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A 1990 Newspaper Article About The Plight Of 7-Eleven Franchisees Still Rings True
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NCASEF
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have been made worse by the global pandemic, further highlight the need for closer examination of franchising. “The additional strains the pandemic has put on franchisees across all industries has brought into sharper focus the need for further investigation and action.”
The petition recommends the FTC send requests for information to these franchise systems: 7-Eleven, Subway, The UPS Store, IHG Hotels and Resorts, Choice Hotels, Experimax/Experimac, Supercuts, Massage Envy, and Dickey’s Barbecue Pit.
A 1990 Newspaper Article About The Plight Of 7-Eleven Franchisees Still Rings True
The year was 1990 and Stuart Silverstein, a writer from the Los Angeles Times, took an in-depth look at the issues between 7-Eleven franchisees and the franchisor, then known as Southland. This article was brought to our attention after we published the results of our latest survey. What’s incredible is that this piece could just as easily be published in the paper today; the problems from 31 years ago are still relevant today—in many instances, they’re worse.
Much of Silverstein’s article centered on the challenges franchisees faced, many of which were attributed to unfair management practices. He also mentioned crumbling infrastructure due to poor upkeep, and why franchisee profitability was slipping. These topics were all included in the National Coalition’s 2021 survey and they remain the top concerns to the vast majority of this year’s survey respondents.
Let’s start by looking at the bottom line, Question No. 31 on the survey: “The structure of our contract allows me to make a reasonable profit.” Eightyeight percent of you disagreed with that statement today. In 1990, the LA Times said, “Profits, however, usually are hard-earned by franchisees, who in many cases, run their stores with the help of spouses and children.”
Years before 7-Eleven Inc. (SEI) formalized its graduated gross profit split (GGPS), Silverstein exposed the franchisor’s practice of having operators
pay a portion of their profits in lieu of a traditional royalty fee, writing: “The parent company normally returns half of what its accountants determine to be a store’s gross profits to the franchisee and keeps the rest. In other organizations, franchisees simply pay a fixed percentage of sales to the parent company.” Back then, franchisees in California were suing 7-Eleven, claiming the company prematurely charged them interest on invoices before Southland paid the bills. Today, franchisees question whether SEI’s accounting systems are accurate. It’s no wonder trust remains a critical issue in the 7-Eleven franchisee/ franchisor relationship. It should be no surprise that many franchisees have trust issues in a system that still has many of the same concerns all these years later,” said NCASEF Executive Vice-Chairman Michael Jorgensen. “Trust is a key component of any business relationship and contract. Difficult to decipher accounting “WHAT’S INCREDIBLE IS THAT THIS PIECE practices, coupled with our franchisor taking a bigger piece COULD JUST AS EASILY BE PUBLISHED IN of the pie at a time when our responsibilities and expenses are increasing have left many of us feeling disenfranchised. THE PAPER TODAY; THE PROBLEMS FROM 31 Add to this picture the labor shortage and you see why YEARS AGO ARE STILL RELEVANT TODAY—IN more than 80 percent of survey respondents believe that MANY INSTANCES, THEY’RE WORSE.” running the stores has negatively impacted their physical and mental health.” The upkeep and maintenance of our stores remain a concern. Sixty percent of 2021 survey respondents said it had been over 10 years since their stores received a major physical plant upgrade (valued at more than $10,000). Back in 1990, crumbling stores were also an issue. Silverstein wrote that franchisees watched their stores become rundown because remodeling money was being funneled to pay off the franchisor’s corporate debts. Recently, SEI has spent $28.3 billion in 39 separate acquisitions, without investing in many
HIGHLIGHTS
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slowed sharply in August, but the latest JOLTS data shows labor demand was still strong the month prior amid stellar job creation.
Study Finds Pandemic Led To Increase In Retail Crime
Organized retail crime and numerous other security concerns evolved in 2020, and most retailers attribute the increase in criminal activity to the pandemic, according to the 2021 Retail Security Survey released by the National Retail Federation. The COVID-19 pandemic impacted the risk environment for retailers on several fronts. While more than two-thirds (69 percent) said the pandemic resulted in an increase in overall risk for their organization, respondents specifically mentioned the impact on workplace violence (61 percent) and organized retail crime (57 percent).
Mandated store shutdowns and other shopping restrictions that occurred throughout 2020 had an impact on where fraudulent activity occurred. More than one-third (39 percent) of respondents said they saw the greatest increase in fraud in multichannel sales channels such as buy online pick up in store, up from 19 percent the year before. In contrast, just 28 percent said the greatest increase in fraud came from in-store-only sales, down from 49 percent the year before. The percent of those who pointed to online-only sales fraud remained flat.
Food Prices To Rise
Food prices across categories are predicted to rise low- to mid-single digits this year and again next year—adding on to already higher prices in 2020 fueled in part by the pandemic and raising questions about how consumers will react in the long term, reported FoodNavigator-USA. com. According to recent data released by the U.S. Department of Agriculture’s Economic Research Service (ERS), the price of food consumed at home is now expected to increase between 2.5 and 3.5 percent and food consumed away from home is expected to increase 3.4 to 4.5 percent in 2021 over 2020. The agency predicts this trend will continue in the coming year with at-home prices climbing an additional 1.5 to 2.5 percent and away-from-home prices increasing between 3 and 4 percent.
This is on top of dramatic increases last year compared to pre-pandemic levels. In 2020, the price of food consumed at home increased 3.5 percent compared to only 0.9 percent in 2019 before the coronavirus outbreak. Last year, foodaway-from-home climbed 3.4 percent, according to the USDA. The brunt of the price increases in 2020 was led by meat with beef and veal climbing 9.6 percent year-over-year, pork up 6.3 percent, and poultry 5.6 percent. This was followed by a 4.4 percent increase in dairy prices and a 4.3 percent increase in eggs, according to ERS. Dramatic increases in the producer price index suggest that meat prices will continue to climb in the future.
Jacksons Food Stores Completes Speedway & 7-Eleven Acquisition
Jacksons Food Stores recently completed its acquisition of 62 Speedway and 7-Eleven convenience stores with fuels in California, Arizona and Nevada from SEI, reported Petrol Plaza. The stores purchased were among the 293 locations that 7-Eleven is divesting to satisfy an agreement with the Federal Trade Commission (FTC) as part of its recent acquisition of Speedway LLC from Marathon Petroleum Corp. The Meridian, Idaho-based family of Jackson companies own, operate and supply more than 1,340 stores across nine western states. The acquisition is part of the company’s continued focus on growth and expansion into additional markets across the Western U.S. and will give Jacksons 58 stores in attractive California market.
