Why We Need an Independent National Coalition, Part 2: The National Coalition is the Only Hope for Franchisees
By John R. Irvine Jr., Franchisee, Detroit, Michigan
To read Part 1 of John Irvine’s three part series on an independent National Coalition, see the March/April issue of Avanti, page 51. Avanti is available at online at www.issuu.com. Part 3 will be appear in Avanti July/August issue.
The National Coalition is the only hope 7-Eleven franchisees have of leveling the playing field between themselves and 7-Eleven, Inc. Lacking a union, and without our own representation in management, franchisees must look outside the corporation to gather and trade information, and to educate themselves about a very complicated and always changing system.
Over the years, the National Coalition has had an interesting cast of characters running it. Some were bound and determined to protect franchisees, some were looking to gain favor with management, and one even used it as a stepping stone for a job with 7-Eleven, Inc. One chairman was aggressively working on lobbying Congress for “Fair Franchising” legislation, and the next chairman worked on building a war chest—he got the treasury up to $3 million.
Whatever the National Coalition is, or becomes, is up to you the membership. It is easy for the National Coalition to slip into simply becoming a debate club, where problems are identified but no solution is offered. 7-Eleven franchisees are fortunate in that they have a 44-year-old organization in place, governed by an 80-person, elected Board of Directors that can and is used to protect their rights with the company and work for legislation that could possibly help their situation.
In the ‘90s, I was the Legal and Legislative Chairman of the National Coalition. It was my job to go to Washington, D.C. four times a year and lobby Congress. We worked with the American Franchisee Association, which had a congressman that introduced “Fair Franchise” legislation each year. The thing that struck me at the time was the way a congressman would greet you. They would stick out their hand and say, “Welcome John, are you coming to my cocktail party tomorrow night?” Of course the cocktail party cost $1,000 to go to, and the National Coalition didn’t have that kind of money. It was then that I realized the United States had the finest government that money could buy.
In 1995, President Clinton held “The White House Conference on Small Business.” To go to this affair you had to get your congressman to nominate you. The National Coalition organized a huge effort in which 7-Eleven franchisees from all over the country were getting their congressmen to nominate them. We banded together with franchisees from multiple systems and succeeded in getting “Fair Franchise” legislation as the second most important issue for small business. None of this would have been possible without the efforts of the National Coalition.
In 1989, we had the 7-Eleven bankruptcy. Management was afraid that franchisees would bail on the system, so they offered to extend all contracts to the year 2000. If the franchisee stayed, the franchisee would receive 50 percent of the franchise fee when the franchise was sold. This was an addendum, and it also included a proviso—that for two years before 2000 the franchisee had to go through an operational review in order to get renewed.
Franchisees understood that during those last two years you would basically become a slave to management. So franchisees began looking for a leverage point to eliminate “Operational Review.” Franchisees in San Diego discovered that the company was accepting Slurpee machines and roller grills instead of the lowest cost of goods, a violation of the agreement. The San Diego FOA found an attorney willing to take the case on a contingency basis. The San Diego case was named OFFF and represented all stores in California. I believed that the company would be much more likely to settle if we increased the potential damages. Although I was the president of one of the smallest FOAs in the country, I was an active participant in the “OFFF/Valente” lawsuit. A sister suit to OFFF, Valente covered the remainder of the country.
The company, coming out of bankruptcy, was still in terrible economic shape. For $450 million, Seven Eleven Japan received 68 percent of the 7-Eleven USA’s stock. The Japanese did not want 100 percent of the stock because that would have made them liable for all of 7-Eleven’s liabilities, and 7-Eleven’s liabilities far exceeded its assets. When 7-Eleven offered to settle the case, lawyers wanting a piece of the action came out of the woodwork.
Part of the settlement we got was a new 15-year agreement that could not be worse economically than the 1997 agreement, and all franchisees at the end of that agreement would be qualified for renewal with the then current agreement. Together, the company and plaintiffs wrote the 2004 agreement, because it was mandated in the settlement.
Franchisees mistakenly believed that 7-Eleven management would negotiate the 2019 agreement in good faith, as they had done with the 2004 agreement. The only reason they did it for the 2004 agreement was because it was mandated by the OFFF/Valente case settlement agreement. Management in 2018 played franchisees like a fiddle, acting as if they were interested in franchisee input for the 2019 agreement. The 2019 agreement reflects the fact that franchisees had no leverage to negotiate a fair and equitable contract.
As I said in the opening, we must understand what has happened in the past, and what are the legal and economic problems that we face today. What can we learn from our success and failures of the past? The first lesson that we must learn is that without leverage, 7-Eleven management is not going to work to make things better for franchisees. We must understand, that they look at us as both a cash cow and a contract employee. How can they extract the most amount of money out of us up front, and then get us to work for pay rates far below the wage rates paid by their competitors?
Current 7-Eleven franchisees are lucky that they have a well-organized 44-year-old association of fellow franchisees. The National Coalition and its associated FOAs are the only hope franchisees have of leveling the playing field with 7-Eleven, Inc. The National Coalition can only be as effective as the franchisees want it to be. The reason I wanted to give you the history of the struggles franchisees have had in the past is to identify one glaring problem: Without money the National Coalition is a toothless tiger. Whenever the National gets in an adversarial position with management, the first casualty is vendor support. Relying too heavily on money from vendors is a big mistake. The United States spends more on the military than all other nations combined. They do so to discourage other nations from attempting to mess with us. If we really want a National Coalition prepared to work in our best interests, then we want a National Coalition with $10 million in the bank. China’s Chairman Mao Zedong said, “Power comes from the barrel of a gun!” That congressman asking me if I’m coming to his cocktail party tells me that power comes from that green stuff in your wallet!
Whether the National Coalition is working on lobbying for fair franchise legislation or defending us in the courts, it takes money and lots of it. The National Coalition should never find itself trying to raise money in a crisis. The National Coalition should be in the position that, should they find themselves in a court battle, they must be prepared financially to take the case all the way to the Supreme Court. We have an ex-chairman working for 7-Eleven, Inc., so they know exactly what the National Coalition’s financial position is and how easy it would be to simply spend the National under the table in any legal dispute.