SEI’s Town Hall Meetings
7-Eleven began its Town Hall meetings to talk about the 2019 Franchise Agreement the week of December 4-8, on very short notice. Chicago had ours December 7, 2017, and we believe the presentations were the same for franchisees across the country.
In the very first message, a recorded video, a senior vice president of 7-Eleven, Inc., said, “Franchisees have helped build this system into the iconic brand that’s known and loved far and wide….The time spent getting to know your customers, providing them with a friendly, clean, well-stocked store is the difference between 7-Eleven and the competition. They can’t do what you can do.”
He went on to tell us how much money 7-Eleven has invested in the brand: $35 million for Rise and Guided Replenishment; $70 million for network, security and pin pad upgrades; $85 million for in-store hardware; $220 million for business transformation; over $100 million in franchise accounting system upgrades; and $100 million plus in new platforms such as hot foods.
Throughout this presentation, all I could think of was the current status of franchisees, how we have given up so much, and the fact that what makes 7-Eleven unique IS our franchisees. Being franchisees makes us better than the competition, because we have invested in the system, and we’re willing to work harder than anyone else to protect our investment. We have funded the system, and we have provided the fuel to grow the system, both in manpower and with our pocketbooks.
For me the brand is not Slurpees and Big Bites anymore. The brand is franchisees. The brand is the people who work for the system. We are unique because franchisees are involved in the community. We keep our stores friendly, we love our customers and we make sacrifices to build the brand. 7-Eleven has to protect the franchise system, the franchisees and the structure that allows us to be more than glorified employees carrying out the merchandise sales.
Since 7-Eleven went full franchised over the last 20 years, franchisees have helped double the store count. We’ve given up gasoline margins. We started paying the credit card fees. We have invested millions of dollars into labor-intensive programs. We’ve covered the development of the 7-Eleven ordering system, daily deliveries, CDC and commissary. We have given up profits to GGPS, to master lease expirations, and to the outsourcing of pretty much everything, from audits to maintenance to payroll.
This 2019 Franchise Agreement is monumental for all of us. Some 80 percent of all 7-Eleven franchise agreements will be renewed between now and 2024. We are struggling mightily with external factors like increased competition and minimum wage, and we are hoping that 7-Eleven will offer some relief with this new contract. We have high expectations, and that is why tensions and anxiety are high across the country. Both sides understand the importance of this agreement and why franchisees would go so far as to file an independent contractor lawsuit in California.
Dallas is good at explaining why they need to make more money, but they have never explained to me why I should make less. Dallas never mentions in their video that a 2004 franchisee at a bare minimum will work 15 years in the system. The average must be much higher than that—at least 20 years. Why do they think we need to make less? Why do they think we need GGPS, a regressive form of profit sharing split, unique to 7-Eleven system, that punishes the franchisee who keeps increasing gross profit?
Franchise expenses have increased substantially over the last few years. External factors such as FLSA, sick pay, minimum wage increases and other regulatory factors have affected the franchisee side of the financials. Franchisee forums (FOA, NBLC, and NCASEF) have failed to convince SEI to make changes to bring back financial equilibrium to the agreement. Yet the video presentation goes on to describe four guiding principles SEI used in working on the 2019 agreement.
The first of these is Balanced Economics, which really means “both franchisees and 7-Eleven should have the opportunity to earn a fair return.” What is a fair return for franchisees? Our data shows that 90 percent of franchisees got their money back in 4-5 years, but SEI has never defined what franchisees should expect as an ROI. If they have the numbers why don’t they release them? We have to ask ourselves, have we received a fair return?
The second principal was Brand Protection. The video said it is critical that we strengthen the brand as we move forward. To me strengthening the brand means strengthening the franchise system. It means franchisees are making a good living. That is what strengthening the brand means to me.
The third principal is Independent Contractor. He said the entire franchise model is based on our status as independent contractors. For me this is most confusing. If we’re independent contractors, how do you control the time I approve my payroll? How do you control on what day my payroll week should start? How do you control what time I receive my Coke order? We can’t just be independent contractors on paper. Actions speak louder than words. We understand that we bought into a system, but at the same time, the vendor relationship is the biggest relationship that we have. If 7-Eleven comes in between that relationship, then I’m not an independent contractor anymore.
The fourth principle was all about a marketable agreement. This is very interesting because 7-Eleven needs to get feedback from its own people to know if it’s marketable or not. The majority of 7-Eleven franchises are purchased by existing franchisees. If you don’t protect the franchisees you can’t have a marketable agreement because franchisees ARE the brand.
After the video presentation, the first thing we heard about is a “one time option for 2004 contracts, and the first option is a 5-year non-renewable agreement. That is the first option laid on the table. How do you start a conversation with that with someone who has put 20 years of their life into the business? It’s insulting. When you sell your store after 5 years, you can collect the goodwill and you get to keep half of the franchise fee.
The second option is if you don’t sell after 5 years, 7-Eleven will buy your store at a pre-determined amount. What is that? We were told that they recommend you sell your store through goodwill because that would be the better deal. We are presuming that the pre-determined amount would be the franchise fee itself.
The first option gets you out of the system. The incoming franchisee who buys your store pays the goodwill fee. 7-Eleven doesn’t pay it. They’ll give you half of the franchisee fee. They are actually making half of the franchise fee because that store was never actually on sale. They are encouraging franchisees to churn the stores so that they make money off of the franchise fee. What goes out of their pocket? A true buyout would be more than 150-200 percent of the total value of the store with no strings attached. That is a true “Thank you for your service for the last 25 years.” Why would they want to get rid of good franchisees that know how to run their stores?
The second option gets you out of your store at a price they determine. The third option gets you on a GGPS. Shouldn’t my first option be the last option? Why is the first option “Get Out?” Does that mean that the 2019 agreement is awful? The first option speaks for itself. The minority is on the 2004 agreement—I think 30 percent. Eventually everyone will be treated the same way.
The National Coalition is doing the right thing pursuing our independent contractor status. Now is the time for all franchisees to unite and to support local FOAs. If you are not a member, visit the NCASEF.com website to find the FOA closest to you and join that group. Now is the time for your elected local FOA and elected national leaders to represent us. This is a challenging time for the brand “franchisees.”