Beth Ewen
Before the entire board of directors was voted out at the National Coalition, 7-Eleven’s independent franchisee association, then-Chairman Jay Singh sounded the alarm over what he called excruciatingly stressed operators and an inadequate response from corporate. “For hardworking 7-Eleven owners and their employees, who are risking everything to protect the brand, it’s really an insult,” he wrote.
Singh, a Texas-based 7-Eleven franchisee, said acute labor shortages butted up against corporate’s insistence on keeping convenience stores open during the pandemic. “I have in my 21 years of being a franchisee, never have worked that many nights,” he said in an interview last September. “One of my stores, four people quit in one day. Myself, I have to work night shift for 40 days without a break. Yesterday, I pulled 16 hours.”
Chairman at the time of the National Coalition of Associations of 7-Eleven Franchisees, representing 41 franchisee associations, Singh said he wasn’t alone. In a survey of National Coalition members conducted last summer, nine out of 10 7-Eleven operators said running their store had negatively affected their health.
“There’s a lot to be desired in the relationship between 7-Eleven and their franchisees. They choose to talk to people they want to talk to, and ignore the others,” said Michael Jorgensen, a Tampa area franchisee and also a National Coalition board member at the time. “But criticism and critical challenges are good for a healthy system. Unfortunately, there’s been very little discussion with most franchisee leadership across the country.”
The National Coalition made several dramatic moves as the year went on, they said to counter Seven-Eleven Inc.’s or SEI’s contentions about the support franchisees were receiving. “SEI’s support plan is really an illusion designed primarily to keep stores open and generate positive PR for the company,” said one press release.
It said sales were down as much as 50 percent, with stores across the system “experiencing a dramatic drop in gross profit. In addition, many franchisees are now paying higher wages—call it combat pay—to reward employees for working on the front lines. That cost will take up much of the $5,000 stipend SEI granted to stores that stay open at least 16 hours per day.”
“This crisis has really exposed the flaws in the 7-Eleven system. Many of us have long known that the system was unsustainable. COVID-19 has made that blatantly obvious,” wrote Singh.
In September, the National Coalition took its call for change to the federal level, filing a petition asking the Federal Trade Commission to investigate franchising, and saying certain unfair practices need to change. By November, the entire slate of National Coalition board members was voted out.
A ‘vocal minority’
In an interview last August, 7-Eleven COO Chris Tanco addressed the concerns. “I think the relationship with the majority of franchisees is as good as it’s ever been,” he said. “Communication is very strong. We have a weekly call now, and with the disruption of the supply chain globally, we went from two weeks to every week,” he said.
“There’s not much I can do about a vocal minority, and I would say the franchisee association doesn’t represent the majority of our franchisees.”
Founded in 1973 by six franchisees, the National Coalition consists of 41 franchise owners associations located in the 30 states where 7-Eleven does business. Each regional FOA represents between 15 and 400 7-Eleven franchisee members, its website says. Before the vote, association members were in contact with CEO Joe DePinto and other executives, and buyout offers were said to be in the works for at least some of the board members who were voted out. 7-Eleven did not respond to a request to interview DePinto or another executive.
Sukhvinder Sandhu is the new chairman of the National Coalition and Rehan Hashmi is president of the Alliance of 7-Eleven Franchisees FOA, its website says. Eric Karp, with Witmer Karp Warner & Ryan, is the association’s general counsel. None replied to requests for comment.
Keith Miller, a principal with Franchisee Advocacy Consulting and an outspoken franchisee advocate, said about the new board: “This just shows what happens when franchisees disagree with the company, the company strong-arms them out. Then we wonder why people won’t speak up.” He said the petition to the FTC, which he filed along with the National Coalition last September, will go on regardless of the new board’s moves.
“We had 10 other organizations that officially supported the petition—Dunkin’ Donuts owners association, the Massage Envy group, a lot of the Choice and IHG owners” of hotels, Miller said.
At issue are what the franchisee groups say are undisclosed kickbacks from vendors, murky loyalty programs that benefit franchisors more than franchisees and opaque use of ad funds, among other items.
“Sometimes you really want to know in our industry, what’s the true net royalty that we’re paying, if you add up royalties plus kickbacks plus loyalty programs plus fees for service. What’s the net?” said Miller, also a Subway franchisee. “The petition for the study is trying to get to: What are franchisees really paying and is that being controlled and monitored, and is there any cap on it?”
Matt Haller, president and CEO of the International Franchise Association, said the franchisee groups filing the petition “are taking very specific issues that are occurring in very specific brands and attempting to make a broader case that there’s something fundamentally wrong with franchising. I characterize that as trying to highjack the environment in order to enhance the issue.”
“We’re not in a ‘hell no’ environment in terms of can there be improvements to franchise sales, disclosure and broader regulation,” Haller said about the IFA’s position. But the IFA endorses “more of a scalpel approach than a sledgehammer.”
Beth Ewen is senior editor of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to [email protected].