Is Our 7-Eleven Franchisee Model Feasible Anymore?
The $15 minimum wage is fast becoming a reality in many states, and $12 per hour will eventually become the federal standard. Seattle, Los Angeles, San Francisco and just last month, the entire state of California, committed to $15 per hour minimum wages phased in over a number of years. In all, 14 states had minimum wage increases that took effect on January 1 of this year, and more are enacting similar legislation.
These huge increases to our labor expense line, which is the franchisee’s responsibility, have the possibility of completely wiping out some franchisees’ net income. SEI has not yet come up with a plan to handle these increases other than to send out a crack FC team in the most highly affected areas to review franchisees’ stores for products that can be marked up with a higher CRP to cover the increase.
Combine the ever-increasing payroll (as the minimum wage increases are phased in over time), and the more intense labor required to implement the hot foods program, and it begs the question, “Is our franchised system as now constructed still feasible and sustainable for franchisees to make money?” Clearly we are completely powerless to do anything about the minimum wage increases and the fact that when we establish CRPs on products, half of the increase goes to our franchisor. The truth of the matter is that we will have to adjust our expenses, decrease payroll, stop some of the labor-intense programs in our stores, cut corners everywhere, and we will still have to adjust our retails dramatically.
Our difficulties will not end there. In the last few years, SEI in reality changed our contract without technically modifying a word in it. Let me elaborate. The combination of minimum wage increases, plus SEI’s introduction of the labor-intense fresh and hot foods programs and dozens and dozens of unfunded promotions, in reality changed the dynamics of our business, our expense lines, our labor and our business relationship with our franchisor. Franchisees’ bottom lines shrank because of labor, and SEI’s increased because of my labor. This must stop.
The shrink in our bottom line causes me to question whether or not our system is still feasible under the Graduated Gross Profit Split (GGPS) or the traditional 50-50 split (48/52 in reality with the jokingly called advertisement fee). We have a very challenging year ahead of us.
I urge SEI to sit down and talk sincerely to franchisee leaders to discuss the upcoming 2019 agreement. The health of our system is dependent on the health of our franchisees. With all due respect, when I talk about the health of our franchisees, I am not talking about a multiple store franchise system that uses one store to cover the expenses of the other.
Now I’m going to be blunt and ask the following question: At what point will SEI stop trampling all over the grey area of our contract? Our franchise agreement is famously designed with many ambiguous gray areas that can be manipulated down the road to SEI’s advantage. Recently, that gray area started expending further with the installation of the DVR system, extreme pressure regarding hot and fresh food distribution, and more recently, SEI’s getting involved in franchisees’ payroll.
I was disturbed that SEI conducted a survey of all our employees in our stores and an analysis of their rate of pay. Just to be clear, SEI is being paid by contract to process our payroll exactly as any other payroll company would. It is not SEI’s or any other payroll processing company’s job to meddle in franchisee employment practices. When will this trampling end?
This is my opinion, and I value yours.