The Joint 2019 Contract Committee

 

At the February 2016 Board Meeting of the National Coalition, Greg Franks, Vice President of Franchise Systems, and his team made an extensive presentation regarding the 2019 contract. He emphasized what everyone in the franchise community knows, which is a very high percentage of all franchisees in the system will face renewal of their contracts in 2019 and 2020.

For many months, the leadership of the National Coalition has been attempting to engage SEI in a meaningful and cooperative dialogue regarding the renewal contract. That effort has been fueled by the accumulating list of issues that have created both internal and external challenges to the franchise community, and more particularly, to franchisee net profit and equity.

These issues include the increasing pressure to create state-by-state minimum wage rates, which may eventually rise to $15 per hour from coast to coast. Indeed, 59 percent of Americans—including 84 percent of Democrats and 58 percent of Independents—support a $15 minimum wage, according to a survey by the Public Religion Research Institute, a nonpartisan research group. This is an issue that is not going away, and SEI has not yet proposed a viable and sensible plan to deal with this existential threat to store level economics.

On top of all that, the system is plagued by low profitability on promotions, a lack of transparency with respect to the company’s relationship with vendors, wholly inadequate commissions on gasoline sales, and the heavy-handed attempt to force franchisees to sign a new graduated gross profit split franchise agreement when the lease for the location is renewed or extended. Moreover, over the years, SEI has chipped away at franchisee profitability on a whole host of issues.

While there has been a recent thawing of the relationship between SEI and the National Coalition, and there are issues on which we have worked together, Mr. Frank’s presentation was concerning for its singular lack of specificity on how the new contract will be constructed. In addition, while he stated that franchisee input would be solicited, it was made clear that SEI would choose the franchisees from whom it would seek such advice, implying that the elected leaders of the franchisee community would not have a seat at the table.

For this reason, the National Coalition sent a letter to SEI in March announcing the formation of the Joint 2019 Contract Committee. The rationale for the creation of the Joint Committee is that the franchisees have a right to choose who will represent them; that is the essence of democracy and self-determination. This Joint Committee is a collection of 14 franchisee leaders who are current FOA Presidents, and current or former members of the NBLC, the CEO Roundtable, the Franchisee Selection Committee and of course, members of the National Coalition Board. The members of this Joint Committee, a true and representative cross-section of the franchisee community, are as follows: Joe Galea, Jay Singh, Serge Haitayan, Michael Jorgensen, Dennis Lane, Sajid Ahmed, Nick Bhullar, Ed DeNorio, Ajinder Handa, Manjit Purewal, Jay Kahn, Jerry Sahnan, Vikas Sharma and Kathy York.

The letter to Mr. Franks requested that the Joint Committee be provided with specified documents that we know SEI has in its possession, and which it is using to advance its own internal discussions about the terms and conditions of the renewal franchise agreement. It is simply not possible to have a meaningful and constructive collaboration if SEI continues to hold so much information so close to the vest.

Included in the information requested was the following:

• The holistic review completed in the first quarter of 2015, the company’s survey of franchisees, the focus group rollup and the Franchise Consulting Group report, which we understand was delivered to SEI on March 16, 2016. We asked for all of these documents because they would provide a window into the attitudes, levels of satisfaction or dissatisfaction and overall morale of the franchisee community. The National Coalition commissioned its own survey of franchisees and readily shared that with the franchisee community as well as SEI, which did not reciprocate. And the Franchise Consulting Group report we understand was an extremely detailed analysis and criticism of the policies, procedures and culture of SEI, particularly as it relates to its franchisee community.
• SEI’s capital expenditure budget for new SEI equipment and store renovations over the next five years. We have observed over recent years that the company is more than willing to spend hundreds of millions of dollars acquiring gasoline assets and competing convenience store chains, while equipment in the stores languishes beyond its useful life and renovation of stores is many years behind expectations.
• SEI analyses of historical and projected store level financial performance, as well as projections, and pro forma operating statements of franchisee results if franchisees in the future are permitted to own the real estate and/or the equipment in the store. We know that the company has been engaged in extensive financial analysis and modeling on all of these alternatives, and it is not possible for franchisees to choose among alternatives or to have a meaningful discussion without the same information in hand.

The Joint Committee requested that the documents and information be provided within 30 days, and that monthly meetings between SEI representatives and the Joint Committee be scheduled throughout the remainder of 2016. The goal would be to collaborate over a 2019 franchise agreement, which the Joint Committee could embrace, endorse and recommend to the entire franchise community. Finally, we suggested that a facilitator be retained, perhaps the Franchise Consulting Group, in order to ensure a structured and constructive approach by all concerned.

SEI must understand that the only path to an amicable resolution of this central issue is through true transparency and collaboration with the franchisee community. To paraphrase an old adage, we have led the horse to the water, now it is up to SEI to decide whether it will quench its thirst.