More Honey, Less Vinegar

By Michael Jorgensen, Executive Vice Chairman, NCASEF

The past year and a half has been challenging for 7-Eleven franchisees, to say the least. One of our biggest hardships has been finding employees willing to work in our stores. This labor shortage is affecting businesses large and small throughout the country. Thanks to very generous unemployment benefits, many people are not willing to go back to work just yet and because of this, many franchisees have had to work extra shifts at their stores. Although SEI has allowed stores to close overnight in many instances, and has tools available to help us find employees, the company is also rolling out new programs at a time when we’re already low on personnel. To top it off, SEI is now requiring all franchised stores to return to 24-hour operation. Franchisees are overwhelmed. We need more support and patience from our franchisor, not more punitive actions.

We want SEI to understand the burden that they have put on franchisees with the implementation of all these new programs that, while in the long run may be beneficial, are creating a tremendous amount of confusion and additional workload at a time when franchisees are struggling with staffing issues. And if SEI wants our stores to return to 24-hour operation, then incentivize us, don’t penalize us.

One of the new programs SEI has released amid the pandemic is Accounting System Improvement 2 (ASI2), which we are told had to roll out because the old mainframe and program needed to be replaced. There have been so many issues and corrections needed in this new accounting system, not to mention a huge learning curve, that SEI has placed audits for ASI2 stores on hold until they can figure out what’s going on with it. Franchisees are bearing the burden and are frustrated because of this rollout.

Along with ASI2 now we’re supposed to receive our reports through 7-Cloud, and at the same time SEI is rolling out another program that basically eliminates the need to store information on the store ISP, and instead moves everything to the cloud, called 7Boss. Even though 7Boss has some different and welcomed functions—for example, you can order remotely from outside your store—some of the reports are not as user-friendly as the software we’ve had in the past, and it will take some getting used to. Rolling out all these programs at the same time, when they’re not fully tested, means the folks at SEI don’t really know the scope of the problems they might entail, and puts franchisees in a bad spot trying to reconcile all of their accounting.

Franchisees now must work through all of these new tools to reconcile the financial reports and to investigate any inventory variation. It used to be that our Merchandise Report matched up to our Purchase Summary, and we would create a case for any discrepancies. Now things like Markup/Markdown are in separate reports that we can only access by signing on to 7-Hub, while in the past we used to get the Markup/Markdown Reports right from our ISP. We could easily verify the accuracy of the Markup/Markdown Reports by pulling up how many cups of coffee we sold and our retail selling price on the coffee. Now we have to actually go into 7-Hub and pull several different reports—a Price Override Markup/Markdown Report (POR), a Non-Inventory Sales Report (NIS), a Promo Sales Report (PSR) and then the DMR and the Purchase Summary from the store—in order to try to piece everything together on what happened with our inventory on a particular day of business. This is at a time when we’re struggling with staffing and more franchisees are having to fill in shifts at their stores. We shouldn’t have to navigate through all these new accounting reports and tools to reconcile our inventory. Even when we pull all the reports to verify it is still difficult to reconcile the amounts are correct due to various programs such as 7Now, which modifies retails of some of the items that make up the total.

Reading through the comments on our franchisee-only Telegram chat group, one can get a sense of the frustration franchisees are feeling. Franchisees are listing the problems they’re having adjusting to the new accounting system, stating how the calculations aren’t transparent enough, and asking that SEI delay rolling out new programs until we can get our labor situation stabilized. We learned through the Paycheck Protection Program (PPP) rollout that a large number of franchisees do not have business bank accounts and use the Open Account as their bank account. Franchisees should ask themselves, “If my bank made reconciling my financial reports so difficult, what would I do?”

 

The Solution

There’s no question that the timing is off and, regardless of the immediate urgency to implement these programs, franchisees are paying a price. We need to solve our staffing problem before we can focus on whatever program the company rolls out. I propose that—instead of the top-down mentality of “this is what we expect you to do,” why doesn’t SEI implement a way to incentivize franchisees? For example, right now if a franchisee is not open 24 hours a day SEI penalizes the franchisee by changing the gross profit split by as much as 6 percent in its favor. Why not change that to incentivize franchisees to want to be open 24 hours and give us a larger share of gross profit for being open 24 hours? Although the option to close was available for over a year, only a small percentage of stores actually did close at some point. SEI should see this as a positive, that franchisees understand the importance of 24-hour operation to the system and the Brand. SEI knows—but never mentions—that a little less than half of our stores are not profitable for operators during the midnight to 5 a.m. hours due to low customer traffic and rising wages. Implementing a change in gross profit split, with a larger percentage going to franchisees, would also help offset the sharply rising labor costs. This would work a lot better than forcing us to follow mandates that are necessarily beneficial to our immediate financial performance, and it guides franchisees in the right direction for the long-term benefits.

As we emerge from the pandemic, we have a unique opportunity to get ahead of our competitors and reclaim the overnight day part. Many of our competitors, including some of the big retailers like Walmart, reduced their store hours during the pandemic and because of the labor shortage, and have not yet returned to full operating capacity. If we are consistent on the 24-hour side of the business we will see this part of our business grow, even beyond pre-pandemic levels. As we all know, it is extremely challenging to staff our stores right now. The best way to get to 100 percent of stores open 24 hours is to incentivize franchisees to do so, instead of punishing us. SEI could bear some of the burden of these additional labor hours and labor dollars by giving us a larger share of the gross profit split.

So the message is less punishment and more reward. It is in SEI’s best interest to provide us the fair share of gross profit required to attract, hire, and retain the caliber of employees necessary to provide excellent customer service, maintain standards and execute company programs and processes. Instead, SEI is distancing itself from its hard working franchisee partners and perpetuating poor morale. I think that a saying I learned from Jaspreet Dhillon is appropriate, “Happy cows produce better milk.”