Collective Store Growth—A Double-Edged Sword

In recent times, through market meetings and zone meetings, various news reports from Dallas, or in articles in c-store trade publications, SEI has made it clear that store growth is a primary focus for the company. Store growth supports the long-term goal of developing concentrations of stores, and Business Transformation (BT), the Business Conversion Program (BCP), and Consolidated Market Rollout (CMR) are all involved.

Franchisees understand that store growth brings us many things—the opportunity to own more stores, synergy of scale, and prominence in specific markets. It makes better use of marketing and media initiatives. It provides better cost of goods spread over many more stores, concentrated delivery runs, and a more efficient execution of all initiatives. If we have more stores, we can have more local programs. Everything has a larger impact, and distribution per unit gets cheaper.

The number we have heard is 500-700 stores acquired, built, or developed in 2012. A lot of these stores will probably be built in already successful markets—Southern California, Chicago, New York, and the rest of the East Coast. While we all want the system to grow and expand and provide additional opportunities for existing franchisees, we need to be cautious in how it’s done and how it affects existing business.

For 7-Eleven, store growth comes through acquisitions, through the traditional building of new stores, and through the development of BCP stores. All franchisees now have a half-mile encroachment policy in their contracts, but that policy only applies to the building of new stores. So conceivably, an existing franchisee could wind up just down the street from a BCP store or an acquired store.

There are a number of examples where systems similar to ours have taken an aggressive growth path without regard for existing units, and Starbucks is the classic case. Starbucks stock hit a $40 high in November 2006, fell to single digits by the end of 2008, and in January 2009 the company closed 600 stores. I think we can safely say that Starbucks suffered from a lack of due diligence on how saturating markets can actually cannibalize sales for existing stores. Too much of a good thing created diminishing returns for the chain.

At 7-Eleven, store location planners have to be even more careful, because unlike Starbucks, in a franchised system like ours, each unit is an independent business and the success of each store impacts individual families. For many of these families, the store represents their life’s savings. Like Starbucks, 7-Eleven can afford to open stores rapidly, and many will make the company more money, but we need to be cautious about the impact on the individual family.

Several things can be done to mediate this impact, and the first is to bring the existing storeowner along in the decision-making process. The second is to give the first right of refusal on the new store to the existing franchisee. The third is to make sure other stores in the area receive AQIP in order that they can compete with the new store.

As 7-Eleven grows, and we encounter the encroachment problem more and more, franchisees we need to be prepared. Franchisees should stay aware of any store activity around their store, and talk to their market office and franchise director. The company, on the other hand, needs to do a much better job of communicating with franchisees. I think a lot of franchisees don’t understand the multiple criteria, the components of multiple-criteria, or how operations get evaluated in a multiple-criteria situation. It is critical that any franchisee looking to expand get an understanding of this by sitting down with their field consultant and looking at how they can qualify for another store.

Encroachment has been a topic that we have long debated at National Coalition Board meetings. National Coalition officers are in constant conversation with 7-Eleven on the topic, and they assure us they are aware of our concerns and they have not taken any steps that have drastically affected existing stores. If your store is being negatively affected due to encroachment, you need to bring it to someone’s attention.

We have always said it is easy for a 7-Eleven to compete with another convenience store, but when a 7-Eleven opens down the street with the same promotions and the same products, our customers have a second choice.