7NOW Amendments Should Raise a Red Flag for Franchisees

Delivery apps have grown in usage and popularity over the last few years, and with the COVID-19 pandemic, more people than ever before are relying on them.  In theory, they should be a win-win for both the business and the customer, but changes to 7-Eleven’s 7NOW program have the potential to create many losses for franchisees.

“The broad outlines of loyalty programs such as the 7NOW are in the 2019 Franchise Agreement,” said NCASEF Executive Vice-Chairman Michael Jorgensen, but the details are left to SEI’s future discretion.  This means there are no set limits to what loyalty program redemptions could cost a franchisee. It’s like writing SEI a blank check from our store proceeds. “In typical SEI fashion, they keep changing the rules of how the program works, like they’re moving the goal posts to take advantage in a football game.”

SEI’s treatment of the 7NOW program is just the latest example of its increasingly pervasive control over every aspect of the day to day operation of franchised stores. Without input from any franchisee organization or any explanation, SEI has once again released new amendments to the 7NOW program.  This marks the fifth version of the agreement governing the program since it was first introduced, and the third which contains significant changes. In typical fashion, SEI has elected not to redline or highlight any of the changes in the new version—as if they are trying to sneak the changes by us. Do we need to question why there is no summary of changes included?

Credit cards for 7NOW purchases may be processed through a different company than credit card purchases for transactions taking place in our stores. While we share the fees for both types of transactions, there are no assurances that fees for app purchases won’t climb, in fact the 7NOW amendment specifically notes that the fees for these transactions may be higher.

The amendment states, “All orders will be directed to a participating 7-Eleven store we determine for assembly at the store and preparation for delivery to the customer.”  So, SEI has claimed the unregulated power to reward stores with 7NOW orders as they see fit. That means when one of your loyal customers places an order through 7NOW, she may not be supporting the franchisee she knows from her neighborhood.

“What would happen if SEI decided to one day open fulfillment centers for 7NOW orders,” asks NCASEF Vice-Chairman Rehan Hashmi. “Take a look at the 7-Eleven website.  The number one thing they’re promoting is the 7NOW app.  Should SEI ever open a fulfillment center, it might try to force franchisees out into the cold.”

 The 2019 Franchisee Agreement states that franchisees are solely responsible for the cost of whatever delivery programs are mandated by SEI. This could mean the hiring of additional employees as well as providing and insuring vehicles for deliveries. Shouldering these costs would be a tremendous burden on franchisees. Franchisees are not assured they would receive a greater portion of delivery fees charged to the customer even if we are the ones actually making the delivery while bearing this additional expense.

There are many examples where third-party delivery systems are eating away at the already thin margins that restaurants and businesses earn.  In Chicago, Mayor Lori Lightfoot has mandated that delivery apps tell the customer how much of their bill is going to the business or restaurant and how much is going to the delivery service.  New York City and Portland, Oregon have capped the amount delivery services can charge. Other cities are sure to follow suit. (More on this can be found here and here )

The list of issues goes on and on.  Refunds – either partial or full – are at SEI’s discretion- franchisees have no input; SEI can change the price of an item from the store’s actual retail price; special packaging that is required for 7NOW orders is an added and unnecessary expense for franchisees.

The net result is that SEI has forced franchisees to accept all of the additional costs, expenses and risks of the 7NOW program while retaining the lion’s share of the benefits for itself and its shareholders.

“There is no transparency in terms of the accounting with third party delivery services,” said Jorgensen. “These are realistic concerns that we have. 7-Eleven is clearly looking out for their interests, protecting themselves and including sole discretion to back out of the program in the event they determine the program is not profitable, but what about the protections franchisees deserve?  These 7NOW amendments are a one way street. Franchisees risk being in the position of having to run a program that is eroding their profits, yet they cannot elect to discontinue it. Sadly, that should come as no surprise to any of us.”