Questions Over Recent Contract Maintenance Rate Hikes
Most franchisees are aware by now that the cost for contract maintenance from SEI and FM Facility Maintenance has escalated. Every store should have received a packet from FM showing the new pricing summaries for each piece of equipment in your store. In the packet, FM mentions their continuing efforts to remain transparent in their partnership with us, and while we appreciate that they shared the new rates in advance, many questions arise about transparency. Who negotiated the new prices? How did they come up with the increases? What performance parameters did they look at before deciding on the rate hikes?
The maintenance price increases are different for every Zone, but in my Zone, the rates went up approximately 22.8 percent, and I’m wondering why we had such a huge jump. In most Zones the increase generally ranges from 15 to 25 percent. FM calls this “standardized scope and price”—they’ve standardized the scope nationally and then standardized the price by Zone.
Within the letter that came with the new pricing packet, FM writes: “We consider a productive partnership to be the key to everyone’s success and have worked collaboratively to develop quality equipment coverage at a fair price.” They talk about collaboration and partnership, but unfortunately during the whole exercise of coming up with the new rates, franchisees never had a seat at the table while negotiations took place. There was zero involvement from any franchisee or franchisee group, so naturally, franchisees are asking the aforementioned questions. In years past, when we negotiated maintenance contracts, FOAs were often involved and provided solid feedback in the negotiations process.
When FM was first awarded the maintenance contract what now seems like many years ago, SEI was able to save money by eliminating their entire Facilities Department. Now we are paying FM to manage the contractors that 7-Eleven used to pay for franchisees, and we are still not sure that these price increases are filtering down to our actual maintenance contractors. At that time SEI clearly stated that contract maintenance fees would not increase. In fact, we were told we would see some prices decrease over the years, because as we grew our store base SEI would build more efficiency into the maintenance process. Now FM is saying the reason behind the sudden, big jump in contract maintenance rates is that there hasn’t been a price increase in years and inflation has increased substantially. Yet to franchisees, a 15 to 25 percent increase in one shot seems like too much. If franchisees had been part of the negotiations, we could have provided input on the validity of the increase and how it could have been implemented to lessen the blow to our bottom lines.
Needless to say, the efficiency in the maintenance process that would have lowered prices has not materialized. The irony is that over the last few years, while SEI has added some 1,800 stores through growth and acquisition, the company has neglected to replace the very old equipment in existing stores. Much of that equipment has lived its lifespan three times over and requires constant repairs and maintenance, for which franchisees end up paying the bill.
Indeed, how SEI has neglected the physical plant and equipment of existing stores is a huge concern. After getting off to a promising start a few years ago with the launch of AQIP and the Consolidated Market Rollout program, the company snuffed out hopes for all stores to get the much-needed makeovers and new equipment when it cancelled AQIP first, then CMR last year. SEI said it was not seeing any return on investment from these programs in the form of additional sales, and now the company says it has no money to invest in upgrading our stores. The reality is the company shouldn’t expect sales to magically increase hand over fist just because some cooler doors were changed or new floors were installed or aging equipment was replaced that should have been replaced years ago. Upgrades to our stores allow us to better serve our customers and help lower our operating costs.
The bottom line is that franchisees have no knowledge about the new maintenance contract implemented in October 2014. We are spending $1,300 to $1,700 a month on maintenance costs that will continue to go up, and this does not even include non-contract charges that we end up paying. FM has responsibility for preventative maintenance (PMs), but they are also fixing the machines and keeping all the records on our machines. If transparency is the key, and franchisees are the customer, the FM contract should have been shared by SEI with franchisees, and the National Coalition should have been at least an observer in the contract process. Because this contract impacts all franchisees nationally, the National Coalition has asked SEI management to freeze this increase until we have a chance to provide feedback and to be a part of that conversation.