What Can We Learn From Our Past?
BY MICHAEL JORGENSEN, EXECUTIVE VICE CHAIRMAN, NCASEF
I’m sure you have heard the saying, “Those who do not learn from history are doomed to repeat it.” This saying is attributed to Harvard Philosophy professor George Santayana whose original words were, “Those who cannot remember the past are condemned to repeat it.” It’s a very simple concept to understand. As we mature, we repeat actions that led us to success and avoid actions that led us to failure.
I recently recalled a very different time in 7-Eleven history, one which I had almost forgotten about, but one that in retrospect may help us to understand a bit about ourselves and our company culture and may help enlighten our path ahead. I first joined 7-Eleven in 2000. There are many franchisees in the system and many corporate employees who have been with 7-Eleven much longer, however there are even more franchisees and corporate personnel with shorter tenure, even high-level executives, who may not know this history. I think it is a history worth telling.
There was a time, not all that long ago, when all cups had a retail value. Coffee cups, Gulp cups and Slurpee cups were not mark-ups as they are today, but upon delivery were entered into the store’s book inventory at retail. This meant that cups not sold, or wasted, needed to be written off in order to avoid inventory shrink. I can’t put a firm date on it but believe it was around 2004 when the practice of utilizing markups on cups began. This eliminated a problem franchisees had been complaining about for years. I think it is worth exploring the many issues the retailing of cups created within the 7-Eleven system and how it defined the culture of the system.
ISSUES RETAILED VALUE CUPS CREATED AT STORE LEVEL.
Potential For Inventory Shrink.
Franchisees and store staff needed to account for cups as a valuable item, an item which no outside party would reasonably understand had the value that 7-Eleven assigned them and an item not controlled by the franchisee or store associate (as are all other products), but which was readily accessible to the general public at all times.
As an example a customer might discover that they had some grounds in their coffee and throw their cup in the trash and get another cup. The customer would think nothing of this (nor should they), but this event could potentially cost the operator inventory variation. In this case it would, unless the franchisee or store associate saw the customer throw the cup in the trash or if they later searched through the trash and wrote off the cup or cups they found wasted. Write-offs missed or cups unaccounted for meant inventory variation. Unless franchisees were diligent, these numbers could add up fast.
Potential For Negative Customer Interactions.
As mentioned in the example above, customers could not be expected to naturally comprehend 7-Eleven’s accounting system. This could sometimes lead to awkward situations, for example a customer with hot coffee wanting to “doublecup” to avoid burning their hands. Franchisees or sales associates, some with English as a second language mind you, would attempt to explain the situation, try to talk them into a sleeve (these were an even later addition), or in some instances make a note to later write off the extra cups (this created another potential issue). Customers also had the potential to see sales associates and franchisees saving cups that had fallen on the floor or worse yet rooting through the trash for wasted cups.
Potential For Negative Interactions Between Field Consultants And Franchisees.
Write-offs were monitored, and there were instances where stores with high write-offs were asked to keep the write-offs for field consultants to verify and approve. This led stores to pull cups from the trash and hold them, sometimes for a period of up to a week.
Potential For Unethical Third Parties To Take Advantage Of Our System For Personal Gain.
There were occasions where delivery agents, knowing the value of cases of cups to 7-Eleven operators, would short some stores and sell to others at higher than actual cost.
So why, in lieu of these many issues did cups have a retail value? I have to assume that cups had a retail value to ensure 7-Eleven received its proper share of gross profit from the sale of hot and cold dispensed beverages. Based on that assumption, the system, 7-Eleven’s system, was designed to protect itself from unethical operators. This conscious decision, and the choice to continue this practice for years while franchisees complained, penalized not only the many ethical franchisees and store operators, but also created an atmosphere ripe for tension between customers and operators and corporate personnel and operators. As the system evolves, it allows for opportunities to change the culture.
Today, a good place to start would be with fresh foods. We are all keenly aware that fresh foods is crucial to our success. #1 of 7-Eleven’s 6 Point Plan remains to “Grow Fresh Foods and Beverages.” Much like franchisees in the past continually communicated about the cup issue, franchisees have been calling for a change in the method for accounting for Grill and Hot Foods items. One of the biggest concerns relates to inventory variation. It is not as simple as one might believe to ensure everything gets properly written off. This is especially challenging in our store environment as we are always multitasking on demand. It’s fairly easy for expired hot food and grill items to get discarded with the intention of being written off at a later time, one which may never come. There is also a concern in that many hot food and grill items generally sell at a lower price than the retail at which they are booked into our inventory upon delivery check-in. This is mainly due to the common practice of bundling and of course promotional activity and can contribute to inflated inventory variation. As 7-Eleven continues to change our food service program, the need for a change will only become greater. Additional benefits to addressing these concerns include simplifying in-store sampling, preventing expired food from sitting around while waiting to be written-off and a shift in operator perception, all of which will help expedite our food growth.
As those who attended 7EE saw there are some great opportunities ahead including the development of the Roost concept and with the adoption of the Laredo Taco concept, which came with the Sunoco acquisition. These concepts will certainly change the way we do business and the current accounting methods will need to change. If you didn’t attend 7EE you can still see what 7-Eleven is working on to drive our food business forward by watching the 7-Eleven Food Strategy video in the 7-Store App. I recommend everyone check it out. It’s sure to get you excited about what’s to come. It should be understood that changing the accounting method for these items is not as simple as it was with the cups and may not be possible in a retail accounting system. All that aside, there may be other ways to solve for the issues. I have confidence that the talented folks in Dallas can figure out a solution. There is inspiration in #5 of 7-Eleven’s Leadership Principles: “It Can Be Done—Bias for Action.”
One need look no further than this statement from the general session at this year’s 7EE: “Everything, I mean everything starts with the customer. It is always our job to meet and exceed customer expectations and do it with a franchisee first mindset. If it doesn’t work for franchisees then it’s not going to work for our customers.” Making changes now and eliminating the obstacle franchisees have been addressing surrounding these food items would also fall into #3 of 7-Eleven’s Leadership Principles: “Challenge the Status Quo—Innovate, Simplify, Constantly Raise the Bar.” It Can Be Done!