Japan 7-Eleven Stores To Add Delivery Service
Japan’s top convenience store operator, Seven & i Holdings, will launch delivery services nationwide as early as 2026, reported Nikkei Asia. The company expects to be able to deliver food and dairy products to homes in as little as 30 minutes from its 20,000 7-Eleven stores. It intends to start offering the service in fiscal 2026 and compete with e-commerce giants such as Amazon.com. The move comes amid a slump in Japan’s convenience store market. According to a Nikkei survey, industrywide sales fell 6.1 percent to around 11.8 trillion yen in 2020, marking the first decline since 1981. At the same time, Japan’s e-commerce market grew 22 percent, to around 12.2 trillion yen, partly thanks to the rise of stay-at-home consumption. E-commerce sales surpassed those of convenience chains for the first time in 2020.
Seven & i, which will outsource delivery to local providers, has already
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established partnerships with about 10 logistics companies. It has also developed an AI-based logistics platform to optimize routes and coordinate among drivers. This enables its partner companies to deliver Seven & i products with a minimum of cars and drivers while also catering to other customers’ needs. Expectations are that the delivery service will raise each store’s sales.
Record Number Of Retail Workers Quit Their Jobs
Workers left their jobs at a record pace in August, with bar and restaurant employees as well as retail staff quitting in droves, reported CNBC, citing data from the Labor Department. Quits hit a new series high, as 4.3 million workers left their jobs. The quits rate rose to 2.9 percent, an increase of 242,000 from the previous month, which saw a rate of 2.7 percent, according to the department’s Job Openings and Labor Turnover Survey. The rate, which is measured against total employment, is the highest in a data series that goes back to December 2000. A total of 892,000 workers in the food service and accommodation industries left their jobs, while 721,000 retail workers departed along with 534,000 in health care and social assistance.
Quits have been seen historically as a level of confidence from workers who feel they are secure in finding employment elsewhere, though labor dynamics have changed during COVID-19 crisis. Workers have left their jobs because of health concerns and childcare issues unique to the pandemic’s circumstances.
First In-Person NACS Show In Two Years Attracts Record Crowds
The live and inperson 2021 NACS Show delivered four days of learnings, insights, networking and exploring what’s new and exciting for the convenience and fuel retailing industry. This year’s event took place October 5-8 at McCormick Place in Chicago and attracted 17,273 attendees, including 5,039 buyers. The NACS Show expo featured 1,235 exhibitors from startups to big brands, including a record-breaking 388 new exhibitors offering retailers a sneak peek at the new products available for convenience stores, NACS announced. In addition, the Cool New Products Preview Room allowed attendees to quickly preview 277 of the latest products and services available to the convenience store industry. New this year, attendees used the NACS My Show Planner app to collect details about the products. With each scan, attendees could store a “personal shopping list” of products to check out on the expo floor within the app. The Preview Room boasted 11,350 total product scans. As the convenience retailing industry continues to thrive in today’s constantly evolving retail environment, the NACS Show’s 40-plus education sessions, designed by retailers for retailers, helped attendees solve strategic challenges around core business functions relating to foodservice, technology, consumer insights, category “Workers left their jobs at a in August, with retail and record pace restaurant management, fuels and human resources/labor. NACS said employees quitting in droves.” its 2022 expo will
Dollar Tree, the last of the big dollar store chains to sell items for $1 or less, is adding $1.25 and $1.50 price points in some stores as the company faces rising costs, reported Business Insider. The retailer will also increase the number of items it sells for $3 and $5 through its “Dollar Tree Plus” sections, with the goal of adding the sections at 500 stores or more by 2024. • Swisher recently announced the retirement of John Miller from his position as Chief Executive Officer and President. Neil Kiely, a member of the Board of Directors, has assumed the role of President of Swisher. Kiely most recently served as the Chief Executive Officer/Vice-Chairperson-Board of Directors for Birra Peroni and was previously Chief Transformation Officer at MillerCoors. • A new way to pick-up groceries is now open in Mount Pleasant, South Carolina—OPIE Drive-Thru Grocery allows customers to pick-up their groceries without ever leaving their car, reported WCBD News 2. The 24 hour, 7 days a week, full service drive-thru convenience grocery store allows customers to order ahead, pull-up to the store, and pick their groceries up within minutes. • Swedish Match recently announced that it intends to separate its cigar business via a spin-off to shareholders and to completely exit the manufacturing of combustible tobacco products. The company said it has initiated preparations for a separation and a subsequent listing on a major U.S. securities exchange. The separation is expected to be completed during the second half of 2022, at the earliest. • A Dunkin’ doughnut shop in Colorado recently closed its doors for several weeks because it couldn’t find enough workers, reported The Gazette. The location normally operates with 15 employees and had just three when it closed. • Supply chain problems will likely persist at least through next spring, making it difficult to find hot toys and gifts this holiday season, as well as basic staples like coffee and footwear, reported Axios. Stores of all sizes and specialties are already trying to hoard products in warehouses—from turkeys, stuffing and cranberry sauce to video game consoles. • An Australian privacy commission said 7-Eleven Australia breached customer privacy by gathering facial imagery data without con-
take place October 1-4 in Las Vegas at the Las Vegas Convention Center.
SEI Integrating Speedway HQ
Fewer than 35 people have been laid off at the Speedway headquarters in Enon, Ohio as SEI continues integrating the Speedway assets it acquired from Marathon Petroleum, reported the Springfield News-Sun. The $21 billion acquisition closed in May. SEI representatives told the newspaper that as a result, decisions had been made to reduce staff in some areas, which included consolidating duplicate roles and aligning responsibilities. The exact number of people laid off has not been released by the company, nor the time period in which the elimination of certain roles have occurred, according to the article. SEI said that in the last several months the company has made significant progress toward fully combining Speedway and 7-Eleven. That includes the designing of an organizational structure that will better position “the combined company for success in the near-term and for many years to come.”
