SEI Gas Pricing: A Masterpiece Of CRP

By Jay Singh, Chairman, NCASEF, President, San Antonio FOA

As 7-Eleven franchisees we are all familiar with merchandise pricing and the heavy impact it can have on our gross profit dollars, our gross profit split, and the profitability of our stores. It is very clear in the franchisee agreement that 7-Eleven, Inc. sets a suggested retail price (SRP) for every item in the store, and franchisees have the option to create a custom retail price (CRP) to make more money depending on their customers and traffic.

Lately, we have been hearing from franchisees around the country that 7-Eleven is putting their efforts into directing franchisees to review or delete CRPs, and to revert to set SRPs for all items in the store.

We know that when SEI brings in a new product or line extension they work very hard to size up the competition—if they have the product, how much they are charging for it, and if there are any special deals or promos. They have a pricing survey team that works out SRPs and decides their best price point for franchisees. SEI also works with vendors to put together best-cost deals that need high-volume throughput, and franchisees may also visit nearby competition or get feedback from customers to decide if they need to increase five or ten cents to find the best profitability for their store. Prices vary from Zone to Zone and a single item may be 20 cents higher say, in Los Angeles than in Dallas.

Franchisees may have a very small number of CRPs or they may have dozens or two or three hundred. It may be a good idea to check your CRP pricing, but to delete all CRPs usually is not good for the profitability of the store. Many franchisees feel that SEI has the tools to pressure them to delete CRPs, and our vendors offer very competitive pricing to increase volume and throughput, but we often feel we are giving the second or third item away for free, because we still have to order, receive, stock and sell that second item, and we do not make the same profit, or we make no profit at all. If we set up custom retail pricing, often we can sell that second and/or third item for a higher gross profit dollar than the money we would receive selling it on promo.

This is why all decisions about CRPs should be based on facts, profitability and take home dollars for both parties, because we share. CRPs seem to be a win-win proposition for everyone, without hurting sales. If that second or third item brings down the gross profit percent or gross profit dollars, it is not a good decision and franchisees are not bound to follow all the promotions.

Gas Stores: Daily CRPs

When it comes to merchandising or inside sales, franchisees are generally pretty confident about the data the 7-Eleven pricing team employs to make SRP pricing decisions. But when it comes to gasoline, where we get a flat 1.5 cents per gallon commission, they employ an entirely different strategy—daily CRPs—and franchisees have no power to influence the decisions or change gas prices.

Every store has a profile, and a spot on the PriceNet web where their store is compared to other stores in their area within a 1.5 mile radius. The pricing of the competition is always available in our system, and updates come in every time the store next door changes its price. Our 7-Eleven gas strategists rarely go the extra mile and match pricing with the competition. Most of the time, they pick the price that is highest among the store’s mile and a half radius, and they may price it in the middle, even though the store next door to yours may be at a much lower price. How they set their pricing is known only to 7-Eleven, Inc. and their gas strategists.

The worst scenario is the dreaded holding period, which is when SEI decides to raise your gas price 15-20 cents per gallon from the current price. This can last from 24 hours to 5-6 days, and you can’t get an answer as to why it happened. Emails go unanswered, market managers and FCs don’t answer questions, and they are very blunt in saying they can’t talk about gas or influence pricing. Even if a franchisee requests to be competitive with the store next door, they will not do it.

How can a company the size of 7-Eleven not get the best gas prices? There is a well-established link between gas stores and higher merchandise sales because the market basket is bigger. If gas prices are higher than the competition, customers do not come for gas and they do not enter the store for merchandise. So franchisees suffer two ways, because commission is based on gallons, not price, and when gas prices are high, we lose the inside sales too.

It is embarrassing for the franchisee when all of a sudden prices are jacked 15-20 cents per gallon for a period of time and then settle back to the same exact level they started from. Our customers openly ask us, isn’t that price gouging? Even though the franchisee does not have anything to do with it, this non-competitive higher pricing hurts inside sales and we get a price-gouging image among our customers.

Now, with to the acquisition of Sunoco and Speedway and their higher-volume gas stores, 7-Eleven is hunting for an even larger chunk of the gas store industry. Before breaching franchisees, 7-Eleven should look into gas, its own masterpiece of CRP, before we set in stone the image that we always have the highest pricing in the industry.