40 IS THE NEW 35 B Y AR F AN “ AR T ” F AR O O Q I BOARD MEMBER, CENTRAL FLORIDA FOA
Our industry has always been a bell ringer for the “average Joe”—the first businesses to respond to the needs of our community, and the quickest to set the trends in retail. As such, our enterprises need to have the financial strength and dexterity to maintain our business operations. This means we have to make a profit above and beyond the expenses and costs. As change is inevitable, we are in a crisis of a different kind—we are in a labor shortage tsunami. The available human capital supply for retail industry is shrinking. True to the laws of supply and demand, when a resource becomes scarce, the cost goes up. Our industry, and particularly our 7-Eleven franchises, are asking so much cerebral work from our staff on a daily basis. We have become the universal store for all needs. Do you need fuel? We got you. Do you need a money order at 2:30 a.m.? Come on in! Forgot to go grocery shopping for breakfast? Stop in and grab milk, eggs, bread, and cereal. Need to load your prepaid debit card? We handle those, as well. Plus, while you are here grab a large freshly made pizza and some chicken wings! All this convenience for the customer comes at the expense of the labor to operate a 24/7/365 business. As an industry leader, 7-Eleven has some of the highest gross margins around. However, due to our unique gross profit split model, most franchised stores do not have the supersized bottom line to match. In 2019, our average store gross profit percentage across the nation was about 35 percent. Even though we have had great sales growth as the economy recovers from the COVID-19 pandemic, our bottom lines are shrinking as expenses slowly increase and more costs are shifted towards the franchisee side of the ledger. Add to this the reduced share of the profit split afforded to us by the 2019 franchise agreement, and it is easy math to see how all this has eroded the vast majorities of
franchisees’ net income. Our pain is still increasing with no relief in sight. The tight labor market has pushed the large employers like Amazon, Walmart, and Costco to increase their starting pay as high as $32 per hour, plus add in signing bonuses and it is easy to see the reason why we have reduced number of applicants willing to take a complex job like a 7-Eleven Sales Associate at the limited pay we are able to offer. In my area of Florida, even McDonald’s has increased their starting pay to $14.50 per hour, and some hard-pressed locations are also offering $200 signing bonuses. A few months ago, one McDonald’s franchise owner group was offering $50 just to show up for an interview! The point is, we have a tough road ahead. So, what is the solution? Increased automation? Change the terms of the 7-Eleven franchise agreement? Or simply exit the business? All these choices are good places to search for answers, but the truth is we are years away from the type of technology needed to automate most of the retail c-store operation. Changing the terms of the 7-Eleven franchise agreement is also a long and wishful journey. Exiting is an option; many older store operators have decided to do this and are selling when lucky or simply handing back the keys to 7-Eleven and walking away with nothing. But there is another solution: we could increase our gross margins to cover the increasing costs and expenses. Yes, we have to talk about this subject. I know, you don’t
" As an industry leader, 7-Eleven has some of the highest gross margins around. However, due to our unique gross profit split model, most franchised stores do not have the supersized bottom line to match.” want to lose sales and customer counts. I get it. However, hear me out ... Everyone is aiming for our customers, and I mean the customer that wants convenience. Dollar stores are adding beer and tobacco to their offerings, grocery chains are marketing “quick checkout” in every ad, and Amazon is advertising delivery in as little as one hour. Even the pizza guy now sells you a 2-liter soda with your pie. However, instead of losing sales to these competitors, 7-Eleven has had record same store sales growth. We are the market leaders in convenience. Our stores have the loyalty of so many customers because we are so focused on the guest experience, and we are in our stores daily to make them better. We need to harness this part of our business and charge enough to cover the needs of the store—we have to raise prices, slowly, to get us from the 35 percent range to above 40 percent. After all, our suppliers raise their prices all the time. In 2020 alone there were 9 to 11 cigarette and tobacco price changes. If Altria and RJR can increase their prices to protect their margins, continued on page 38 J U LY | A U G U S T 2 0 2 1 AVANTI
37
