September 27, 2026

Enhancing Capital Efficiency And Profitability Through A Stronger Franchise System

By Eric H. Karp, General Counsel

The phrase which serves as the title of this article appears on side 13 of the Presentation for the First Quarter of FY 2026, issued by Seven & i Holdings Co., Ltd. (the parent company of 7-Eleven, Inc.) on July 9, 2026 (the “Q1 2026 Presentation”).(1) But the “capital efficiency and profitability” of franchisees is not the subject of this slide. Rather, it explains in detail one of the ways that management intends to position the company for a public offering of 7-Eleven, Inc. (“SEI”) sometime in 2027: to substantially increase the percentage of locations in the United States that are franchised as opposed to company owned. This is to be accomplished through corporate to franchise conversions, meaning the sale by SEI of a corporately owned location to be operated by a franchisee under a franchise agreement.

At the end of 2017, prior to its Sunoco and Speedway acquisitions, SEI was almost 83 percent franchised.(2) At present, approximately 58 percent of SEI locations are franchised(3) and the company apparently intends to restore at least some of its previous balance. But why?

In its presentation to investors on April 23, 2026 (the “IR Day Presentation”), the company touted the franchising model as one that “delivers stronger overall economics,” allowing the company to scale with lower capital intensity.(4) This is starkly consistent with the Q1 Presentation, which refers to enhancing capital efficiency. What this simply means is that by paying franchise fees, franchisees reimburse the company for at least some of the capital expended in building or acquiring these locations. This frees up capital for other purposes, including building new corporate stores and the possibility of additional mergers and acquisitions.

Reducing capital intensity is one definition of franchising; a business model in which franchisees invest their capital in a brand that they do not own and accept the entrepreneurial risk of operating a business. The Q1 Presentation repeats a previously disclosed plan to execute 2,600 corporate to franchise conversions by 2030, projecting a total of 390 such conversions this year.(5)

The IR Day Presentation lauded franchisees by stating that that they bring improved performance to the table because of their “entrepreneurial spirit and local market insight.”(6) The Q1 Presentation Report states that the 135 conversions executed in 2025 show that these franchisees generated “low to mid single-digit growth” in merchandise sales and “strong margin expansion,” in contrast to the converted stores previously operated as corporately owned.(7) These presentations confirm what franchisees have long believed, which is that they are indeed better and stronger operators than corporate store managers.

But if you are an existing 7-Eleven franchisee in good standing, you are the logical choice of SEI for the purchase of a corporate store as a franchise opportunity. And you may also have friends, relatives or business associates who are contemplating the purchase of a franchise opportunity in the 7-Eleven system and who look to you for advice or guidance. If this is true, I suggest the following initial steps in your or their investigation or due diligence of this potential investment.

A. Request and carefully review a current franchise disclosure document (FDD) issued by SEI. The furnishing of the FDD is mandated by federal law as well as by the law of a number of states in the United States. In some of those states, it is illegal to make an offer or sale of a franchise unless the prospective franchisee receives that disclosure document in advance of making an investment or signing a contract.

The purpose of the FDD is to give the prospective franchisee the material information they need in order to weigh the risks and benefits of such an investment.(8) Make sure you carefully review and analyze the Unaudited Statement of Average Franchise Sales and Earnings for the calendar year 2025, which appears at Exhibit H of the 2026 FDD and which is limited to the disclosure of revenue, gross margin and gasoline commissions.(9) If you have any difficulty reviewing or understanding the document (the 2026 FDD has 578 pages), seek the advice of a competent and experienced business advisor, lawyer or accountant.

Questions you may have about the FDD or its contents should be submitted in writing to SEI with the expectation that you will receive specific answers in writing.

B. Request in writing at least three and preferably five years of complete profit and loss statements of the company owned location you are contemplating for purchase. The opportunity to study in detail the financial performance of the business you are considering for purchase is an elementary and basic element of due diligence. The IRS issued Revenue Ruling 59-60(10) which states in essence that the assessment of the value of a business requires the examination of five years of profit and loss statements.

