My, Oh My!
Dave Niehaus, the iconic play-by-play announcer of the Seattle Mariners, would exclaim, “My, Oh My!” when he could hardly contain his excitement after a remarkable play.
Potential franchisees have been attracted to the 7-Eleven system because of its many attributes: the iconic brand displayed on the corner sign and the resulting industry-leading average store sales; the purchasing power of the world’s largest convenience retailer and resulting higher gross profits; the merchandising support; the accounting services; the open account providing a solid cash flow; the advertising support; the turnkey entry into a new business venture.
One of the greatest factors contributing to business failure is the lack of proper accounting tools. The best sales and promotions of any business are for naught if there are insufficient profits to sustain the business operation. One of the allures of the 7-Eleven system has been the bookkeeping services provided to the franchisee. The SEI sales representatives have touted this service to relieve the franchisee of the burden of paying bills, issuing paychecks and calculating the gross profit of the inventory, arguably a weakness for many business owners. Franchisees were sold on the premise that by not having to worry about the bookkeeping of the business they could concentrate on maximizing sales and merchandising opportunities. These services were not provided because of the altruistic spirit of SEI, but rather SEI’s concern of insuring the lights were on, the doors were open, the store was adequately staffed and most importantly, to know the gross profit of the sales in order to receive their contractual share of the gross profit split.
With such a competent accounting system in place, franchisees were able to seek new items to increase their sales and profits. Most franchisees are well aware of the stories behind these products that are now icons of the brand and core items in all 7-Eleven stores.
However, franchisees are now uttering “My, Oh My!” in dismay to the recent changes to the 7-Eleven accounting system.
SEI has always tried to improve the accuracy of the accounting system. Many years ago SEI could not accurately and efficiently compute the retail for every invoice. Computers were a new tool, but the software was limited. In the 1970s and 1980s the retail value of an invoice was calculated by using a market average gross profit percentage for items, similar to the factoring on an S18. Franchisees were very strongly encouraged to submit all invoices from all suppliers, both recommended and non-recommended, for payment and retail extension by SEI. But franchisees felt they got the short end of the stick.
In the 1990s SEI developed the RIS system, which was touted to allow franchisees to establish a retail selling price that would be reflected when an invoice was extended, again from both recommended and non-recommended vendors. Franchisees had the opportunity to correct “factored” items that could be set up in the backroom computer. There were glitches, but gross profits were becoming more accurate.
However, the accounting system has radically changed in the past twelve months. SEI decided to no longer pay invoices from recommended and non-recommended vendors unless the vendor submitted the invoice in a specific electronic format. More recently, new software was installed in the stores that no longer supports the item-by-item management of non-recommended items. It seems SEI has made itself the sole arbiter of what items a store can carry that can be purchased as Store Supported Items and properly ordered and managed similar to a recommended item. Today, non-recommended items cannot be ordered or managed, even from a recommended vendor.
Stores must pay invoices from non-recommended suppliers from the daily deposit and properly record the cost and retail on the daily Cash Report. SEI has reserved the right to arbitrarily change the retail extension of cash purchases. This correction is based on the sole fact that the retail extension gross profit falls outside a predetermined gross profit range. The actual retails listed on the invoice are not checked for accuracy. The “system” automatically makes the adjustment. It does not matter that the retail extension is correct; the “system” identified the gross profit to be outside a predetermined norm. This correction may result in an inventory variation overage or shortage to the franchisee. It is the responsibility of the franchisee to take corrective action.
SEI has subsequently closed one accounting center and laid-off countless accounting people in its continuing effort to reduce expenses. It seems to franchisees that bookkeeping services are being passed to the backroom of their stores. Franchisees are finding themselves spending increasingly more and more time in the backroom and less time on the sales floor, serving their guests and merchandising their stores. Franchisees feel they are paying for the savings their franchisor is reaping.
To quote Yogi Berra, “It’s like déjà vu all over again.” But rather than progress, it seems the accounting system is taking two steps back at the expense of time the franchisee spends taking care of merchandise and sales.