Did You Know?
Hidden in the one-inch thick Franchise Disclosure Document are several little known provisions, policies, and practices that you should be aware of before you sign a store agreement—whether for an initial store or, more likely, for a multiple.
Being aware of these points may or may not discourage you from signing an agreement but, at the very least, you will know what you are getting yourself into.
There are too many of these little known provisions, policies, and practices for one article, but the following issues come up frequently and are of great importance. For instance:
Gasoline Franchise Fees
The current gasoline franchise fee (called an “Initial Gasoline Fee”) ranges from $10,000 for sales during the prior year of 750,000 gallons or less, to $40,000 for more than 1,500,000 gallons or for a new store. But, DID YOU KNOW that the Disclosure Document also provides: “Sometimes, but not always, we may waive or reduce the franchise fee if you have experience in the operation of a 7-Eleven Store.”
If you fit into this category and are applying for another store with gas, you may be able to save a lot of money by negotiating a full or partial waiver of the initial gasoline fee BEFORE you sign the agreement.
The Half-Mile Policy
In my view, encroachment is the biggest threat to the success of a store’s operation. A high volume store can become a mid-volume store—and a low volume store can become totally unprofitable—if a new or converted store suddenly and inexplicably is established at a location so close to your existing store that it will have a substantial, and even devastating, impact on your sales.
If one morning on your way to work you see a large sign real close to your store that announces “New 7-Eleven Store Opening Soon,” you know first-hand what a knot in your stomach feels like. But wait, you think, “It can’t be. What about the half-mile policy?” This new store is well within that distance. You are then somewhat comforted by what you believe to be your right, at least, to franchise that new location or transfer to it if you so choose.
I wish I could tell you that you would be correct in your belief. First, DID YOU KNOW that the half-mile policy does not protect you from a store being established within a half mile of your store? It only gives you certain rights to possibly transfer to the new location or possibly franchise it as a multiple. It turns out that the trumpeted half-mile policy has more holes in it than a slice of Swiss cheese. For instance, the policy does not apply to a store built or converted under the Business Conversion Program, nor does it apply to locations purchased by SEI and then re-branded as 7-Eleven stores. The policy is applicable only to new store locations. But, even then, not to stores in densely populated areas, or in what SEI terms a “special use area.”
Moreover, in order to franchise the new store as a multiple or as a transfer, you must meet SEI’s criteria, which can be very stringent. Whether or not you can meet the criteria is frequently a subjective determination by your Market Manager and may often be a matter as to whether another existing or prospective franchisee is favored for the new store. Of course, simply transferring to the new store or getting it as a multiple does not blunt the completive impact that each store will have on the other.
This is the scene: You are relaxing at home on a Sunday afternoon, watching your favorite football team, when you receive a call from your local police department. The problem? One of your clerks got into an altercation with a customer, the customer is being taken to the hospital with severe injuries, and your clerk is being arrested. You then yawn, call another clerk to rush to the store and go back to enjoying the game. Not to worry, you think. The Indemnification Agreement with SEI will take care of any claims and, besides, I have additional outside insurance for these types of occurrences.
DID YOU KNOW that the SEI indemnification does not cover assaults or other intentional acts by your employee that were foreseeable to cause injury to a third person (customer, vendor, or co-employee) except if determined to be in self defense or in defense of another person? Don’t rely on your outside insurance to cover any such claim (if you have such insurance). Almost always, these policies cover “accidents” that cause personal injuries and not intentional acts that foreseeably cause injuries.
Now what? It turns out that your trusted employee has a criminal record of past assaults and if you or any other reasonable employer had known that, the person would not have been hired and the injury would not have occurred. Next, a knock at your door by a process server who hands you a legal complaint alleging that you “negligently hired” the offending employee and demanding a huge sum of money to compensate the victim. In all likelihood, any damage award will come out of your pocket or the pocket of your corporation.
Could you have avoided this major problem? The answer is yes. How? By taking the simple and inexpensive steps of obtaining a criminal and other background check before hiring a prospective employee. The cost—probably around $25. If the check revealed no past violent behavior and no discrepancy from other information given to you (address, past employment, etc.), then you would be deemed to have exercised due diligence and would not be responsible for an assault by an employee that you had no reason to foresee.
There are many reputable companies that perform employee background checks. The one that I have investigated is InfoCubic, which can be reached at 1-877-578-9558.
Wind And Storm Damage
Experience any hurricanes or tropical storms lately that resulted in lost electrical power requiring the disposal and write-off of refrigerated merchandise? If you did, don’t look to SEI’s indemnification to reimburse you for the cost of that inventory unless the loss was the direct result of a windstorm. DID YOU KNOW that SEI does not consider the loss to be “direct” unless the electrical pole literally falls on the store? If the power outage is caused by downed lines of power grids because of a windstorm, SEI will not indemnify the loss.
In my opinion, SEI’s interpretation is very strained and I disagree with it. Most certainly, any power outage caused by a windstorm has a direct connection and should be indemnified. I am informed, however, that SEI is electing to share in the write-off, which increases the cost of goods, decreases the gross profit, and reduces your 7-Eleven charge by whatever percentage you are operating under.
If you have additional insurance, you may be covered, but the deductible may equal, or come close to, your actual loss.
I hope I didn’t depress you too much.