Keeping Up With Rising Operational Costs
A number of years ago, our franchisor’s focus was on obtaining the lowest cost of goods for our stores. Any company with a recommended product delivered a lower cost, and SEI would renegotiate to obtain the lowest possible price in the form of billbacks. This process helped generate sales and profits for both franchisees and SEI. Needless to say, bringing in the Business Transformation model changed the game by adding another layer that has increased expenses on the purchase and delivery of merchandise and the operation of our stores.
Without a doubt, BT has resulted in some lower cost of goods, but the cost of doing business with this system has resulted in either daily delivery charges or overall slightly higher purchasing costs. As a result, the profitability of many items—especially in fresh foods—is producing lower profit margins. It’s even adding costs when it comes to staffing our stores.
With BT, we no longer have the ability to designate to our vendors the preferred delivery times. We are put on a route geographically and many deliveries are made during peak business hours, which can impact the store’s ability to serve the guests and in many cases, results in the need for extra labor to meet these delivery time schedules.
There are also other factors at play impacting our store expenses. Payroll has gone up throughout the country because of the minimum wage increases and competition. Furthermore, payroll used to be handled in-house, as well as audits and maintenance, and now those functions have been outsourced. As you may have deduced, we are now paying a portion of those costs to third party providers.
Our main concern is with maintenance. The question that always comes up is why can’t franchisees look at the agreement to see what we’re paying for? At our recent NCASEF Board meeting, we asked our maintenance service supplier how is the hourly charge affixed to a store, and if the repair technician has to come back to the store because he needs a part, is the store charged again for the hourly time and travel? Surprisingly, they answered they are not sure.
It’s very difficult to understand why we can’t just get a printout of what the charges are when maintenance is performed. When you purchase something for your personal needs, you know exactly what you’re being charged, and if there’s a dispute you can begin to rectify it immediately. We do eventually get a list of the charges on our backroom computer, but very few franchisees are aware and remember that they can pull that up.
Moving forward, this balancing act is still going to continue between the lowest possible cost of goods and trying to control our expenses. For the future, we need to be working a lot closer with SEI and communicating openly because franchisees have the right to know exactly what they are being charged in any agreement that 7-Eleven has entered into that affects our income. Perhaps, because the agreement gives 7-Eleven the right to refuse a recommended service provider, there’s even an opportunity to promote competitiveness between providers, which is a good thing because it keeps them honest and we know we’re getting the lowest price.
As we get into this era of increased competition and escalating expenses, the system needs to take a closer look and work closer with franchisees to make sure both merchandise and store-related expenses are communicated to franchisees.