7-ELEVEN FRANCHISE OWNERS ASSOCIATION OF CHICAGOLAND

My Thoughts on the 2019 Franchise Agreement

APRIL 2016

During February’s National Coalition Board Meeting in Monterey, California, 7-Eleven, Inc’s Vice President, Greg Franks, gave a presentation on the development of the 2019 contract. In attendance were seventy eight presidents and vice presidents who were representing the forty three Franchise Owners Associations throughout the country.

It was the first time that SEI had spoken about the 2019 contract at a National Coalition meeting, and it was good to see that they were interested in talking with us about the new agreement. It is my hope that they ultimately give us a seat at the table and allow us the opportunity to provide franchisee input in new agreement discussions.

Greg told us that the rollout progress to date includes company discussion of ad hoc changes including bill backs, CDC volume shortfalls, gross income support, pay-outs, maintenance, and the high rent amendment. It also includes SEI executive interviews and interviews of select franchisees.

In terms of timing, he said that the new franchise agreement framework is being developed in 2016, and that testing and franchisee feedback would be in late 2016 and during the first half of 2017. Final

changes to the agreement would take place in 2018, and the rollout would be in 2019.

There is no doubt that the new agreement development process is well underway at 7-Eleven, Inc., and that some serious changes must be made to the current agreement to help franchisees deal with minimum wage increases, more intense competition, the changing business climate, and other issues.

As discussions are underway, I wanted to give my thoughts on some of the changes franchisees would like to see in the contract.

1. Our current contract allows franchisees to buy 15 percent of our store merchandise from vendors of our choice, and we are required to purchase the remaining 85 percent from company-approved vendors. The justification for this arrangement is that franchisees receive the lowest cost of goods under this system, but the promise has not been kept. It is time that the new contract allow franchisees to buy from whomever and wherever they can in order to get the lowest cost of goods to compete in the current business environment.

2016 is flying by quickly.

Before we know it, 2019 will arrive and everyone will be talking about the new contract. In the end, both parties (SEI and the franchisees) would hope to have a contract that is fair for all. But that brings about an age old question. What is fair?

I recently became a multiple franchisee. Both of the stores that I operate are what I considered Low Volume and Low GP stores. One might ask why I would go for the 2nd Low Volume/Low GP store. The answer is simple, I saw potential. What affects the end result is the nitty-gritty that you learn after the fact and the external forces that hinder your desired progress.

I must first thank our CEO, Joe DePinto for initiating the Gross Income Support (GIS) Program. The truth is, it’s been nothing but a tough time for me to operate a Low Volume/Low GP store. As fate would have it, I am just at or above the threshold, and I may or may not be able to take advantage of the benefit. However, and I must say with all sincerity, that having this program gives me some hope, and I am sure that there are many other franchisees who feel the same. For that, I thank you, Joe.

Let us examine the current GIS Program.

As you may know, Toshifumi Suzuki, the 83-year old chairman and CEO of Seven & i Holdings Co. Ltd. (which is 7-Eleven’s parent company), abruptly resigned on April 7th. His decision to step down stemmed after a board meeting in which he failed to secure enough votes to replace Ryuichi Isaka, the president of Seven-Eleven Japan.

Suzuki made it clear that he was not happy with Isaka’s performance and wanted him removed from his position. But others, including US investor Daniel Loeb, believed

that Isaka was doing a good job for the company. Most of the board agreed with Loeb, and ultimately, Suzuki’s proposal to remove Isaka was rejected.

My Thoughts on the 2019 Franchise Agreement

This story continues on page 2.

This story continues on page 8.

This story continues on page 2.

What is

Fair By Hashim Syed, Vice Chairman NCASEF and FOAC Member By Rahul Patel, FOAC Board Member

?

“After my trip to Japan, I predicted something like this would happen. I had a strong feeling that there were problems brewing. I am continually in touch

with my contacts in Japan to find out how changes in that country will shape the future of 7-Eleven

franchisees there, as well as in the USA.” -Hashim Syed

Will the Sudden Exit of Japan's Toshifumi Suzuki Affect 7-Eleven in the US?

