Transforming The Distribution Model
As we start to close out the third quarter and put the 100 days of summer behind us, franchisees will begin two major initiatives that could have substantial impact on the operation of our stores and our profitability. The transition from CDC flat fees to a merchandise markup has started, and the Business Transformation (BT) pilot shift to a McLane distribution model is well underway. Flat fees have been removed in several CDC markets, and a schedule for removal in all CDC markets has been shared with the franchisees affected. Several California stores already have begun testing the McLane Business Transformation delivery model.
While these changes do not affect all stores directly, they represent a major philosophical change in our distribution system model that will eventually impact all franchisees. The original CDC concept was rolled out with little or no franchisee input and needs to change. SEI has assured us the long-time legacy issues franchisees have had with the original CDC rollout, which began over a decade ago, are being addressed. Addressing these issues with franchisee input NOW will result in a distribution model that will better support our stores with the products and services we need.
The original concept of daily delivery of fresh foods was presented to franchisees as a system that would give us a competitive advantage in the marketplace. No other convenience store operator could deliver a system that supplies stores with daily delivery of fresh foods, and that still remains true today. In spite of this, sometime over the past ten years our proprietary system transformed into something it was never meant to be. The current CDC system across the country started delivering everything from heavy liquids to cell phones in an attempt to prevent a flawed delivery system from failing. The flat fee implemented in slotmachines an attempt to shore up a declining model, and force volume through the CDC, did little to improve franchisees’ store sales or profits.
Today we have an opportunity to help improve that distribution model. Franchisee input is needed to make sure we don’t repeat the “mistakes of the past.” The first meeting on CDC Optimization was held July 29, at the Long Island CDC. Franchise leaders from the National Coalition, the United Franchise Owners of Long Island (UFOLI), and the NBLC met with representatives from 7-Eleven, Inc., including Senior VP Merchandising and Logistics Jesus Delgado-Jenkins, Senior Director Logistics Christi Clinger and VP Group Merchandising Bob Cozens.
National Coalition leadership reviewed a plan for CDC flat fees with the Coalition Board at our May meeting in Chicago that was jointly developed with franchise leadership. While all changes were not unanimously agreed upon, it was a dramatic improvement and a big step toward improving franchisee profitability. The plan focuses on what items are right for the stores and at what frequency items should be delivered.
Changes in delivery frequency for items such as milk, which is moving to a five-day delivery cycle, and commissary and fresh bakery, delivered seven days a week, will result in cost savings that can be passed directly onto the stores. Determining the ideal order and delivery frequency, as well as delivery appropriateness (i.e., milk) for each product line in the CDC should result in better efficiencies, lower product cost, and higher gross profit dollars for the stores. Reducing commissary and bakery costs to improve stores’ total gross profit will be an ongoing process that will need franchisee input.
A communication was sent on August 15 to all stores affected by the flat fee change to allow sufficient time for review. A store-specific analysis will be sent to each store as the changes are rolled out so that every franchisee will be aware of how the changes will impact your store.
Daily delivery of fresh foods today is one of our biggest competitive advantages. Delivering the right items at the best cost through a system that gives us a competitive advantage increases that advantage. Each FOA in a CDC area needs to give input and provide feedback to SEI on what is best for the stores in their area. Fresh food initiatives supported by the CDC will only be successful if supported by franchisees.
A product assortment driven by franchisees could be our biggest competitive advantage and help ensure success. The right regional product assortment, delivered by the CDC at the right price, also decreases the number of trucks in our lots and gets pretty close to delivering on the original CDC concept. Leveraging our size and scale to develop a delivery system that accurately reflects our customers’ needs will provide the marketplace advantage we desire.