Franchisee Expenses Are Out of Control
BY AJINDER HANDA, NCASEF VICE CHAIRMAN, PRESIDENT, GREATER SEATTLE FOA
In any business, there are three ways to make money: by increasing sales or gross profit, by decreasing expenses, or by cutting corners. 7-Eleven franchisees are not able to increase sales
and GP due to the lack of a sufficient and effective advertising program, or we are giving away some of our GP to our regular customers by way of promos and deep discounts (please read my last article).
As far as lowering expenses to make money, that isn’t an option for us because our expenses have actually been growing for the last several years. If you look at any of our expense lines, it’s almost double what it was 7 to 8 years ago. In any business model, if your expenses are increasing so do your profits proportionately. However, 7-Eleven’s current business model is hurting and eating our bottom lines. Food service definitely is the future of the convenience industry, since it generates 70 percent GP. But what about our stores that are merely generating 35 to 40 percent GP in food service, if they are lucky? To top it off, our current food service model is extremely labor intensive. Either it needs to be simpler so it will not require extra labor, or it needs to be more profitable so franchisees can afford extra labor.
Our biggest expense—payroll—is getting out of hand and will expand more in the near future. Rubbish, license fees, maintenance fees, common area maintenance, etc.—you name it, every one of them is growing. But what about SEI? In the past few years, they have either consolidated their expenses or passed them on to franchisees.
The point is that SEI’s bottom line is getting healthier (which is good with us as long as it’s fair and not hurting us), whereas franchisees’ take home is shrinking. Maybe this is good for SEI for a short period of time, but not for the long term because a failed store is not good news for any franchise system.
Let’s sidetrack a bit to discuss relationships. Is it necessary to be in the good graces of 7-Eleven Inc. in order to communicate with them? Why can’t we give constructive criticism or feedback? Why can’t we all sit down and figure out what’s the root cause of the problems with our system?
I recently found something interesting on Seven & i Holdings’ website. On the page that lists the Seven & i Group Corporate Action Guidelines, under Corporate Creed, it states: “We aim to be a sincere company that our customers trust. We aim to be a sincere company that our business partners, shareholders, and local communities trust. We aim to be a sincere company that our employees trust.”
Is this what 7-Eleven, Inc. truly believes? Do they honestly think they are following this creed? Stay tuned!