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FTC To Investigate ‘Unlawful’ Oil Industry Mergers
The Federal Trade Commission plans to crack down on practices that may harm consumers at the gasoline pump and seek to deter “unlawful” mergers in the oil and gas industry, reported Reuters. In a letter to the White House, FTC Chair Lina Khan promised to start an investigation of abuses in the “franchise market” for retail fuel stations, among other steps. Khan informed the White House that she is “especially interested in ways that large national chains may ‘restore’ higher prices through collusive practices, and I will direct our staff to investigate any signs of this type of conduct.”
Khan also said she also was concerned that the FTC’s approach to merger reviews in recent years had “enabled” significant consolidation in the industry and created “conditions ripe for price coordination and other collusive practices.” To tackle the issue, Khan said the FTC would “identify additional legal theories” to challenge mergers in which dominant players in the industry were buying up family-run businesses. She said the commission would also study its policies that
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require divestitures during mergers of gas stations in overlapping markets to ensure that was not encouraging further consolidation and anticompetitive behavior.
Wawa Adding Self-Checkouts Kiosks
Wawa is adding self-checkout kiosks to its convenience stores that let customers buy coffee and hoagies without the help of a cashier, reported the Philadelphia Inquirer. The company has installed the machines in 61 stores and continues to roll them out in more locations. Wawa said all new stores will open with self-checkout as an option. The company piloted self-checkout in a few dozen locations and found that the kiosks moved customers through stores faster. It also allowed Wawa to offer a more socially distanced checkout option during the pandemic.
Couche-Tard’s Net Earnings Drop
For its first quarter of fiscal 2022, Circle K parent company Alimentation Couche-Tard Inc. announced adjusted net earnings of $758.0 million, a decrease of $37.0 million, or 4.7 percent, driven by lower road transportation fuel margins in the United States and higher operating expenses.
Total merchandise and service revenues were $4.1 billion, an increase of 5.4 percent. Same-store merchandise revenues decreased 0.2 percent in the United States and 9.6 percent in Canada, and increased 5.9 percent in Europe and other regions. On a 2-year basis, same-store merchandise revenues increased at a compound annual growth rate of 3.7 percent in the United States, 4.9 percent in Europe, and 4.2 percent in Canada, the company said.
Merchandise and service gross margin decreased 0.1 percent in the United
States to 34.2 percent, and 2.2 percent in Europe and other regions to 38.4 percent, which was impacted by the integration of Circle K Hong Kong.
Gross margin in Canada increased 1.2 percent to 32.3 percent, due to favorable changes in product mix. Samestore road transportation fuel volume increased 11.8 percent in the United States, 6.3 percent in Europe and other regions, and 10.4 percent in Canada, due to higher fuel demand compared to the corresponding quarter.
Pandemic Lifted Average Retail Spending
The COVID-19 pandemic has led to an increase in the average amount U.S. consumers spend on each shopping occasion, whether it is a trip to a physical store or a visit to an online shopping site. Since reaching $34 in March of 2020, average shopping occasion spending has remained elevated at or above that amount through July 2021, according to The NPD Group. This increase is partially due to a general shift toward online purchasing, where average selling prices (ASPs) and the amount spent on each transaction already tended to be higher. However, the number of shopping occasions per week still falls short of 2019 levels, indicating that the sales lift is primarily caused by an increase in stock-up purchasing behavior, as consumers buy more on each occasion. In each of the 12 months since March 2020, the average
“Since reaching $34 in March of 2020, average shopping spending has remained elevated at or above that amount through July 2021.” amount spent per shopping occasion has been between 13 percent and 29 percent higher than the same month in the prior year. Those new spending levels have held relatively steady since March 2021. Grocery and drug stores, warehouse clubs, hardware and farm stores, and mass merchants have enjoyed the strongest growth in spending per-shopping occasion since the start of the pandemic, across the combined in-store and online retail landscape. The amount spent per shopping occasion through July of this year at each channel averaged at least 20 percent higher than 2019 levels. Warehouse clubs, and hardware and farm stores are two channels that experienced an increase in combined in-store and online shopping visits, but their overall gains still pale in comparison to pure-play online retailers which have increased shopping visits 49 percent compared to 2019.
Attorneys General Threaten Lawsuit Over Vaccine Mandates
Twenty-four attorneys general recently sent a letter to the White House warning of impending legal action if a proposed COVID-19 vaccine requirement for as many as 100 million Americans goes into effect, reported Fox News. The letter is the latest GOP opposition to sweeping new federal vaccine requirements for private-sector employees, health care workers and federal contractors announced by Biden in early September. The requirement, to be enacted through continued on page 21
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a rule from the Occupational Safety and Health Administration OSHA), is part of an all-out effort to curb the surging COVID-19 delta variant.
The OSHA rule, which covers nearly two-thirds of the private sector workforce, would last six months, after which it must be replaced by a permanent measure. Employers that don’t comply could face penalties of up to $13,600 per violation. Once it’s out, the rule would take effect in 29 states where OSHA has jurisdiction. Other states like California and North Carolina that have their own federally approved workplace safety agencies would have up to 30 days to adopt equivalent measures. The letter was signed by attorneys general in Alabama, Alaska, Arizona, Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia and Wyoming.
Amazon Increases Average Starting Pay To $18
Amazon has increased its average starting wage in the United States to more than $18 an hour and plans to hire another 125,000 warehouse and transportation workers, reported Reuters. The online retailer has raised pay from an average of around $17 since May. In some locations, the company is giving signing bonuses of $3,000, or triple what the company offered four months ago. The fatter paycheck shows how big employers are desperate to draw workers in an increasingly tight U.S. labor market, the article states. Fewer Americans are seeking jobless claims just as openings have hit a record in the reopening economy. Amazon is hiring workers to help run 100 logistics facilities launched in September in the United States, on top of more than 250 that opened earlier this year. Some workers will aid in Amazon’s long-in-the-works effort to roll out one-day delivery for Prime loyalty club members, the company said.
Dollar General Goes On A Hiring Spree
Dollar General has added 50,000 new employees since mid-July using a slew of incentives, including sign-on bonuses for truck drivers and referral bonuses for supply chain employees, reported Progressive Grocer. But the retailer is not done with its latest hiring spree yet and is looking to hire additional employees for positions currently available in stores, distribution centers, the DG Private Fleet and Store Support Center. Dollar General is currently offering a $5,000 sign-on bonus to drivers with an active Commercial Driver’s License (CDL) hired now through January 28 to be paid within the employees’ first six months of service. The company is also offering truck drivers robust bonus opportunities, including referral, performance and retention bonuses.