1

Hashim Syed's story continued from page 1.

Rahul Patel's story continued from page 1.

2. The current 10-year term is too short to recover the high current franchisee fees. I feel that the new contract must be extended to 15 years without the 20 percent renewal fee to refranchise your own store!

3. Franchisees must be guaranteed an annual total income of at least $75,000, considering the fact that it is a 24/7 job, 365 days a year, and it requires a great deal of knowhow, expertise and persistence to be a 7-Eleven franchisee. The new minimum wage requirements, currently on the rise in municipalities, states and towns across the country to $15 per hour, will require that a store do at least $1.5 million in sales annually. This is a most critical issue for the survival of low volume store operators.

Another way to look at this is for SEI to change the Graduated Gross Profit Split (GGPS), which was put in place prior to the recent increases in minimum wage, in order to protect low-volume storeowners without penalizing high-volume stores.

4. SEI must not open another store within a mile of an existing store to help maintain the income of the current existing store. In the case of a 2nd store opening nearby, the current operator should be approached first to franchise that second store.

5. The process to qualify to become a multiple franchisee should be quick, simple and fair without any kind of exploitation on the part of SEI towards franchisees.

6. The current franchisee fee is too high, and it is affecting the goodwill value and the retirement plans of current franchisees if they want to leave the system.

7. Franchisees must be a part of any negotiations by SEI with the vendors to ensure the lowest cost of goods.

8. SEI must reconsider its decision on gasoline and increase the current gasoline commission from 1.5 cents per gallon to at least 3.5 cents per gallon due to the higher costs of operating a gas store, especially during the winter season.

These are simply my thoughts and my opinions. If you have input on the issues involved in the new agreement, please share them with your local FOA leaders or contact the NCASEF National Office to provide your feedback and suggestions. If we can have any impact at all on the formulation of the new agreement, now is the time.

I welcome your thoughts. Please feel free to email me at hj.syed@gmail.com.

If you have input on the issues

involved in the new agreement,

please send them to your local FOA

or contact the NCASEF office. Now is the time to have your voices heard.

We have two different wage structures in Illinois. The minimum wage in the City of Chicago will be $10.50 per hour, with the potential to go up. The rest of Illinois is currently at $8.25 per hour. It would be naive for anyone to think that the $8.25 will stay the same for a long.

Keeping the current $200,000 GIS limit in mind, and ASSUMING that each employee at the Low Volume Store is being paid the $8.25 rate, then $8.25 per hour x 32 payroll hours per day x 365 days x 13% taxes and insurance = $109,000. Plus $50,000 in all other operating expenses, but WITHOUT the franchisee’s salary = $159,000.

Consider an average pay of $8.75 per hour for the low volume store, and the total tab is $166,000. However, for the City of Chicago, the end result would be $189,000.

It is acceptable to think that the current limit needs to be increased. It is also acceptable to think that different geography requires different remedies. Therefore, to have the current $200,000 limit for GIS applicable to all, may not be the correct solution from franchisee’s POV.

On the other hand, having $300,000 as the GIS limit for all, may not be feasible for SEI to provide to all franchisees. However, it may be absolutely necessary for the regions facing higher wage requirements. And no, to close all the stores that are doing X volume is not an option either.

I believe that the new contract should include substantial provisions to empower franchisees that operate Low Volume/Low GP Stores.

The GIS program was initially started with the lower amount and then was raised to the current $200,000. This action gives me the hope that SEI will continually analyze the situation and make the necessary revisions for the betterment of the weakest link in our franchise system; the franchisees operating Low Volume/Low GP Stores.

This is also an opportunity to clearly define what is considered Low Volume. The criteria must be based on the GP Dollars before the split and not based on the store revenue.

Finally, I would like to congratulate all the franchisees who were nominated to represent their fellow franchisees for the dialog regarding the 2019 contract.

