Sharing The Cost Of SEI’s Foodservice Goal

Our franchisor has a stated goal of growing Fresh Food sales to 20 percent of total in-store sales. This emphasis to embrace the Fresh Food category is due to SEI recognizing the inevitable demise of cigarette sales due to tax increases by local and state governments, and now even the federal government with its proposed $1 per pack tax hike. As we have all witnessed, our cigarette customers are ceasing their historic purchase and consumption patterns.

SEI is therefore seeking to replace these lost sales and profits through the Fresh Food category. This is a huge goal and a monumental shift in the traditional 7-Eleven business model. So far it seems SEI has taken a “Field of Dreams” approach—if they build it, customers will come. This approach has produced mixed results.

One of the flaws stems from the fact that the current franchise agreement places a disproportionate cost burden on the franchisee. For instance, SEI has the contractual obligation to install equipment in the store, including items needed to provide foodservice. This is a one-time finite expense with enormous amortized tax benefits for SEI. The franchisee, on the other hand, is left to grapple with increasing labor costs that occur with every fresh food transaction. The franchisee agreement must be changed to allow a portion of franchisee labor costs to be shared with SEI.

Second, it is very difficult to manage the Fresh Food category inventory. Again, SEI has taken an “if you build they will come” approach. Due to the extremely short shelf life imposed on the products, writeoffs on sandwiches and salads are high. Field consultants are demanding display cases be filled daily to entice our customers to believe the product is fresh and of phenomenal quality. Franchisees are forced to spend money on labor to order, stock and dispose of unsold product daily. In order for our foodservice to truly work, SEI must develop the fresh food our customer truly wants to purchase with a reasonable shelf life to reduce write-offs. Our customers have never believed we are offering a fresh product.

Third, SEI needs to remove the obstacles for franchisees to embrace Fresh Food category management. The retail accounting method for Roller Grill and Hot Food items needs to be abandoned in favor of a markup process when the item is sold. Too many times the item count is wrong because the product is packaged by weight and not item count. Too many times franchisees know their employees are not recording write-offs prior to disposing of hot dogs, taquitos, and other Hot Food items. Our employees forget to write off items that they have been encouraged to sample due to the hustle and bustle of the stores. This can result in the counterproductive instructions to cease sampling or even cease writing off out-of-date product. SEI is concerned that some franchisees may not accurately report sales, but the Asset Protection Department has demonstrated it has the technology to catch dishonest franchisees.

Another obstacle is the need to forecast easily. While the Roller Grill forecast system seems adequate, the Hot Food forecast process is woefully lacking. The two-hour sales data is contrary to the one-hour shelf life of most of the Hot Food items. The process to review the previous four weeks of sales is tedious and difficult. If SEI truly believes Hot Food is the future to replace lost cigarette revenues, franchisees must have the support needed to succeed.

Additionally, SEI needs to advertise the Fresh Foods offering. The excuses provided in the past are inadequate. SEI has previously said stores were not clean enough to invite guests to visit. SEI has suspended the monthly GEA inspections and reduced the frequency to twice a quarter due to the improved average score of 80 percent. Another excuse for lack of advertising is the lack of the Hot Food offerings in enough stores. SEI has a timeline for the addition of the Hot Foods program across the nation and is rapidly adding Hot Foods to many stores. What is the critical mass needed before SEI will begin advertising this product? Many of our suppliers spend more on advertising one new item than SEI spends in one year advertising 7-Eleven, including the cost of point of purchase materials sent to the store, which in many cases is also paid for by the supplier community.

Is Fresh Foods a field of dreams, or truly the future of 7-Eleven?