Career opportunities at Dollar General’s 27 traditional (dry) and DG Fresh distribution centers are also currently available in general warehouse, human resources, inventory control, maintenance, training and administration areas. Additionally, current Dollar General supply chain employees may participate in an internal job referral program, earning unlimited bonuses for each successful candidate referred. The company offers eligible employees 401k savings and retirement plans, and competitive health and wellness benefits including day-one telemedicine eligibility with no co-pay. Other benefits include tuition reimbursement, paid parental leave and adoption assistance to eligible employees, and the Employee Assistance Foundation. Dollar General has more than 17,600 stores in 46 states.
Three Percent Of Violent Crimes Occur At C-Stores
C-stores accounted for roughly 3 percent of violent crimes overall in 2020 and gas stations accounted for about 2 percent, reported CSP Daily News, citing new FBI statistics. Out of a total of 675,715 violent crimes represented by National Incident-Based Reporting System (NIBRS) data, 20,108 incidents occurred at c-stores in 2020 and 11,795 occurred at gas station. These statistics make c-stores and gas stations the fourth and seventh most common locations for violent crime, respectively. Restaurants are the eight most common locations, the article states.
Of the violent crimes that the FBI covers in the report, 157 or 2 percent of the 10,440 total crimes at c-stores were homicides; 119 or 1 percent of the total crimes at gas stations were homicides. The FBI reported 137,556 total robberies, 13,721 or 10 percent were at c-stores, while 7,006 or 5 percent were at gas stations.
Retail Fraud Up From Pre-Pandemic Period
The cost and volume of retail and e-commerce fraud has risen significantly
The Time For Teamwork Is Now
BY JAY SINGH | CHAIRMAN, NCASEF; PRESIDENT, SOUTH TEXAS FOA
If there was ever a time when SEI and franchisees had to team up as true partners, now is it. We’re facing many external problems—labor and supply chain issues being at the top—and it is becoming increasingly urgent that SEI sit down with franchisees to develop viable solutions that will benefit all parties. This includes working together on new programs and promotions and system upgrades, and how they roll out.
There’s no question that the pandemic has changed the convenience store industry, perhaps permanently, and we must adapt to our new reality. It is no longer “business as usual” for us as we find ourselves competing with the likes of Walmart, Target and Amazon for workers while trying to keep our shelves fully stocked, our stores clean, and our customers happy. Supply chain problems have been plaguing us for over a year now and will continue to do so into the first half of next year, according to recent news reports. Many of our vendors are struggling to get the raw materials they need to make their products and have reduced the number of SKUs they offer to only a few. Our vendors are also having trouble finding truck drivers to deliver their products to our stores.
At the heart of all these problems is the labor shortage. The general consensus amongst employers was that people would begin to apply for work en masse once the $300 weekly unemployment supplement expired in September. We are now a couple of months past that deadline and the situation has not improved. The news these days is full of stories telling us that the unemployed had plenty of time during the pandemic to evaluate their priorities and think about what they truly want in a job. Regrettably for the c-store and retail sectors, most people want higher pay, benefits like heath insurance, paid time off and a retirement plan, and a set work schedule that doesn’t change weekly. And forget about finding anyone willing to work the night shift.
Although our franchisor has been trying to help us find suitable employees through its Hire Right program and partnership with Indeed.com, little has been done to help us attract and retain reliable workers. By the looks of it, many of us will have no choice but to increase our starting compensation to $15 per hour. That is why it is critical for SEI to sit down with franchisee leadership and hammer out a plan that would allow us to deal with higher payrolls. SEI could give us a bigger cut of the gasoline sales, or we could adjust the gross profit split, or make the solution a combination of both. Perhaps part of the solution lies in lobbying Congress for universal healthcare and subsidized daycare so it takes the burden off employers with limited resources to offer these benefits. Whatever the case, a sit-down with our franchisor is warranted.
As it stands, if this labor situation continues much longer—unless SEI plans to deploy robots or self-checkout in our stores—it may reach the point where the company has to seriously reconsider its 24/7 operation. I’m sure our franchisor would not welcome this, as 7-Eleven’s reputation was built on being open around the clock. However, the longer we wait to solve the labor problem, the further behind we’ll fall to our competitors in hiring and keeping dependable employees.
As we deal with the issues brought upon us by the pandemic, it certainly doesn’t help matters when SEI decides to roll out a new and not fully tested programs into our stores, like the ASI 2 accounting system.
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Some of ASI 2’s features were made with little input from franchisees and accounting professionals with retail accounting expertise, and as a result caused big problems in many stores. Although SEI did not seek collaboration with franchisee leadership on this endeavor, we are still very willing to help to improve it.
The point is franchisees want to participate in developing solutions. We can provide insight from the front lines because we are dealing directly with these issues, with the labor shortage, with delivery issues, with a buggy accounting system, and poorly thoughtout programs. We know what needs to be improved, and within the NCASEF there is a brain trust of franchisees with expertise in many fields who can provide valuable input. Analyzing data on a computer screen at corporate will only get you so far. Input from soldiers on the front lines will take you the rest of the way. 7-Eleven is the top convenience store chain in the world. Most recently it placed #2 on the Franchise Times Top 400 list, which ranks the largest U.S.-based franchise systems based on global sales. At the end of the day, we all have the same goal—to make sure our stores and our brand prosper.
JAY SINGH
CAN BE REACHED AT 702-249-3301 or jays@ncasef.com
A Look Around The Corner
BY ERIC H. KARP, ESQ. | GENERAL COUNSEL TO NCASEF
For several years, we have been observing that the investor community does not respect the earnings of the publicly held parent company of your franchisor. For a specific example, we can cite the fact that for the 12 months ended October 7, 2021, the stock of the parent company declined in value by about 2.5 percent while the S&P 500 rose approximately 30 percent. We see that as one of the main drivers for the opportunistic behavior of 7-Eleven, Inc. given the materiality of its cash flow to the parent company.