I cannot even imagine how difficult it is for those sitting at the table negotiating, and then having to go back to the franchisees to explain, why, what they have agreed to, is fair. It would be great if the nominees could present their views on the issues they are planning to take to the table, and answer these three basic questions:

• Why is this issue important to them and how does it relate to all franchisees?

• What will be the anticipated end result?

• Will you be successful in attaining the desired result?

It is my hope that the 2019 contract is a win/win for both sides. Then that would be fair…

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How long have you been a 7-Eleven franchisee? I have been a 7-Eleven owner since December 15, 2015.

Where is your store located? My store is located at 957 Summit Street, in Elgin.

How did you know that 7-Eleven was the right business for you? What kind of research did you do before becoming a 7-Eleven franchisee? I was looking for a new business to get into and the 7-Eleven franchise opportunity looked very interesting so I decided to research more about it and I finally realized that this was the business for me.

Do you have a business partner or are you the sole owner? I am the sole owner of the store.

Are any other members of your family involved in your 7-Eleven store? My wife helps me out as much she can.

What do you like best about being a 7-Eleven franchisee? Being my own boss.

What do you find the most challenging about being a 7-Eleven franchisee? I think the most challenging part is that the store is open 24 hours, so the long hours can sometimes be a little too much.

What type of work did you do before becoming a 7-Eleven franchisee? I used to own gas stations and other retail businesses.

As a new franchisee, what do you find to be the most helpful as you run your business? Is it help from your market manager or field consultant? Is it guidance from your fellow franchisees? Both are a tremendous amount of help. They have helped me out a great deal the past couple of months and I can't thank them enough.

Is owning a 7-Eleven franchise what you thought it would be? If yes or no, please explain. No it’s not what I expected. I knew it would be hard work, but owning a 7-Eleven is much harder than it looks. However, the fruits of my labor show at the end of the day when I go home exhausted, but satisfied!

What keeps you motivated to come to work each day? Each day is a fresh start, and I am motivated to do better each day and get more sales. My motivation is my hunger to do better each day.

How do you keep your staff motivated and positive? I try keeping my staff motivated by trying my best to understand them and by keeping a fun and lively work environment. A business is only as good as its staff, and I am proud to say that I have some of the best workers handling my store.

To what do you contribute your stores success? My hard work and determination, and the unconditional support from my family and friends.

What words of wisdom would you like to share with other people who may be considering the 7-Eleven franchise opportunity? Be prepared to work hard and always keep the customers happy.

What is your favorite Slurpee flavor? Definitely the cherry with a little bit of blue mountain dew mixed in.

What three words best describe you? Sarcastic, Lively, Friendly

What’s the last good movie you saw? I don’t go to the movies because that would require me to stay up past my bedtime.

What is your favorite sports team? The Chicago Bears

If you could take a dream vacation, where would you go and why? My dream vacation would be a trip around all of Europe because I’ve always wanted to go there.

Is there anything further you’d like to add that should be included in this story? I’m just a very simple guy who loves to do! Thank you!

With New Franchisee

Hermant Trivedi

All board meetings take place at the Holiday Inn North Shore(5300 W. Touhy Avenue • Skokie, Illinois)

10:00 am – 4:00 pm • Lunch will be served.;Thursday, May 26th;Thursday, June 16th

;Thursday, July 21st;Thursday, August 25th

FOAC MONTHLY BOARD MEETINGS

Are you concerned about your business? Do you wonder what new and exciting products 7-Eleven will be introducing? Are you feeling like you might be missing out on important 7-Elven news or information? Do you have issues with your store, but don’t know where to turn?

If you’ve answered YES to any of these questions, perhaps it’s time to attend an FOAC board meeting!

Our FOAC board meetings usually take place on the 4th Thursday of every month and are open to ALL Chicagoland franchisees. During the meetings, we address a variety of pertinent and timely topics that directly impact you and your business.

Our meetings are also an opportunity where franchisees can speak freely about any and all concerns they may have. We always have an agenda and usually feature special guests including members of the Heartland Zone management team and/or vendor partners who share their latest products. Lunch is always served.

