On September 27th, Franchise Times published an article entitled, “7-11 Owners Air Cold, Hard Facts Against Corporate.”
The decision to air grievances publicly is a rare one in the franchising world. My guess is that in order for franchising to be fixed, more and more franchiSEES are going to have to follow 7-11’s lead, take the plunge and tell the public what’s really going on.
Perhaps the 7-11 franchiSEES will turn out to be heroes in this long battle for franchiSEE freedom.
This isn’t the first time 7-11 franchisees have made their grievances public. According to CSP Daily News, in July of last year, the National Coalition of Associations of 7-11 Franchisees (or the NCASEF) released a statement alleging that 7-11 corporate was pressuring franchisees whose agreements were expiring to sign new agreements with worse terms.
“The company is applying heavy pressure for franchisees to sign the new agreement by the end of this year,” the NCASEF statement said. The coalition went on to claim that the new agreement “further enhances the pervasive control 7-Eleven already exercises over its operators. For years, the company has been eroding franchisee profitability by increasing operating costs. Now, 7-Eleven is aggressively advising franchisees to sign the new deal immediately before its terms get worse.”
Now, one year later, the 7-11 franchiSEES of the NCASEF are again turning to publicity in their efforts to sort out their disagreements with corporate. According to Franchise Time, their general counsel, Eric Karp, stated that the NCASEF chose to draw public attention to publicly available “cold, hard facts” about 7-11 corporate because “the trends on all of those statistics are unfavorable.”
Evidently, last year, the NCASEF held a board vote that expressed “no confidence” in management.
So, exactly what negative trends is the coalition referring to?
Well, according to Franchise Times, Karp claims that publicly available documents prove:
- Eighteen percent of 7-Eleven stores in the U.S. are currently available for franchising.
- Since April 2018, the number of available stores has increased more than 57 percent, from 999 to 1,578.
- Since April 2018, stores currently owned by a franchisee and put up for sale (known as goodwill stores) have increased more than 95 percent in California; 39 percent in New York; 314 percent in Illinois; 84 percent in Virginia and 60 percent in Washington State.
- Completed sales of franchised stores more than quadrupled from 2013 to 2018.
- Turnover of franchised stores due to terminations, non-renewals and abandonments doubled from 150 in 2013 to 314 in 2018.
If I understand correctly, together this means that many current franchiSEES would gladly bail if a potential new buyer came forward to take over their store. And if 7-11 is like the rest of the franchising world, while these franchiSEES anxious for an out wait for a buyer, they’re locked into an agreement they’re claiming isn’t particularly profitable (because, they allege, their corporate franchiSOR is “increasing operating costs”) AND from which there is no safe escape. In franchising, the franchiSEES risk everything to sign that agreement.
The 7-11 franchiSEES would gladly sell instead of losing everything, of course, but they can’t. In the franchise world, there are harsh penalties for not staying on board and, in general, silent. Now, I don’t know anything about the 7-11 franchise agreement per se, but it is pervasive in the industry for franchise agreements to allow franchiSORS to go after franchiSEES homes and life savings should franchiSEES try to get away. If 7-11 has much in common with other franchises in the industry, abandoning a store could mean facing litigation from corporate, losing their homes and their entire life savings.
No doubt the 7-11 court records could tell us more. Court records are public documents. It appears that the National Coalition of 7-11 franchiSEEs’ associations’ general counsel, Karp, is drawing from that public record to make his public claims about the “cold, hard facts.”
Ultimately, the franchisees are the losers and there is likely very little that they’ll be able to do about it unless some pretty heavy duty litigation and media occurs.
Franchise Times states that Karp noted, “We don’t understand how 7-Eleven could ignore these trends because they don’t bode well for either the franchisors or the franchisees. We have repeatedly, and when I say repeatedly I mean it, attempted to sit down with them and have an arms length, amicable, transparent, collaborative discussion about where this system is headed.”
But while the financial trends aren’t good for the long term viability of the 7-11 brand or the 7-11 franchiSEES, they may be the best way for the 7-11 franchiSOR to pull a profit and for the franchiSORS to make a financially beneficial exit. “7-11 has started taking bigger portion” of gross revenue. “The new 2019 franchise agreement calls for a much steeper gross profit split, with a marginal rate as high as 59% in favor of the company.”
Somebody is making money. If this continues, the whole business will likely fail, but the franchiSORS will walk away with full bank accounts and plenty of assets while the franchiSEES walk away with nothing.
I’m glad the 7-11 franchiSEES are speaking.
The public needs to know.