It therefore comes as little surprise that ValueAct Capital, a prominent activist investor firm, was reported in May to have amassed a $4.4 billion stake in Seven & i, amounting to about 4.4 percent of the company. You can read about ValueAct here: https://valueact.com. According to Bloomberg Law, ranked by market share, Seven & i is the 5th largest company to be targeted by activist shareholders. In a letter to its shareholders as reported in the financial media, ValueAct argued that management should focus much more of its attention on its core convenience store business, which it characterized as “high return” for shareholders. ValueAct argued that the company could be worth more than double its current market capitalization by making changes which might include spinning out the convenience store business into a separate company. While we have not seen the letter, none of the descriptions of it in the media indicate that it has any reference to the franchisees of 7-Eleven, and in particular their financial interests and concerns.
In what some will undoubtedly see as a related development, on July 1, 2021, Seven & i issued a 64-slide Medium Term Management Plan 2021-2025, which is publicly available in the Investor Relations section of the company’s website. This is a
blueprint for where management intends to take the company and it is hardly coincidental that many of its goals respond to the points raised by ValueAct. Here are some specific examples. • The number one goal of the Plan is to concentrate management resources with the U.S.-Japan convenience store business as a pillar of growth. This is a signal that the company intends to devote the lion’s share of its attention to the convenience store business as a pathway to wealth creation for the company’s shareholders. The company is signaling that there is going to be a more formal alliance between U.S.based and Japan-based convenience store management. • The financial metrics in the Plan are designed to communicate to the world that the company plans to grow materially, calling for a return on equity of 10 percent and an earnings per share growth rate of 15 percent or more. • The Plan calls for “business structural reform” by 2024, which includes “dealing with unprofitable stores” without specifying whether they intend to close them or invest capital in refurbishment and renovation. Seven & i has demonstrated that it is willing to spend tens of billions of dollars on acquisitions particularly focused on the gasoline segment but leave all too many franchised stores languishing in dire need of renovation, refurbishment, and improvement. • The group’s priority strategy includes “strengthening relationship with franchisees” without one word of how it will go about doing that. We have been representing franchisee associations throughout the United States for more than three decades. We have never seen, nor have we ever been informed about, less collaborative or a more contentious relationship between the company and its franchisees. It is indeed alarming that this off-balance sheet liability of the company receives so little attention
generally, and specifically in the Plan. • Seven & i sees the United States convenience stores to be the main driver of growth in the convenience store group, aided by the recent acquisition and integration of the Speedway stores. This is seen as a way to increased shareholder value as a global brand. More specifically, the goal is that SEI, which currently accounts for 31 percent of the convenience store group’s cash flow, to generate 50 percent by 2026. • Goals for the U.S. network of stores include raising the store count to 15,000, increasing fresh food sales to 20 percent of revenue and raising delivery sales to 3 percent of total merchandise sales. As you know, delivery from U.S. stores is highly problematic for franchisees because the franchise agreement purports to give SEI unfettered discretion over how to divide the revenue and gross profit from that segment. • In order to expand delivery, the Plan is to drive the number of 7NOW Members to 55 million by 2025. Seven & i states that order-to-time delivery at 31 minutes is the fastest in the industry and that average spending per customer is $14.50, about 1.7 times the amount of in-store sales. There is no analysis of how these changes will affect franchisees. • Food Focused Growth is presented as another initiative based on collaboration with Warabeya dating to 2017 for 650 stores in the Dallas region. The aim is to build a highly efficient value chain involving a collaboration between SEI supply chain management, DHL and Warabeya. The plan involves a CDC commissary plant in Stafford, VA to supply approximately 1,300 stores and then to expand from there. How will this af-
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fect gross margin at the store level? The Plan does not say. • SEI will accelerate its goal of installing 250 electrical vehicle charging stations by 2027 to 500 stations by 2022, concentrating on California, Florida, Texas and Colorado. There is no indication of how the stores in these states will be chosen and it is not clear that this modest investment in electrical charging stations will meet consumer demands. General Motors touts its Path to an All Electric Future, predicting that it will have 30 new electrical vehicles on the road by 2025. https://www. gm.com/electric-vehicles.html • Another initiative is to roll out proprietary beverages, alcoholic beverages, in store cooking of croissants and cookies, and the Laredo Taco restaurant format to new and existing stores, including Speedway. The plan does not include any details regarding the number of stores or how much capital will be deployed. There is also no analysis about how these products will affect franchisee profitability.
With the acquisition of the Speedway stores, 7-Eleven is a remarkably different company than it was a year ago. At present, about 62 percent of all stores have gasoline and about 45 percent are company owned. Seven & i is projecting that systemwide merchandise gross margin for calendar year 2021 will be a disappointing 33.9 percent. But it is also projecting that SEI’s operating income for 2021will be up nearly 60 percent year-over-year.
Retail fuel margin (33.06 cents per gallon for the six months ended June 30, 2021) remains well above pre-pandemic levels (21.07 cents per gallon for the six months ended June 30, 2019).
If franchisees feel the ground shifting underneath them, it is not their imagination. At times like these, an activist, truth-telling, independent franchisee association that seeks to hold its franchisor accountable for its behavior is essential.
ERIC KARP
CAN BE REACHED AT 617-423-7250 or ekarp@wkwrlaw.com
ARNOLD J. HAUPTMAN, ESQ. | GENERAL COUNSEL, UFOLINY
“WHAT!” It’s a weird title for an Avanti article, but that is what I hear several times from franchisees that call me for advice on the good will sale of their stores. With over 40 years of experience representing franchisees at the national level and in the New York areas covered by UFOLINY, I think I am qualified to render that advice. Of course, the first question is, “What can I get for my store?” The answer I give is almost always met with a resounding, “WHAT!”
There is no precise answer to that question, but after representing dozens of franchisees selling the good will of their stores, I can render a pretty good and educated guess. After giving the franchisee that guess, the response inevitably is, “I could have gotten three times that amount seven or eight years ago.” That is correct, but not anymore. The dreams and plans you may have had for a well-deserved middle-class retirement or simply a change of careers has evaporated, and that is a shame. Some franchisees have busted their butts 20, 30, 40 years or more with the reasonable expectation that there would be some sort of reward for their efforts. Again, not anymore, and only some of the reasons, in my view, are stated below.
Sometimes, when I go back and look at contracts for good will sales that I drew not that many years ago, I am literally shocked as to the severe diminishing value of 7-Eleven stores in today’s market. In the olden days, the good will proceeds was generally more than the franchise fee. Today, the opposite is true.