Please be assured that it is perfectly legal for SEI to provide this information to you under the Federal Trade Commission Franchise Rule; it specifically provides that the franchisor may deliver to a prospective franchisee a supplemental financial performance representation about a particular location apart from the disclosure document. The information must have a reasonable basis and written substantiation.(11) If you have questions about the financial statements, ask for written substantiation and consult an accountant or business advisor.

C. Consider asking some or all of the following questions in writing with the expectation that you will accept only a written response:

  1. Why were there fewer franchisees in the United States on December 31, 2025 than there were on January 1, 2023? The 2026 FDD discloses that the turnover in franchised locations consisting of (a) franchisee to franchisee sales (632), (b) locations purchased back by SEI (567), and (c) those that ceased operations (237), was 1,436 franchised locations during that three-year period.(12) How much turnover is anticipated during the course of implementing 2,600 corporate to franchised conversions between now and 2030?
  2. 7-Eleven stores in Japan report higher gross margins on processed food (41.1 percent) than on daily food (35 percent) or fast food (36.3 percent). Does this indicate that increasing the sales of fresh food and daily food in the United States will yield more overall profit at the store level? Why doesn’t SEI publicly report gross margins on daily food, fast food, processed food and non-food, in a similar fashion as 7-Eleven Japan?(13) What is the incremental labor cost of daily food and fast food that is not applicable to processed food and non-food?
  3. Last October, 7-Eleven Japan announced the development of a new contract for the expansion of benefits for franchise owners in order to increase their profitability and to make it easier for them to manage multiple stores. The announcement indicated that there would be new systems to improve franchisees’ profit and promote new franchisees.(14) Are similar steps planned for the United States? If not, why not?
  4. In what specific ways will an IPO of SEI benefit franchisees in the United States? How much of the capital raised from an IPO will be invested in franchised stores and in improvements to store level economics? Can SEI achieve its stated goal of remodeling 7,000 stores(15) without an IPO?
  5. What enforceable guarantees are there regarding the profitability of private brand sales and 7Now sales given the company’s stated goal to substantially increase sales in those channels?(16)
  6. System wide merchandise gross margin was 36 percent in 2007(17), fell below 35 percent in 2011(18) and fell below 34 percent in 2024(19). In the most recent quarter, the merchandise gross margin of SEI of 33.2 percent(20)was less than their publicly held competitors, Alimentation Couche-Tard (34.4 percent) and Casey’s General Stores (42.4 percent). What is behind these trends and what steps are contemplated to reverse them?(21)
  7. Same store sales increases in the United States have not been above 2 percent since 2022(22) and in the most recent quarter, SEI’s increase of 1.4 percent was less than their publicly held competitors, Alimentation Couche-Tard (3.4 percent)(23) and Casey’s General Stores (5.5 percent)(24). Why is this the case and what steps are planned to respond?
  8. Is it the policy of SEI to price gasoline to increase the number of gallons sold and thereby increase the commissions paid to franchisees and the number of in-store merchandise transactions?
  9. Why did the parent company of SEI recently stop disclosing monthly data on fuel sales, average retail gallons per store, average retail price, fuel margin, and retail fuel margin?(25)
  10. The company’s retail gross profit on gasoline in the first quarter of 2026 was 14.3 percent, contrasted with a retail gas gross profit of 10.8 percent in the first quarter of 2025(26) and 10.5 percent in the first quarter of 2024.(27) The Q1 2026 elevated gross profit led to an increase in its gas gross profit of $349M(28), and a reported operating profit of $229 million.(29) Did this not lead, at least in part, to an 8.8 percent decrease in retail gallons sold, and a same store sales increase of just 1.4 percent coupled with a transactions decrease of 4.3 percent?(30)
  11. Much has been written in the financial press about the enormous investment that technology companies are making in AI infrastructure and the negative effect that widespread adoption of artificial intelligence may have on employment in the United States. On August 7, 2026, the U.S. Bureau of labor Statistics reported a decline in non- farm payroll employment of 23,000 jobs.(31) To what extent will this affect the typical 7-Eleven customer and thus the revenue of franchised stores?
  12. The 2026 FDD states that the Franchise Fees paid in 2025 ranged from $0.00 to $800,000.(32) How are these franchise fees calculated? What is the formula? Are these fees calculated the same way across the country?

