When Bad Things Happen to Good Retailers

What you can learn from the recent PR nightmares at Pilot Flying J and 7-Eleven

A convenience store chain’s good reputation and public image can be here today, gone tomorrow at the speed of social media and digital headlines. Some of this may be based on truth, lies or a mixture of both, which is often what happens as information goes viral and multiplies.

This summer saw two prominent c-store industry players dealing with legal troubles and subsequent public relations nightmares: the nation’s largest convenience store retailer 7-Eleven Inc., and the country’s largest operator of travel centers Pilot Flying J.

In the case of 7-Eleven, the U.S. Department of Homeland Security raided 14 franchised 7-Eleven stores in New York State and Virginia in June, charging nine owners and managers with harboring and hiring illegal immigrants and paying them using false Social Security numbers. The scheme was referred to as a “modern day plantation system” by federal prosecutors.

Around the same time, 7-Eleven also drew public attention for its decision to sue a franchisee, who formerly headed the National Coalition of Associations of 7-Eleven Franchisees, for allegedly siphoning hundreds of thousands of dollars over the course of at least four years.

In another lawsuit, 7-Eleven and its parent company Seven & I Holdings Co. are being sued by franchisees for allegedly misclassifying its relationship with them, not paying the franchisees certain benefits and depriving them of equity in their stores.

All of this is taking a toll on public perception of the c-store giant, according to YouGov BrandIndex, a daily brand consumer perception research service. 7-Eleven was measured with the firm’s “Impression” score, which asks adults aged 18 and over who are aware of 7-Eleven if they have a general positive feeling about the brand. On June 11, 7-Eleven reached its highest Impression score of the year (which can range from 100 to minus 100) with a 3. However, on June 21, four days after the immigration raid, the chain’s score dipped to minus 13, its lowest of the year so far. The retailer’s Impression score did tick up slightly to minus 10 by the end of the month after 7-Eleven initiated an I-9 compliance check.

Months before the 7-Eleven drama unfolded, Pilot Flying J was already dealing with its own crisis. On April 15, federal agents raided the company’s Knoxville, Tenn., headquarters in an investigation of allegations that some members of the company’s sales team had repeatedly paid customers less money in diesel fuel rebates than they were owed.

As of early September, seven employees (former and current) had pleaded guilty to their role in the fraud. Pilot Flying J also proposed a class-action settlement under which it would pay all affected customers 100 percent of any monies owed with 6-percent interest and cover all costs related to the processing of the customer claims and litigation. Pilot Flying J customers have until Oct. 15 to accept or opt out of the proposed settlement deal.

Both 7-Eleven and Pilot Flying J were praised by some industry observers for responding to their respective crises in an expeditious manner. Both chains also took responsibility for mistakes made by cooperating with the press and directly addressing customers, employees and the public. But crisis management experts caution that strategies don’t end with the first response.

At the most basic level, the experts say it helps to understand that the discipline of crisis management encompasses threats before, during and after they have occurred (sometimes, long after). Risk management, on the other hand, involves assessing potential threats and finding the best way to avoid them. Elements common to any company crisis include a surprise attack, threat to the organization, short decision time and, perhaps most importantly, the need for change.

Regarding the element of surprise, crisis management expert Ronald J. Levine, partner and co-chair of the litigation department for Herrick, Feinstein LLP in New York, compares a company crisis to a heart attack and details three ways it can occur (with only one being a true surprise):

• It can come on with clear signals, where there are advance warning signs such as reports of harassment;
• It can develop without clear signals, but could be foreshadowed by random events not perceived in a pattern; or
• It can be a sudden crisis, like a jogger who has a heart attack, where no one expected it and something just blew up — literally or figuratively.

The way Levine looks at it, companies can be much more prepared with crisis management techniques if the crisis occurs with some signals or warning.

LEARNING FROM THE FAILURES

Companies can often learn the best crisis management skills from those that have failed at it.

Kathi Kruse, a social media marketing expert and founder of Kruse Control Inc., offered an example involving British supermarket chain Tesco plc. Last year, Tesco offered iPads online for $79, a 90-percent discount on the tablet’s regular price at the time. Moments after the online ad went up (and the website crashed), the company realized what it called an “IT error” and promptly issued a retraction, canceling the purchases that were already made.

Not only did Tesco not honor those iPad orders the system had already accepted, but it also stressed on its website that a contract only becomes binding when the company actually ships the goods. This led to negative consumer reaction — customers saw it as a PR stunt and took to Twitter to voice their complaints, noted Harrison Painter, a digital and social media marketer.

In another “what not to do” example, Belvedere Vodka posted an ad on their Facebook page showing what appeared to be a very frightened woman being grabbed by a potential rapist with the startling tagline, “Unlike Some People, Belvedere Always Goes Down Smoothly.”

It was an “instant firestorm,” according to Kruse, who pointed out that Belvedere had no crisis plan, but instead used a canned written statement out of the corporate policy handbook. What Kruse believes was lacking in both the Tesco and Belvedere situations was a well-established, engaged social media community and a well-strategized crisis management plan.

DEALING WITH DIGITAL ASSASSINATION

Social media plays a very important role in crisis management today because “most threats to companies in terms of its reputation, brand or business come with a major Internet component, if not via the Internet itself,” relayed Richard Torrenzano, chief executive at crisis management firm Torrenzano Group and co-author of “Digital Assassination: Protecting Your Reputation, Brand or Business Against Online Attacks.”

While 7-Eleven and Pilot Flying J experienced legitimate legal attacks on a grand scale, they and other retailers must be aware that damaging attacks don’t have to come from a major event such as that — and they don’t even have to be based on truth, Torrenzano said.

“In the future, which is now, everyone will have their 15 minutes of shame,” he cautioned. “From false Wikipedia entries to Yelp attacks, obscene fabricated images to Facebook privacy concerns, [everyone] is at risk of digital assassination.”

For companies potentially on the verge of digital assassination, “we talk about it in terms of an eight-hour day,” Torrenzano explained. “Basically, when something negative happens on the Internet, companies really have about six to eight hours to decide what they’re going to do — pull together HR, PR and legal counsel and if they’re smart, an outside [consultant] perspective, because most corporations are not geared to deal with the Internet in that short of a timeframe.”

This was proven in the 2009 Domino’s Pizza case when two rogue employees did disgusting and unsanitary things to customers’ orders on camera and posted it to YouTube. According to Torrenzano, it took almost six digital days — way too late — for the company to respond.

“Their sales were off. Their stock value was off. There were all sorts of legal and other issues and, most importantly, they had to close that store,” he said. “These instant attacks happen with lightning speed. They have real penetration and can do real harm if they’re not dealt with in a thoughtful way.”

Because of the Internet, there is an enormous “power of one” today, even more so than two years ago, according to Torrenzano. For this reason, every customer must be approached with care and respect. This is important not only from the complaining customer’s perspective, but other customers will also take note of how you treat a complaining customer — and it will affect their purchasing behavior as well.

“Anybody who is a merchant can have a bad hair day, but that doesn’t excuse you from trying to make it right,” he said. “There will be legitimate and illegitimate concerns and they don’t all have to be addressed in public, but they do have to be addressed with care and respect. You will get much better customer loyalty this way.”