When you finally decide that you must get out of the system before you go broke, I am asked, “How long after a good will agreement is signed can I expect to begin my retirement?” Or for you younger people out there, “How long will it be before I can get out of this mess and maybe get a real paying job or a more lucrative business?” The answer, again in my experience, is generally nine months to a year. “WHAT! I want out now!” Too bad.
“So what caused the plummeting of the good value of my store?” A whole bunch of things that came together in a perfect storm. They are: 1. Unless you have a mega volume store, or you have several decent stores, there is little ability to earn a reasonable living from your store, even if you work 6080+ hours a week and are getting free help from your kids. This is a 24/7 business with staffing being almost impossible these days, resulting in franchisees working the graveyard shift. Why would anyone in their right mind invest somewhere around a half million dollars or more for a return that is less or little more than can be earned in a decent job and without the problems of operating a business? The franchise fees are too high and are having the dual effect of limiting the number of prospective buyers and reducing the amount of money available from a buyer for the good will of your store. Most franchises do not require a renewal fee, but only a relatively small transfer fee which makes locations more attractive. 2. There are too many stores competing with each other, leaving little opportunity to make a livable profit. This has been a long-time problem but has gotten worse over the last several years. In some areas, stores are being built so close that a customer has to figure out which store, a half mile apart, is more convenient to get to. It boggles the mind to think how this problem will be exacerbated because of the Speedway purchase. For sure, it won’t help. 3. The 2019 Store Agreement, simply stated, stinks. The agreement places too many costs on the shoulders of the franchisee. Insurance, payroll preparation, added maintenance fees, and a renewal fee of $50,000 are only a few of the new added burdens placed on the shoulders of the franchisees. Least, but not last, is the onerous 7-Eleven charge that can be as high as 56 or 57 percent. Even lower-volume stores paying 50 percent cannot survive paying that percentage of its gross profit to 7-Eleven. As operating costs paid by the franchisee increase, 7-Eleven’s share of gross profit is not diminished. Even worse, when the open account falls below minimum, additional investment, which you do not have, is demanded. This is unfair and an impediment to the sale of your store. 4. I believe most potential good will purchasers start their search by going online to the 7-Eleven site and viewing a list of stores for sale, including corporate stores. I cannot prove it, but my gut tells me that SEI’s reps
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are pushing underperforming corporate stores on unsophisticated and inexperienced potential buyers who see only an impressive brightly lit store with cars in the parking lot. Many of these stores are corporate because franchisees just walked away from them and should be closed—not refranchised several times. That leaves your store at the bottom of the list. Some stores languish on the list for years and are often just removed in disgust.
If you are an old timer and in the system prior to March 31, 1991, then there is one saving grace and that is the Long Term Tenure Rebate program. That is 30 years ago, but you would be surprised at the number of franchisees who are eligible for this rebate, which is equal to 50 percent of the franchise fee being charged to the buyer. For you newbies, there is nothing that 7-Eleven will reward you with for promoting the brand for many years. This program, in my memory, is the last time 7-Eleven significantly recognized the value of its franchisees to its brand. “WHAT,” you ask, “do I do now if I want out of the system before I go broke and there are no buyers for my stores?” The answer is a tough one and your only option might be to give the keys to 7-Eleven and start a new career or start retirement and think of your future rather than your past. I am sorry that this article is not upbeat, but the system for franchisees has just deteriorated so much (especially with the 2019 Store Agreement) that being optimistic is getting to be very hard. In any event, I wish you all good luck.
ARNOLD J. HAUPTMAN CAN BE REACHED AT ajhauptman@aol.com or 516 541-7200
continued from page 16 sent, reported Entrepreneur Magazine. The Information Commissioner’s Office said the data was collected illegally from June 2020 to August 2021 using camera-enabled tablets in 700 stores when customers completed voluntary surveys about their in-store experience. • Alimentation Couche-
Tard Inc. recently announced it has acquired convenience and fuel retail sites from ARS Fres-
no LLC that include 35 high quality locations currently operated under the Porter’s brand and located predominately in Oregon and Western Washington. •
Bank of America is now paying its U.S. work-
force at least $21 an hour, or nearly three times the federal minimum wage of $7.25, reported CBS News. The pay hike follows BofA’s May pledge to pay its workers a minimum hourly wage of $25 by 2025. The bank is also requiring its U.S. vendors pay their workers who are dedicated to the bank’s business at least $15 an hour. • Circle K recently announced
that it is introducing fully frictionless technolo-
gy at existing stores in Arizona. By adding this seamless checkout technology, the company said it is looking to enhance the shopping experience for both customers and team members. • Two new Whole
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Avanti Is Your Magazine
Avanti Magazine was created in 1981 by franchisees, for franchisees. It represents your voice within the 7-Eleven universe and requires your participation to remain relevant to the ideas, information, and knowledge floating about the franchisee community. You can contribute to the success of Avanti Magazine by submitting any of the following:
> Articles on any 7-Eleven topic that may be of interest to other franchisees. > Your FOA events and Board meeting calendars. > FOA event photos with a short description (who, what, where, when, and why). > Store or community event photos with captions. > Any combination of the above.
Please send your submissions to avantimag@ncasef.com. As former National Coalition Chairman Bill Schuessler famously said,
DRIVE YOUR ENTERPRISE
BY ARFAN “ART” FAROOQI
BOARD MEMBER, CENTRAL FLORIDA FOA
Every day I have an 11.5-mile commute from my home to my store. It is a drive so routine for me that sometimes I arrive at my store and cannot recall anything about the drive to work. I noticed nothing about my surroundings. I did not see the egrets flocked in the wetlands on the side of the highway, or the new billboard advertising a young injury lawyers’ firm. The highway from my home is a beautiful course that takes me from South Tampa past downtown high-rises, through Historic Ybor City with its classic four-story brick buildings, once home to the famous Cuesta Ray cigar factory and Hav-A-Tampa tobacco Company. No folks, sometimes I notice none of it.
