Franchisee Profitability

By Eric Karp, General Counsel To NCASEF

Over the past few years there have been two extended but ultimately unsuccessful sagas involving the control of the parent company of 7-Eleven, Inc. (SEI). One was the 2023 initiative of the activist investor ValueAct, which among other things, advocated spinning off the convenience store business into a separate entity. The second was last year’s unsolicited $47B bid by Alimentation Couche-Tard (ACT) the parent company of Circle K, to purchase the company, which was abandoned this past July.

During the course of these episodes, hundreds of pages of PowerPoint presentations, press releases, letters and other communications were issued by both sides, but none of them ever focused on what I think should be a central goal of every franchisor, which is to support and pursue the profitability of its franchisees.

Then, on August 6, 2025 Stephen Hayes Dacus, newly installed CEO of the parent company, delivered a 26-page PowerPoint presentation entitled Transformation of 7-Eleven, culminating what he characterized as an extensive bottom-up process to clarify key deliverables, milestones and accountability for this plan. The specific goals involve significant increases in revenue, gross profit and earnings per share, such that EBITDA grows by 45 percent or at the compound rate of 7 percent per year through 2030. The plan seeks to deliver shareholder returns far in excess of what has been experienced in the past, which is what triggered the ValueAct and ACT initiatives.

At the outset, Mr. Dacus identified the reasons for the intended transformation in the following terms:

“I think one of our challenges today is that we have lost some of our founder’s mentality. We are no longer as trusted by our customers as we once were, especially in Japan. We no longer aggressively embrace change the way our founders did. We have become a bit complacent, particularly at headquarters. Getting back to our founders’ mentality is critically important and this plan is an important step in that direction.”

The presentation identifies the key challenges for SEI specifically as the consumer perception of the food and fuel demand.

• Food—Management intends to change the perception of the value and the quality of the food products. This will involve tripling the share of proprietary and private brand products to 6.5 percent of merchandise sales in 2030. Mr. Dacus stated that margins on private brands in North America are 18.3 percent higher than national brands with equivalent or better quality.
• Fuel—The intent here is to build vertical integration capabilities to improve margin profile by capturing untapped profit pools within the supply chain, similar to what other competitors are doing at the present. Among other things this will involve supplying fuel to customers in other channels, with the intent to increase EBITDA from fuel by approximately $400M by 2030.

But in my view, the most consequential challenge identified in the presentation, is that of franchisee profitability. We don’t know what caused the company to add this to its agenda, but it’s entirely possible that it relates, at least in part, to the fact that Mr. Dacus’ father was a franchisee in the United States and that he worked the midnight shift in that store as a teenager.

The focus on franchisee profitability is a hallmark of many other franchise systems. Cheryl Batchelder was the CEO of Popeyes starting in the mid-1990s. In an article in the 2016 Harvard Business Review entitled “The CEO of Popeyes on Treating Franchisees as the Most Important Customers,” she attributed her massive and stunning turnaround of the company to the following central themes:

• To try to turn Popeyes around, my team and I decided to focus intently on the franchisees rather than other stakeholders. We decided to measure our success by their
• The more my team and I talked about it, the more we saw the franchisees as our primary customers.
• The Popeyes turnaround has become a case study in what happens when leaders think about serving others—in this case, our franchisees.

The identified challenge of franchisee profitability in the 7-Eleven system was grouped together with issues relating to consumer spending, channel shift, and cost inflation. The presentation identified four approaches to growth in this area. Here is a summary, focusing on those portions relating to SEI:

1. Draw customers with more differentiation in food. Many of the small competitors in the United States are focusing more on food and doing it well. Our very successful and profitable restaurant in-store format generates higher sales and profit and incremental attachment sales of $0.81 for every dollar spent in the restaurant. Grow the number of stores with the restaurant format to 2,000 by 2030.
2. Satisfy changing customer needs with new formats and accelerate openings. Double the projected number of new openings, resulting in 1,300 new larger format stores in North America over the next five years.
3. Expand 7NOW graphic and service coverage. 7NOW satisfies the needs of franchisees for additional revenue streams and the needs of customers for more convenient shopping. The seemingly modest goal is to add 200 stores per year resulting in 8,500 stores in the program by 2030. Enhancements are being tested to enhance its attractiveness and differentiate SEI from its competitors.
4. Rigorous process to review all costs. Cost management is not currently a competitive advantage. SEI is more advanced in this process than SEJ, the benefits of which showed up in the most recent quarterly P&L (which showed Revenue down 6.3 percent but Operating Income was up 21.7 percent).

The overall and primary goal of the Transformation of 7-Eleven is to generate enhanced capital to unlock and maximize shareholder value totaling nearly $60 billion by 2030. Nearly $19 billion would be returned to shareholders in the form of share repurchases and dividends. Another $9.5 billion would be used to pay down debt. The balance or about $21.6 billion would be devoted to capital expenditures, including mergers and acquisitions.

Observations and Questions:

It is very encouraging from management of the parent company of SEI to make clear to shareholders and others that franchisee profitability and the need for additional sources of revenue are on their radar. The challenges that franchisees face includes not only those mentioned, but also those relating to same store sales, transactions and gasoline pricing. I see this as a first step which will hopefully be followed by meaningful collaboration between representatives of the franchisor and the National Coalition.

In the interim, here are some questions:

1. How much capital will be invested in converting existing locations to accommodating the in-store restaurant format, to what extent will franchisees have an opportunity to participate in these initiatives and on what basis?
2. Will the initiatives relating to the enhancement of food offerings be limited to the in-store restaurant format and the increase in private brands?
3. How much capital will be allocated to remodeling and renovating franchised stores?
4. Is SEI interested in increasing the percentage of locations in the United States that are franchised from its current levels of just over 60 percent to its historic levels of as much as 89 percent, and on what basis?
5. Is it time to revisit the many revisions to the franchise agreement rolled out in 2019, which transferred many expenses from the franchisor to the franchisees and changed the store level economics in material ways?
6. To what extent are the gross margin advantages of private and proprietary brands going to be memorialized in commitments by both parties?
7. If 7NOW is the future, what will be its specific and reliable impact on store level economics?