A person contemplating an investment in any franchise should engage in no less due diligence than they would if they were purchasing an independent business. The purpose of due diligence when purchasing a business is to verify financial claims, uncover hidden risks, and determine fair value. It is an investigative process used to ensure the investment makes sense and that the risks that you are taking on are reasonable and manageable, before you sign a franchise contract or pay any money.

FOOTNOTES
(1) Presentation for the First Quarter of FY 2026, of Seven & i Holdings Co., Ltd., July 9, 2026 at page 13, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0709kse_01.pdf. Note that all data cited in this article was publicly available as of August 7, 2026.
(2) Brief Summary FY 2018, April 5, 2018, page 21, found at https://www.7andi.com/library/dbps_data/_template_/_res/en/ir/library/kh/pdf/2018_0405khe.pdf, page 21.
(3) Brief Summary for the First Quarter of FY 2026, July 9, 2026 at page 39, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2026_0709khe.pdf.
(4) IR Day 2026 Spring, 7-Eleven, Inc., April 23, 2026 at page 7, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0423kse_01.pdf.
(5) Presentation for the First Quarter of FY 2026, of Seven & i Holdings Co., Ltd., July 9, 2026 at page 13, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0709kse_01.pdf.
(6) IR Day 2026 Spring, 7-Eleven, Inc., April 23, 2026 at page 7, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0423kse_01.pdf., page 7.
(7) Presentation for the First Quarter of FY 2026, of Seven & i Holdings Co., Ltd., July 9, 2026 at page 13, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0709kse_01.pdf.
(8) U.S. Federal Trade Commission, Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunities, Rule Summary, found at https://www.ftc.gov/legal-library/browse/rules/franchise-rule.
(9) 7-Eleven, Inc. Franchise Disclosure Document dated April 1, 2026, at Exhibit H, page H-16.
(10) Tax Notes, Deloitte, Section 4(d), found at https://www.taxnotes.com/research/federal/irs-guidance/revenue-rulings/rev-rul-59-60/d30t(Detailed profit-and-loss statements should be obtained and considered for a representative period immediately prior to the required date of appraisal, preferably five or more years)
(11) U.S. Federal Trade Commission, Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunities, 16 CFR §436.5(s)(4&5). See also16 CFR §436.10(a) (“…franchisors may have additional obligations to impart material information to prospective franchisees outside of the disclosure document under Section 5 of the Federal Trade Commission Act.”)
(12) 7-Eleven, Inc. Franchise Disclosure Document dated April 1, 2026, at Tables No. 1, 2 & 3, pages 60-63.
(13) Brief Summary for the First Quarter of FY 2026, July 9, 2026 at page 20, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2026_0709khe.pdf.
(14) IR Day 2025 Autumn, Seven-Eleven Japan, October 31, 2025, page 7 found at https://www.7andi.com/en/ir/file/library/ks/pdf/2025_1031kse_01.pdf.
(15) IR Day 2026 Spring, 7-Eleven, Inc., April 23, 2026 at page 5, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0423kse_01.pdf, page 5.
(16) Transformation of 7-Eleven, Seven & i Holdings Co., Ltd., August 6, 2025 at pages 17 and 19, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2025_0806kse_01.pdf.
