Then and Now – A 1990 Newspaper Article About the Plight of 7-Eleven Franchisees Still Rings True
The year was 1990 and Stuart Silverstein, a writer from the Los Angeles Times, took an in-depth look at the issues between 7-Eleven franchisees and the franchisor, then known as Southland. This article was brought to our attention after we published the results of our latest survey. What’s incredible is that this piece could just as easily be published in the paper today; the problems from 31 years ago are still relevant today—in many instances, they’re worse. Click HERE to read the 1990 LA Times article.
Much of Silverstein’s article centered on the challenges franchisees faced, many of which were attributed to unfair management practices. He also mentioned crumbling infrastructure due to poor upkeep, and why franchisee profitability was slipping. These topics were all included in the National Coalition’s 2021 survey and they remain the top concerns to the vast majority of this year’s survey respondents.
Let’s start by looking at the bottom line – Question No. 31 on the survey: “The structure of our contract allows me to make a reasonable profit.” Eighty-eight percent of you disagreed with that statement today. In 1990, the LA Times said, “Profits, however, usually are hard-earned by franchisees, who in many cases, run their stores with the help of spouses and children.”
Years before 7-Eleven Inc. (SEI) formalized its graduated gross profit split (GGPS), Silverstein exposed the franchisor’s practice of having operators pay a portion of their profits in lieu of a traditional royalty fee, writing: “The parent company normally returns half of what its accountants determine to be a store’s gross profits to the franchisee and keeps the rest. In other organizations, franchisees simply pay a fixed percentage of sales to the parent company.”
Back then, franchisees in California were suing 7-Eleven, claiming the company prematurely charged them interest on invoices before Southland paid the bills. Today, franchisees question whether SEI’s accounting systems are accurate. It’s no wonder trust remains a critical issue in the 7-Eleven franchisee/franchisor relationship.
It should be no surprise that many franchisees have trust issues in a system that still has many of the same concerns all these years later,” said NCASEF Executive Vice-Chairman Michael Jorgensen. “Trust is a key component of any business relationship and contract. Difficult to decipher accounting practices, coupled with our franchisor taking a bigger piece of the pie at a time when our responsibilities and expenses are increasing have left many of us feeling disenfranchised. Add to this picture the labor shortage and you see why more than 80% of survey respondents believe that running the stores has negatively impacted their physical and mental health.”
The upkeep and maintenance of our stores remain a concern. Sixty percent of 2021 survey respondents said it had been over 10 years since their stores received a major physical plant upgrade (valued at more than $10,000). Back in 1990, crumbling stores were also an issue. Silverstein wrote that franchisees watched their stores become run-down because remodeling money was being funneled to pay off the franchisor’s corporate debts. Recently, SEI has spent $28.3 billion in 39 separate acquisitions, without investing in many of their existing franchised stores.
Question No. 8 in the survey asked franchisees whether they agreed with this statement: “My job as a franchisee is simpler than it was 5 years ago.” Almost 88% of respondents disagreed with this statement. The National Coalition survey also asked franchisees to rank the most important issues facing their business. Tops were a nationwide staffing shortage, cost of goods/shrinking gross profit margin, franchisee net income and 24-hour operations. Again, the 1990 LA Times article echoed similar concerns. A few key statements from the article:
- “Many franchisees go years without a vacation, unable to afford the salary of a manager who could take over for them.”
- “Those who stay in business have limited leeway in running their businesses.”
- “Many say they are working 60 hours a week or more and cutting their staffs because of tougher business conditions.”
- “[the brand’s] accounting and bookkeeping system is error-prone.”
The LA Times interviewed a Sacramento-area franchisee named Ross Pacini, who was president of the Northern California 7-Eleven Owners Association and had been in the system since the 1970s. His comments still ring true:
“You work your butt off, and you risk a lot…You make your money one penny at a time.”
In response, Jorgensen said, “We are struggling to keep our heads above water in the current environment. Every day there it seems there is a new challenge, but if that 1990 article tells us anything, it is that history repeats itself.”