2018 Will Be A Challenge For Franchisees

Jay Singh, Chairman

The National Coalition and its 7-Eleven franchisee members are between a rock and a hard place. while unemployment is at a 17-year low Eleven franchisee members are between of 4.1 percent. Average hourly earnings a rock and a hard place. The job market is tight, minimum wage is going up, and unemployment is at its lowest in 17 years. On top of all this, immigration policies by the current administration have raised political issues and public debates, causing a decrease in the number of immigrants looking for jobs in our stores.

At the same time, franchisees on the home front are struggling with the rollout of the 2019 Franchise Agreement, higher maintenance costs, the graduated gross profit split, gas commissions, merchandise promos and competition from our own stores. All of this affects the bottom line of the franchisees, and it is hard to survive. January financials and franchisee income speaks for itself.

It’s a simple fact that today American businesses can’t find enough workers. A recent Federal Reserve survey released in February found labor shortages all over the country. Businesses have no choice but to raise wages to attract and keep good workers, a sure sign that wages are growing. The average 7-Eleven franchisee pays store associates well above minimum wage, even after the most current wage hikes, except in areas like Seattle where the highest minimum wage has reached $15. Competition for workers is fierce, because many retail employers are willing to boost wages to retain or acquire new workers.

A U.S. Labor Department report released February 2 said the U.S. economy added 200,000 jobs in January, and wages have been rising at the fastest pace since the Great Recession. All the while unemployment is at a 17-year low of 4.1 percent. Average hourly earnings rose 2.9 percent in 2017, and could go above 3 percent growth year over year in 2018.

U.S. immigration levels haven’t changed radically over the last five years, yet the U.S. unemployment rate has continued to plummet, approaching a 50-year low. Goldman Sachs predicts the unemployment rate will fall to 3.5 percent by the end of 2019 (it was over 9 percent in 2011), as the administration gives mixed signals on immigration as both a valuable resource and a major challenge.

The new year will actually bring minimum wage increases for workers in 18 U.S. states and 20 American cities, A recent Fortune Magazine article said the impact of $15 per hour on employment levels is small, causing more state and local governments to raise minimum wages above the federal minimum. In 2017, 19 states began the year with wage increases, but it is cities that are leading the way as cost of living in cities continues to rise faster than pay. The same article predicted that by 2022, 17 percent of Americans will live in a city or state with a $15 minimum wage.

That date is not very far away, and when we consider that the 7-Eleven system in changing, with more lower volume stores and more multiple store owners, we can see a great risk for these store owners in the future.

Our franchisor desires to have 20,000 stores in the U.S. in the next ten years, and this desire is driving a change in the franchisee model to the multiple-store franchisee and the Graduated Gross Profit Split, where higher volume stores subsidize the profits of lower volume stores.

The new franchisee today makes in three stores what one good store might have yielded just 10 years ago. The payoff for our franchisor is huge. Store growth can continue, and the new franchisees can buy in and try their hands at making money, while existing franchisees struggle with the changing landscape. So times are tough. We must all stay united for the right cause. If you are not an FOA member, join your local organization to support unity among franchisees and have your rights represented nationally on the National Coalition Board.