(17) Brief Summary of FY 2008, April 10, 2008 at page 4, found at https://www.7andi.com/library/dbps_data/_template_/_res/en/ir/library/kh/pdf/kh_200802_01_e.pdf.
(18) Brief Summary of FY 2012, April 12, 2012 at page 4, found at https://www.7andi.com/library/dbps_data/_template_/_res/en/ir/library/kh/pdf/2012_0405khe.pdf.
(19) Brief Summary for FY2024, April 9, 2025, page 26, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2025_0409khe.pdf.
(20) Brief Summary for the First Quarter of FY 2026, July 9, 2026 at page 24, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2026_0709khe.pdf.
(21) Alimentation Couche-Tard, Inc. Announces its Results for the Fourth Quarter and Fiscal Year 2026, June 22, 2026 found at https://corporate.couche-tard.com/2026-06-22-ALIMENTATION-COUCHE-TARD-ANNOUNCES-ITS-RESULTS-FOR-ITS-FOURTH-QUARTER-AND-FISCAL-YEAR-2026 and Casey’s Announces Fourth Quarter and Fiscal Year Results, June 9, 2026, found at https://investor.caseys.com/news-releases/news-release-details/caseys-announces-fourth-quarter-and-fiscal-year-results-1.
(22) Brief Summary for the First Quarter of FY 2026, July 9, 2026 at page 24, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2026_0709khe.pdf and Brief Summary for FY 2022, April 6, 2023 at page 12, found https://www.7andi.com/en/ir/file/library/kh/pdf/2023_0406khe.pdf.
(23) Alimentation Couche-Tard, Inc. Announces its Results for the Fourth Quarter and Fiscal Year 2026, June 22, 2026 found at https://corporate.couche-tard.com/2026-06-22-ALIMENTATION-COUCHE-TARD-ANNOUNCES-ITS-RESULTS-FOR-ITS-FOURTH-QUARTER-AND-FISCAL-YEAR-2026.
(24) Casey’s Announces Fourth Quarter and Fiscal Year Results, June 9, 2026, found at https://investor.caseys.com/news-releases/news-release-details/caseys-announces-fourth-quarter-and-fiscal-year-results-1
(25) Compare Monthly Business Performance, Fiscal Year Ending February 28, 2026 to Monthly Business Performance, Fiscal Year Ending February 28, 2025, found at https://www.7andi.com/en/ir/financial/monthly_highlight.html.
(26) Brief Summary for the First Quarter of FY 2026, July 9, 2026 at page 24, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2026_0709khe.pdf. For the first quarter of fiscal year 2026, the average retail price of gasoline was $3.29 per gallon and the retail fuel margin was 47.04 cents/gallon (.04704/3.29 = 14.29 percent). For the first quarter of fiscal year 2025, the average retail price of gasoline was $3.15 per gallon and the retail fuel margin was 34.14 cents/gallon (.03414/3.15 = 10.8 percent).
(27) Brief Summary for FY2025, April 9, 2025, page 26, found at https://www.7andi.com/en/ir/file/library/kh/pdf/2025_0409khe.pdf. For the first quarter of fiscal year 2024, the average retail price of gasoline was $3.32 per gallon and the retail fuel margin was 34.79 cents/gallon (.03479/3.32 = 10.5 percent).
(28) Presentation for the First Quarter of FY 2026, of Seven & i Holdings Co., Ltd., July 9, 2026 at page 11, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0709kse_01.pdf.
(29) Presentation for the First Quarter of FY 2026, of Seven & i Holdings Co., Ltd., July 9, 2026 at page 21, found at https://www.7andi.com/en/ir/file/library/ks/pdf/2026_0709kse_01.pdf.
(30) Id. at page 24.
(31) Employment Situation Summary, Bureau of Labor Statistics, August 7, 2026, found at https://www.bls.gov/news.release/empsit.nr0.htm
(32) 7-Eleven, Inc. Franchise Disclosure Document dated April 1, 2026, at Item 7, page 17.