prior to the 2019 Franchise Agreement, the better it will be for the long-term viability and health of the franchisee system. The system is growing, 7-Eleven is acquiring new stores (a lot of them are gas stores), and 2015 has been a good year for many franchisees. There is no question about that. Sometimes it’s difficult to struggle for your rights when you’re making more money, but SEI is making more money year over year, and it’s not a bad thing if franchisees are doing the same thing. We have an obligation to grow our income.
Strategy-wise I think we are on the right track compared to competition our size. We’ve been doing a few things right, but franchisee trust and confidence in the system needs to grow, and that happens when we work together. The challenge to the National Coalition and FOA leaders over the coming year is to persuade SEI to be fair and do what’s right for franchisees and the system, even if that means finding the middle ground. Over the course of the development of the new agreement, both the company and franchisees will benefit from leaders throughout the system who will work together for a stable future for franchisees.
I would like to thank everyone who supported me as vice chairman and executive vice chairman over the last six years. Thank you for your camaraderie, for your ideas, and for your friendship. I am committed to the franchisee community and to franchisee causes and I will continue to be involved with the National Coalition as president of the Central Valley FOA. It’s a long way to the 2019 agreement, and I intend to be part of the journey.