7-Eleven, Inc. Restaurant Initiative: A Good Investment? For Whom?

By Eric Karp, General Counsel To NCASEF

Faced with headwinds from a number of directions, the parent company of 7-Eleven, Inc. has publicly announced plans to transform the company (but not the store level economics for franchisees) in a number of ways. Those initiatives have been described in my previous columns and at National Coalition Board meetings with frequency. In my most recent column, I asked SEI 20 specific questions about those initiatives and offered to give up my space in Avanti in return for detailed and supported answers. That offer was not accepted and therefore in this column I’d like to focus on the Restaurant Initiative.

The presentations from SEI’s parent company are focused on convincing the investment community they have a solution to the challenges that have faced the company for a number of years. Their position is that these initiatives will increase the profitability of 7-Eleven, Inc. and by extension the parent company, which will, in turn, enhance shareholder value, not to mention elevate the likelihood of an IPO of SEI in 2026.

Many of the multiple initiatives announced involve enhanced and distinctive fresh food offerings. SEI’s parent company has informed investors that one of the primary drivers of growth will be investing in restaurants. This will be done, they say, with three different brands: Laredo Taco, Raise the Roost Chicken and Biscuits, and Speedy Café. These presentations indicate that there will be 50 such restaurants by the end of 2025 and 1,100 such restaurants by the end of 2030, five years hence. That means on average more than 200 such restaurants are to be opened each year.

For the franchisee community, the central issue is whether the restaurant initiative will add to or subtract from the revenue, profitability and value of their franchised businesses. It should go without saying that the burden of demonstrating the benefit or even the viability of the restaurant initiative to the franchisees rests with 7-Eleven, Inc. And whatever business case analysis is furnished must be marked with complete transparency and accompanied by widely distributed and specific and supportable historical and pro forma written data.

SEI’s parent company published statistics indicating that their existing restaurants, when paired with convenience stores, drive higher sales and traffic to the convenience stores. More specifically they state that in those circumstances, average daily sales of merchandise increased 34 percent, food sales increased 146 percent, traffic increased 42 percent, and gross margin increased by 50 basis points. This data is apparently derived from the less than 50 restaurant locations that were open for the month of September 2025.

Other than the fact that at least some of these small sample of restaurants are paired with convenience stores, we have no data on where these convenience stores are located, how long they have been open, their gross sales and merchandise gross margin, the condition of the stores or how much competition they have. What are their sales? What percentage of revenue is devoted to food cost, employees, insurance, and other elements of overhead? As just one example KFC reported that in 2024 average franchisee product cost was 32 percent and labor 35.8 percent. By the time this article is published, SEI will have data on all of its company owned restaurant locations for all of 2025. A full, complete and detailed presentation of the characteristics and financial performance of all SEI restaurants is certainly in order.

The restaurant initiative presents an unusual form of co-branding. Co-branding refers to the practice of collaborative marketing of two or more distinct brands, such as Dunkin’ Donuts and Baskin-Robbins. Here the brands may be distinctive, but the product assortment is not. Given the company’s push towards fresh food and daily food for its convenience stores, a restaurant linked to a 7-Eleven convenience store will have side-by-side businesses selling some of the same products and/or products that will be competing with each other for the same consumer dollar.

If the restaurant initiative is proved out to be at least part of the solution for franchisees, is it not clear that the initiative could not and cannot be made available to all franchisees? There are thousands of locations in the system where the stores are too small and the land area inadequate to add a restaurant facility to an existing convenience store. SEI needs to be clear on how many franchised locations are candidates for the restaurant initiative and whether there is an alternative for those that cannot accommodate the additional square footage required. And if the restaurant initiative proves to be advantageous, will those franchisees left behind be at a competitive disadvantage?

And then there is the issue of the costs that would be paid by franchisees that are not currently being paid by the corporate restaurants that are open. If we assume that restaurant franchisees will pay a royalty on the gross sales of the restaurant component, how much will that royalty be and will it be commercially reasonable under the circumstances? One way of looking at this is to compare what the typical QSR franchisee pays. For example, McDonald’s franchisees pay a royalty of 4-5 percent of gross revenue and KFC franchisees the same. But these comparisons can be misleading, because the gross sales of these restaurants are expected to be but a fraction of what a typical QSR restaurant grosses. This means that even a 4-5 percent royalty might not make sense because of the fixed costs involved.

If SEI decides to charge an initial franchise fee, it should consider that both McDonald’s and KFC charge an initial franchise fee of $45,000. But that’s for a business that’s going to create revenue that is a multiple of what this restaurant initiative has produced in the 7-Eleven corporate stores so far. For example, according to QSR Magazine, the average annual sales of McDonald’s locations in the United States in 2024 was $4 million.

In addition, if the advertising contribution required of restaurant franchisees remains at the 1 percent fixed in the current 7-Eleven franchise agreement, one could argue that this is less than the typical QSR franchisee pays because marketing and advertising is crucial to the business. In most systems the advertising contribution is split between a national advertising fund controlled by the franchisor and local or regional cooperatives controlled by the stores in that region. And in most franchise systems the franchisor is contractually bound to make the same advertising commitment as its franchisees make. Not so in the 7-Eleven system. That would need to change in a restaurant initiative.

Finally, if there is to be a separate franchise agreement for the restaurant initiative or an addendum to the existing franchise agreement, SEI will be required to amend or issue a new Franchise Disclosure Document which describes this proposed investment in fulsome detail. It is my hope that before any such document is published, the National Coalition and its General Counsel will be given an opportunity to review and comment well prior to dissemination.

Some of you may know that I am a very enthusiastic tennis player. So, I say to 7-Eleven: the ball is in your court. Send us the business case and then let’s roll up our sleeves and sharpen our pencils.