That’s because I am too lost in my thoughts and plans for the day ahead, and I am so busy thinking about the many challenges my store faces in these uncertain times. Did the night shift fill my dairy case and rotate the dates on the milk gallons? How many items was I short on my CDC delivery again? Did the gas driver leave me the proper paperwork for the delivery to reconcile the daily tank inventory? What about the health of my staff? How do I convince the few vaccine holdouts to get the jab? These are just some of the questions I contemplate on my commute from my home to my store.
Of course, when I arrive at my store there are always new unknown challenges present that require my attention. Some days I have to chase a critical supply item like hot dog buns because the CDC was unable to deliver any for the last five days, and we used the last of our stock a few minutes ago. Other days there is a sign posted by the overwhelmed staff proclaiming, “CASH ONLY. Credit card system DOWN.” I have to drop everything and get to work contacting the 7-Eleven helpdesk to correct the issue.
Recently, there was a law enforcement officer waiting for my arrival to review the night shift’s security camera footage for a possible crime outside my store. Needless to say, there is more demand for, than supply of, my time.
With all the endless daily challenges I am presented with, it would be easy to allow all these things to distract me from the goal of making a living and providing a decent life for my family. If I allowed these events to distract me from the reality of me being in control of my store, and navigating through these daily obstacles, I would be lost and frustrated.
I am willing to share a secret with you. Many years ago, I was getting close to being burnt out and ready to leave the c-store business to go back to being an employee. I thought the lure of having a set schedule, a regular paycheck, and the dream of a twoweek, worry-free paid vacation would be awesome. It sounded like a dream come true.
However, as I spoke with my friends, many whom are IT professionals and work for large firms whose names are posted at the tops of tall buildings, I realized that they too have a dream—they want the freedom to create an enterprise that has unlimited potential to create wealth. They yearn for the time they
won’t have a boss to report to, or a routine workload that never changes. Most of all, they want to have the ability to drive their lives to the destination of their choice. This made me realize that things aren’t that bad. The daily operational challenges become smaller the further I get from the ‘pity party’ in my mind. When I choose to savor the challenges and meet them head-on, I lay my head down at night and “As a franchisee, I need to practice driving my store to the promised land of High ROI.” feel a sense of accomplishment and pride. As a franchisee, I need to practice driving my store to the promised land of High ROI (Return on Investment). This is a place where most businesspeople are trying to get. How“If I allowed these events ever, due to all the distractions along the way, to distract me from the it is easy to be misdirected and get lost in the minutia of the daily operations and challengreality of me being in es. Sometimes, being a part of such a powerful control of my store, and brand, opportunity forces us to look in a difnavigating through these ferent direction. But you must remember to be in the mindset to push your ROI to the place daily obstacles, I would that makes you love the challenges. This is what be lost and frustrated.” driving to success is all about. Just remember you have the power and control to take it to the next level of sales and gross profit. I use the 80/20 rule to manage my daily store routine. The rule states that you should spend 80 percent of your time on the top 20 percent of things that make you money and spend 20 percent of the remaining time on the 80 percent of tasks continued on page 36
that provide the least value to your bottom-line profit.
For example, things in my top 20 percent that I dedicate most of my time to are: 1. Increasing total Gross Profit dollars. • Increase sales of High Margin categories. • Find ways to reduce costs of goods. • Reduce waste and write-off management. • Sourcing products to increase Margin or restock due to supply chain challenges. 2. Proper staff engagement and training. • Assist and train the staff to deal with the many store challenges. Support their work, and deal with their mental and emotional needs. • Manage the daily shift duty staff assignments. • Try to teach staff a new task to keep the job
engagement high. 3. Accurate accounting of all revenue and expenses. 4. Operational excellence and customer satisfaction as promoted by the 7-Eleven system. 5. In my opinion, the MOST important:
I work on MY skills to be a better executive-level manager and franchisee.
There are many distractions that may keep me from achieving my productivity goals; the many voices all around make focusing very difficult. Here are just a few of the items I put in the 80 percent that I spend the least time on. 1) Anything that does not involve increasing revenue, reducing costs, and improving productivity. 2) Staff and customer interpersonal drama. 3) Back office/desk re-organizing and paperwork filing. 4) Excessive email and digital dependence. 5) Things outside my control, like politics, weather, etc.
When we demand more from ourselves, we can be surprised as to the returns we will achieve. Our nation has always been a “land of opportunity;” let’s all learn to take advantage of that truth and become better at using the tools available to us to grow and achieve the goals we set for ourselves.
Remaining cognizant of the beauty of my daily commute requires a focus and appreciation of the gift I have of such interesting views; the same way I have to appreciate the variety of challenges I choose to face daily at my store. The journey is not easy, and the rewards are personal and have uniqueness that give my life flavor.
My advice to all who have made it this far is to learn the skill of driving your store and your life to the destination of your choice. For some that may be the freedom of time, for others that maybe the freedom of increasing your income. For me it is a choice to see the beauty of the world as I commute to work daily, with this renewed appreciation that makes me happy to arrive at my store … and stay on hold for 35 minutes with the 7-Eleven helpdesk for the fifth time this month.
ARFAN “ART” FAROOQI
CAN BE REACHED AT 813-786-1895 or dhsenergysales@gmail.com
EMPLOYEE SAFETY TRAINING MATTERS
BY JOHN HARP, CSP, ARM—RISK ENGINEERING CONSULTANT
MITSUI SUMITOMO INSURANCE GROUP
Labor shortages, competitive wages, and employee expectations are disrupting the c-store world. These challenges have created a lack of qualified and motivated people and could be resulting in excessive work hours for existing staff and questionable hiring decisions.
The short-term solution is to hire almost anyone willing to work. Without proper diligence in the interviewing and training process, this short-term solution could result in high costs and problems for your safety culture. The long-term solution is to remain selective and hire and train the best person you can. Until self-checkout becomes more viable or relevant, you remain in a people business, with your employees presenting the face of your brand.
Why Train?
Employee turnover and inadequate training directly affect your bottom line and can be a struggle for c-stores. Effective management of your people with quality training leads to a more successful employee that is safer, more likely to stay, and is more comfortable with customers, resulting in improved sales, and lower costs.
Training is one of the most important tools in helping an employee succeed and promotes incident and injury prevention. The objective of safety training is to help your employees make safe decisions in the store. For example, “Should I lift two cases of water at once because it’s faster?” or “Someone steals a 12-pack of beer and runs out the door—should I follow them to get the license plate or confront them?” This type of decision-making is common for your employees and through quality training and empathy for your staff, a safe outcome will occur more often. Something else to consider is that you want your employees to make good decisions in your absence. Quality training will influence this behavior.
