Would You Become A 7-Eleven Franchisee All Over Again?

By ERIC H. KARP, ESQ., gENErAL COUNSEL TO NCASEF

This past summer my wife Steffi and I had the good fortune to celebrate our 40th wedding anniversary, and the even greater good fortune to take a wonderful two-week trip to mark that milestone. While I am not given to sharing my personal life in these pages, I will tell you that each of us would marry the other again in a “New york minute.”

Every franchise system has an off balance-sheet asset or liability: the state of the relationship between the franchisor and its franchisees. That asset or liability can have a serious effect on the ability of a franchisor to sell franchises to newcomers to the system, on the market for resales of franchised locations, and on the retention of existing franchisees. It often seems that SEI is one of the few franchisors I know that either doesn’t know this or doesn’t care.

The survey undertaken by the National Coalition this past September demonstrates clearly that the relationship between SEI and its franchisees is a liability to both parties. One need look no further than the oppressive, mean-spirited and take-it-or-leave-it 2019 franchise agreement rolled out by SEI without any input or negotiation with any element of the franchise community. Their strategy seems to be—to use one of my favorite analogies—that they can attract more bees with vinegar then they can with honey. The survey results reveal that only 10 percent of respondents believe the 2019 franchise agreement shows that SEI cares about the well being of its franchisees. A whopping 84 percent “strongly disagree” or “disagree” with that statement. We could certainly end there, but there is ample additional evidence that the relationship between SEI and its franchisees is at a point where it’s hard to believe or imagine that it could actually get worse.

SEI has never questioned the validity of the 2018 survey or even the 2014 survey conducted by Franchisegrade.com. The 2014 survey was based on 642 respondents and was certified by Franchisegrade.com as statistically valid. The 2018 survey, conducted through Surveymonkey.com, was based on 768 respondents. Fifty-four percent of those respondents have two or more stores and 48 percent have been in the system for 10 or more years. Thus, the respondent group consists of seasoned and knowledgeable franchisees.

As in a marriage, the acid test of any franchise relationship is whether the parties, if they had it to do all over again, would choose to enter into the arrangement. In 2014, the National Coalition asked that question of a statistically valid sample of franchisee respondents. Fortynine percent stated that if they had the choice, they would not choose to become a franchisee all over again. In the 2018 survey, that percentage rose sharply to 72 percent. Thus, nearly three out of every four franchisee respondents stated that the relationship has broken down to the point that they wish they had never become a franchisee.

On top of that, only 10 percent of respondents believe that investing in SEI is a good decision, just 11 percent believe that SEI cares about its franchisees and only 8 percent believe that SEI puts franchisees’ success first. Conversely, 84 percent of respondents do not believe that SEI has the franchisees’ best interests at heart.

The 2018 survey provides ample additional evidence that the franchise relationship is seriously damaged, with 76 percent of respondents stating that they do not believe that SEI has a positive relationship with its franchisees. This is even more confounding because SEI has refused to acknowledge, or even respond to recent written communications from the National Coalition extending a hand of conciliation, offering to engage in dialogue and collaboration.

Both the 2014 and 2018 surveys demonstrate a widespread belief by franchisees that SEI does not trust them. Seventy-five percent of respondents held that belief in the 2014 survey and 76 percent in the 2018 survey.

Responsibility for this sad state of affairs rests not with the hard-working franchisees that are represented by the Franchise Owners Associations that comprise the National Coalition. rather, that responsibility rests firmly and solely at 3200 hackberry road, Irving, TX. Over the years, we have exhorted SEI to change the culture of this franchise system, to be more open and transparent about the supply chain, to disclose their intentions with respect to replacement of worn out equipment and the refurbishment of stores which are tired and cannot meet the competition posed by new, gleaming, high ceiling, well-lit stores with modern fixtures and equipment. Questions about the true profitability of fresh foods and hot foods, the ultimate cost of delivery which will be borne by franchisees, the impact of graduated gross profit split on steroids, and many other issues and concerns have fallen on deaf ears. moreover, the rollout of the 2019 franchise agreement was handled in a rushed fashion, with SEI issuing frequently updated FAQs that were still vastly incomplete and in some cases misleading to the franchisees.

The incredibly well attended National Coalition-sponsored town hall meetings in California, with more than 800 combined attendees, saw franchisees deeply concerned, indeed terrified about their future, when they were fully and carefully informed of what was really in the 2019 agreement. many were shocked at the inconsistency between what they were being told was in the contract and what it really says. Some were even on the verge of tears.

As your general Counsel, it is my job to keep you fully informed of developments which can affect your bottom line and the value of your business. A famous Supreme Court justice once said that “sunshine is the best disinfectant.” So we will continue, in every forum and to anyone who will listen, to shed the light of day on what SEI is doing to this franchise relationship, with the hope that one day at least a majority of SEI franchisees will be glad to say that if they had to do it all over again, they would be proud to enter the system as a 7-Eleven franchisee.