7-Eleven Faces Some Delays on the Road to Franchising
DALLAS -- The year was 2007 and 7-Eleven Inc. announced its intent to get out of running its own stores and instead move entirely to a franchised operation. The nation's largest convenience store chain targeted 2013 as the year when this vision would come to fruition.
It's now 2014 and 7-Eleven acknowledges it not fully franchised, but affirms that it is growing its franchise base every day. Currently, 75 percent of its U.S. stores are operated by independent franchisees. Before launching its franchising endeavor, that figure stood at about 60 percent.
"I can tell you that we are on a journey to be a virtually franchised company in the USA. Several years ago, we had an aspiration to be fully franchised by the end of 2013. But, and not at all surprising, business and opportunities changed. We had cleaned up our balance sheet, were poised for growth and took advantage of many acquisition opportunities that presented themselves in 2011 and 2012," 7-Eleven spokesperson Margaret Chabris told CSNews Online.
While last year's unit growth was slower, 2012 marked a record year for Dallas-based 7-Eleven as it added a net 969 locations, of which 961 were U.S. additions. The chain's growth strategy is to build market concentration in metropolitan areas so it can increase efficiencies and leverage its scale, particularly in regards to its daily-delivery infrastructure.
New stores, though, are harder to get franchised right away since 7-Eleven has to convert each store to its brand and product offering before it can be offered up for franchise.
According to Chabris, 7-Eleven has grown its store units by 35 percent since 2008, with the majority of that growth happening in the last two to three years. "We added more than 1,000 new locations just in 2012, both ground up/new-to-industry as well as acquired stores. Our focus had to shift to doing an excellent job of studying each location, determining its potential, getting proper permits and then, the huge jobs of remodeling, installing proprietary equipment and merchandising programs," she said. "You can imagine the work involved in conversions of this magnitude."
Going forward, 7-Eleven is "highly interested" in finding franchisees who want to start off with several stores at one time. The company, Chabris said, believes selling franchises to those who can manage multiple stores will help accelerate its franchising efforts.
"We are a vibrant, successful, growing company looking for the right people who want to be backed by the world’s c-store leader in creating a business they can be proud of," she concluded.
Besides the store unit growth, however, multiple sources interviewed by CSNews Online say something else is also at play in delaying 7-Eleven's journey from corporate to franchise. In an ironic twist, 7-Eleven's franchisee community itself may be causing speed bumps. Sources tell CSNews that company leaders are having to expend a lot of time and energy lately trying to get the franchisees to embrace new initiatives 7-Eleven is rolling out to elevate the brand and make it resonate better with Millennials, the new "it" generation, while meeting resistance from some long-time franchisees.
One former 7-Eleven corporate employee who asked to remain anonymous said the chain's franchisee pool is currently split between three distinct groups: old school, middle of the road, and the new regime. The one-third of operators who are old school got their stores long ago when there wasn't a lot of criteria to become a 7-Eleven franchisee. "These guys made a lot of money and now they're just going through the motions. They just want to run a convenience store," the former employee said.
The middle one-third, meanwhile, has been with 7-Eleven for a moderate amount of time and they're on the bubble. They're not real productive, but they could be with the right influence.
Finally, there's the new regime -- operators who have joined the system most recently. This group is made up of very aggressive marketers who are pro-7-Eleven and support the company's efforts to change, specifically 7-Eleven's push around fresh food.
While it’s not uncommon in any franchise system to have varying levels of franchisees, the challenge for 7-Eleven is that its old school group is very vocal and influential in the retailer's franchisee community, according to the former employee. "They wield a lot of power in the organization and the old school is now negatively influencing the middle third," he noted.
News headlines from CSNews.com over the last year reflect a certain level of volatility:
- 7-Eleven Ousts Several Chicago-Area Franchisees (September)
- 7-Eleven Franchisees File Suit Alleging Abuse of Contractual Rights (July)
- 7-Eleven Sues Long Island Franchisee for Siphoning Money (June)
- 7-Eleven Franchisees Sue Company for Lagging Behind Competition (June)
- Feds Raid 14 7-Eleven Stores (June)
"I think they're right to try and elevate the level of franchisees for the good of everyone. 7-Eleven had to take action. Some of these franchisees weren't changing. They weren't willing to make the change to 'the new convenience store operator' and it was holding the chain back," the former employee stated. "The company was put in a position of how do we move these operators to not just rely on cigarettes but embrace food, beverages, new business development and private-label products. The tactics employed is what's causing the problems with the franchisees."
A couple of years into its journey to operating all franchised units, 7-Eleven CEO Joe DePinto, speaking at the NACS Leadership Forum in Miami, said the retailer was making progress not only toward increasing its franchisee base, but also in overhauling its corporate culture to one of "servant leadership" that supports the stores and franchisees. “To stay relevant, you have to listen to your customer and change,” said DePinto. “Our customers, the environment and the competition is changing rapidly. We must be mindful of that and change just as rapidly.”
For much more on 7-Eleven’s journey to change, check out the February cover story of Convenience Store News.