There are legal requirements for safety training, too. OSHA has safety training requirements enforceable by law and without compliance, can levy fines to ensure employees are aware of the hazards they may face.
Common OSHA required topics include: • Hazard Communication—Safe use of chemicals and how to use a Safety Data Sheet. • Fire and Evacuation—Your employee must know what to do in a fire or other emergency. • Walking and Working Surfaces—Show employees how to identify and correct slip, trip, and fall hazards (ladders and step stools should be covered, too). • Medical and First Aid—What to do when first aid or medical care is needed, and use of the first aid kit. • General Duty Clause—Information to help employees understand what is needed to
“keep the workplace free of recognizable hazards.” This includes utility knives, lifting, and crime/assault prevention.
When Should Training Be Done?
New employees should be trained their first day following any SEI guidelines for the Computer Based Training (CBT) orientation. Although an employee may have prior retail experience, your brand may be different and they must understand your operation and expectations for safety.
Refresher training is also important, as an employee cannot recall everything covered those first few days. Reminder training also should be completed after a near miss, incident, or injury. If an employee cuts their hand opening a case of hot dogs, it’s time for a reminder for all the employees. If an employee is threatened by a shoplifter or assailant, there should be a reminder to the staff on procedures regardless if an injury occurs. The outcome of an incident or near-injury should not dictate the need for refresher training.
Who Should Do The Training?
The CBT program provides most of the necessary safety training orientation for a new hire, but watching and interacting with a computer program provides information that is only partially retained. It’s critical that you or the manager actively engage the employee before and after the CBT. As Management, you are in the best position to know the employee’s comprehension and further understand their strengths and weaknesses, and to verbalize your safety expectations.
How To Make Training Effective
Training involves many methods with CBT now prevalent. Considering that people
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continued from page 37 have different learning styles, this method alone with interactive quizzes might result in 20 percent recall or retention. This is not adequate for important safety and customer service learning.
Effective learning requires a simple method: Tell, Show, Do, Practice, and Review.
This means certain steps must be in place to assure your employee effectively retains the key information after the initial orientation. And it’s important to recognize that not all employees will learn the same way. A younger employee will likely respond to CBT supplemented with interaction, quizzes, games, etc., in short segments. An older employee may need more verbal interaction and all employees need real-life examples.
Consider that Millennials (born between 1980-1995) may not be the most current applicant but they will progressively become the dominant demographic. This group tends to be less loyal and has high expectations for a balanced work-life. This group, in particular, will frequently give a “bad boss” as a reason for leaving, and by definition, a bad boss can be: leadership lacking empathy, concern, and absence of active listening. These factors impact your safety results.
Steps To Training Success
1. Combine verbal with online training. 2. Explain and then demonstrate the job procedures. 3. Have the employee demonstrate they understand. 4. Praise for what is done correctly. 5. Correct the technique if necessary. 6. Follow-up and repeat if needed. 7. Encourage the employee to share their expertise.
A training example—how to restock a bag in a box (BIB): • Describe how to prepare for lifting by checking for a clear path. • How to disconnect the empty BIB and place it in a safe place for disposal. • Explain why 5g. boxes should be placed between the shoulders/ knees. • Show how to bend the knees and use proper lifting technique. • When to ask for help.
This may seem time-consuming and complicating a simple job, but one cannot assume an employee will understand how to safely handle a basic task that can result in a serious back injury.
Summary
New employees will bring their habits or traits with them, and these cannot be changed by simply watching a computer program or seeing a poster. With a tell, show, do, practice, and review approach, behaviors and techniques can be altered with follow-up and reinforcement. Consider that non-verbal learning also occurs. If an employee observes another employee or manager correctly lifting a BIB or a single case of drinks instead of two at once, the desired behavior will occur more often.
Quality, empathetic, and ongoing safety training can also improve employee retention that results in lower costs and reduced chances of injury.
Training provides the necessary information, but embedding the material into daily activities, whether it’s responding to an assault or stocking drinks in the vault, requires a steady stream of feedback and reminders, verbal and non-verbal. And consider, in addition to owner, CEO, Human Resources Manager, and more, you are the most important teacher.
For free training resources, contact your insurance company or broker/agent.
Tell, Show, Do, Practice, and Review.”
JOHN HARP, CSP, ARM
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Foods stores in California and in Washington, D.C. will be the first to deploy Amazon’s Just Walk
Out technology when they open next year, reported CNBC. Neither location will have staffed checkout lines, opting instead for self-checkout kiosks to complement the Just Walk Out lanes, while offering traditional checkout with employees only at the customer service desk. • Walmart
plans to hire about 150,000 new U.S. store
workers, most of them permanent and full-time, in preparation for the busy holiday season, reported Reuters. The retailer also plans to offer extra hours to many of its store workers during the period, after rival Target also said it would provide more work hours for its retail employees amid a labor shortage in the country. • Since the
beginning of 2020, Target has gained more than $2 billion in U.S. grocery market share
and more than doubled the rapid growth of its peers in the space, a momentum that resulted from a series of key investments such as the expansion of its omnichannel capabilities, the launch of new private brands and revamping the look of its grocery departments, reported Winsight Grocery Business. • A $9 million settlement has
been reached in a Wawa data breach class
action lawsuit, resolving claims surrounding a 2019 security incident that may have compromised consumers’ payment card information, reported TopClassAction.com. Also as part of the settlement, the company has agreed to make certain security changes and enhancements worth approximately $35 million. • A shortage of small
plastic bottles has forced c-store chain Kwik Trip to curtail production of some flavored
milk and cappuccino creamer for its 780 stores, reported the Milwaukee Journal Sentinel. The La Crosse, Wisconsin-based company, which ships roughly 105,000 gallons of milk a day, has its own dairy processing plants and is one of the largest milk producers in the Upper Midwest. •
Remote ordering and off-site dining now represent the bulk of the restaurant indus-
try’s orders, with 67 percent of average restaurant sales generated by orders placed digitally or by phone for off-premises dining, according to the “Restaurant Readiness Index,” a PYMNTS and Paytronix collaboration. • People in twen-
ty-four states—including California, Florida and Louisiana—most frequently pur-
