Franchisees Could be Forced out of Business
While small businesses in 25 states and the District of Columbia are bracing for increases to the minimum wage in the new year, 7-Eleven franchise owners face unique danger. Because of the terms of their Franchise Agreement, 7-Eleven operators cannot simply raise retail prices to make up this difference. Many franchisees will be forced out of business as a result of crushing labor costs.
"Payroll is every franchisee’s greatest expense and can range from 45 to 50 percent of their share of the gross profit. Increasing the minimum wage will hit them directly on the bottom line," said Eric H. Karp, General Counsel for the National Coalition of Associations of 7-Eleven Franchisees (NCASEF). "The 7-Eleven Franchise Agreement has a provision in it which unfairly favors the franchisor. For each gross-profit dollar a franchisee earns, as much as 59 cents must be paid back to the franchisor. This Gross Profit Split provision makes it virtually impossible for 7-Eleven owners to make up the difference."
The National Coalition is deeply sympathetic to the plight of their customers, many of whom struggle to support their families on minimum wage jobs, but Karp notes, "It is the responsibility of 7-Eleven to address the combined impact higher wages and its unique economic model has on franchisees, who themselves work hard and play by the rules."
According to the U.S. Department of Labor, five states have no minimum wage, and another 16 states have a minimum wage pegged to the federal minimum wage, currently $7.25 Those states represent approximately one quarter of the franchised locations in the country. That leaves franchisees in three-quarters of the U.S. paying labor costs that are – in some cases – increasing to twice the federal wage. 7-Eleven store owners say the company’s "one-size-fits-all" financial model just can’t work.
"Here in Florida, our minimum wage will increase steadily over the next five years until it reaches $15 an hour. That 75 percent increase will be difficult for franchisees to offset," said Michael Jorgensen, a Tampa-area franchisee and executive vice-chairman of NCASEF, who pointed to a recent study which found raising the minimum wage to $15 an hour could result in a loss of 158,000 jobs in the state of Florida.
"There are few options available to 7-Eleven franchisees who will be burdened by rising labor costs. Either they will have to work more hours themselves or lean heavily on their families to work in their stores," Jorgensen said. "We fear the burden will force many 7-Eleven operators to give back their keys and lose their business."
"This is another example of the 7-Eleven corporation’s culture of naked self-interest. We have asked many times for the company to sit down at the bargaining table for a good faith and mutually respectful discussion about how to amend the terms of the Franchise Agreement to provide relief for franchisees who, because of the onerous terms of their contract, face a fragile future," said Karp. "We are willing to have those discussions any place and at any time."
About NCASEF: The National Coalition of Associations of 7-Eleven Franchises is the national trade association for 7-Eleven franchisees. Originally founded in 1973, NCASEF is comprised of 43 Franchise Association members who represent more than 4,700 7-Eleven owners in the U.S.
View source version on businesswire.com: https://www.businesswire.com/news/home/20201202005959/en/