7-Eleven Franchisees Respond to U.S. Senator’s Report Outlining ‘Deceptive and Misleading’ Practices in Franchise Industry
San Antonio, Tex., April 21, 2021 – In the wake of a scathing report on the franchising industry by U.S. Senator Catherine Cortez Masto (D-Nev.), the National Coalition of Associations of 7-Eleven Franchisees (NCASEF) is renewing its calls for the Federal Trade Commission to revise its Franchise Rule and, in the words of the report, “provide more investor protection by recognizing that voluntary financial performance disclosure has failed to provide accurate information to investors.”
The report, “Strategies to Improve the Franchise Model: Preventing Unfair and Deceptive Franchise Practices,” details problems reported by franchisees in 10 brands, including 7-Eleven, and quotes unnamed franchisees describing the “pervasive control” 7-Eleven has over its owners both financially and operationally.
As an example, it notes that 7-Eleven’s current Franchise Agreement requires owners to pay a marginal rate as high as 59% on all gross profits, despite declining store-level gross profits. Franchisees are compelled to pay 100% of liability insurance for property and equipment, even though the corporation owns the property and equipment. Gasoline, which is sold in 48% of U.S. stores, represents 66% of 7-Eleven’s total revenue. 7-Eleven sets the price of gas at its franchised stores. Franchisees must maintain the area around the pumps, but only receive a commission of 1.5 cents per gallon sold. And 7-Eleven’s retail gross profit at the pump jumped from 22.8 cents in 2018, to 24.1 cents in 2019 to 34.85 cents in 2020.
‘This report accurately spotlights the inherently unfair nature of the 7-Eleven Franchise Agreement, even pointing out that 7-Eleven mandates we keep our stores open on Christmas Day,” said Executive Vice Chairman Michael Jorgensen of the NCASEF, the only elected, independent body representing the interests of more than 7,200 7-Eleven franchised locations in the U.S. “We thank Sen. Cortez Masto for shining a light on the problems facing the franchising industry and support her legislation to ensure fair treatment and real oversight.”
NCASEF agrees with the report’s conclusion that franchising can be a path for entrepreneurs and immigrants to realize the American Dream, but as General Counsel Eric H. Karp noted, “Without sufficient guardrails in place, small business owners who have invested in franchised businesses can wind up losing everything while companies like 7-Eleven earn great profits.”