By Ethan Millman
Los Angeles Times
Sunny Sandhu bought his first 7-Eleven store in Southern California in 1999 when he was 28 years old. Like many other franchisees, the immigrant from India considered the Slurpee seller a sure path to the American dream.
Over the following 14 years, Sandhu felt so confident about his business that he bought three more outlets, which, he said, earned him and his family a comfortable living.
But he sold one of his locations last year and now is hoping to unload two more.
“It’s gotten worse every year since the new ownership took over,” Sandhu said. “They’re getting more control over everything.”
Sandhu is among a group of 7-Eleven franchisees across the country who are at odds with the American subsidiary of Seven & i Holdings Co. —the Japanese company that bought 7-Eleven from its distressed American ownership in 2005 —over a new 15-year franchise agreement.
The Tokyo company has expanded the chain over the last decade to nearly 10,000 outlets across the U.S. and more than 60,000 worldwide. But in the chain’s homeland —where it started 91 years ago as Southland Ice Co. with a single Dallas store —some owners say the new agreement will milk them of their profits.
In the Los Angeles area, there are about 40 stores currently on the market compared with the usual half a dozen or so, said Darcie Fisher of the National Coalition of Associations of 7-Eleven Franchisees, which attributes the rise to the dissatisfaction with the new pact.
Among the leading points of disagreement is a contract provision that would require franchisees to potentially split more profits with 7-Eleven Inc., which the U.S. store owners allege is a move to boost the profit of the Japanese parent.
They point to a new $50,000 fee to renew franchise agreements, which vary in length and expire at different times depending on when a store was acquired. Renewals used to cost 20 percent of a store owner’s franchise fee, which varies too, but the disgruntled owners say it was generally less expensive except for the highest-volume outlets.
The coalition of franchisees, which has spearheaded the opposition, encouraged its members not to attend 7-Eleven’s annual convention in Las Vegas in February in protest of those and other changes. Then, early this month, the coalition sent a letter to 7-Eleven Chief Executive Joseph DePinto asking him to renegotiate the agreement.
The franchisees contend the contract changes are coming at a particularly bad time. While the national economy is booming, minimum wages are going up in dozens of states.
“They’re basically ignoring us and then squeezing more money out of us,” said Jas Dhillon, coalition treasurer and a San Fernando Valley store owner since the late 1990s. “But they’re looking at short-term goals. They don’t care if two years down the road, with the minimum wage rising, that the stores won’t be profitable.”
7-Eleven has defended the agreement, saying that only a minority of owners oppose it and that the new terms will help 7-Eleven fund new fresh-food and other offerings, as well as update the stores’ technology — all of which should help boost store sales.
It also notes that franchisees who sign on before the end of this year —potentially renewing early — will keep their current profit split for as long as 11 more years.
“We have a proven model, and it’s been very successful for many years,” said Chris Tanco, 7-Eleven’s chief operating officer. “If they make more money, we make more money,” he said.
Dhillon is locked into his current agreement for six more years and said he will wait to see if his sales increase. However, he fears that the new agreement would wipe out his profit.
The current pact includes seven graduated brackets similar to a progressive income tax. 7-Eleven takes 48 percent of a store’s first $150,000 in gross profit before expenses and more than half for many stores with higher profits. The new pact is more complicated, with 11 brackets that give 7-Eleven as little as 45 percent of the first $200,000 in gross profits and potentially more for higher-volume stores.