Come see for yourself what he FOAC is all about and learn what we are doing to support each other’s goals and objectives. Please make the commitment to attend our next board meeting, which takes place at the Holiday Inn North Shore in Skokie (5300 W. Touhy Avenue) on Thursday, May 26th. We promise, you won’t regret it.

Here are the FOAC's

upcoming meetings and

events. Please take note

and add them to your calendar.

FOAC General Meetings

Only 2 More Remain in 2016

Thursday, July 21st

Thursday, October 27th

If you have questions regarding any of these events, please email us at FOAChicago@gmail.com. We look forward to seeing you!

Wednesday, June 8th St. Andrew’s Golf & Country Club, West Chicago

8am – Breakfast and Registration9am – Shotgun Start

2pm – Cocktail Reception, Lunch andAward Ceremony

All proceeds from the event benefit the Ann & Robert H. Lurie Children’s Hospital

The FOAC Charity Golf Outing

Thursday, June 9th Odeum Expo Center, Villa Park

11:30am to 1pm - General Session & Lunch1pm -Trade Show Doors Open

5pm - Cocktail Reception & Networking Dinner

Enjoy special discounts and the best prices of the year during the FOAC’s Annual Trade Show!

The FOAC Annual Trade Show

The FOAC Family PicnicSaturday, July 16th

Details to follow…

Dear Chicagoland Franchisees:We’ve had some great conventions and trade shows in the past, but this year the NCASEF Convention Committee has put together a truly spectacular event at the luxurious Caesars Palace Las Vegas Hotel! We’re going the extra mile to ensure that this convention will be a memorable one for franchisees and exhibiting vendors alike. Among the many changes and additions we’ve made to this year’s event:

• More time for Q&A during the seminars with NCASEF officers, general counsel and SEI representatives.

• A special raffle with major prize giveaways, including a fully loaded BMW 3 Series 328i, during the two-day trade show.

• Increased emphasis on a buying show, with incentives for franchisees to order new and top-selling merchandise from our valued vendor community.

This year, the Joe Saraceno Charity Golf Tournament benefitting St. Jude Children’s Research Hospital and Swim Across America will be held at the renowned Spanish Trail Country Club championship course, home to five PGA Tour Las Vegas Invitationals. We’ve also arranged for tickets to the world’s tallest Ferris wheel (the High Roller) and of course many grand meal, entertainment and social events, including our annual Bar Party at Caesars Palace’s famed Omnia nightclub.

I’m very excited about this year’s convention and trade show, and I’m sure you will be, too. Online registration is now open, so click on the appropriate link on the sidebar to get started. Visit our website often for the latest convention news and information.

I look forward to seeing you all in Las Vegas!

Sincerely yours,

7-Eleven is bringing back its successful Zero Franchise Fee initiative as an ongoing program to offer a low-cost invest-ment opportunity for both proven business owners and would-be entrepreneurs.

In the program, 7-Eleven will waive the franchise fee on a select number of its U.S. stores available for franchising, a savings of up to $80,000. Last year, the Zero Franchise Fee initiative allowed 100 people to become new 7-Eleven store-owners or multiple store-owners.

“We had such a great response last year when we launched the limited-time Zero Franchise Fee offer that we decided to bring it back,” said Lawrence Hughes, 7-Eleven vice president of franchise systems. “Hard-working Americans are always looking for great opportunities, and I think 7-Eleven is one of the best around. Becoming a 7-Eleven franchisee without the upfront expense of a franchise fee makes it an attainable goal for many who otherwise might not be able to own their own business.”

Approximately 300 eligible stores are available across the country in markets like Dallas, Cleveland, Charlotte, N.C.; Virginia Beach, Va., and Buffalo, N.Y. These stores typi-cally have lower sales volume compared to the national average. SEI is looking to transition these stores from company to franchise operations now that they have an established customer base.

The convenience retailer is offering these stores to prospective, qualified franchisees as well as existing 7- Eleven franchisees who want to grow their retail business by adding stores.

To qualify for the Zero Franchise Fee offer, a candidate must be at least 21 years old and a U.S. citizen or have permanent residency, have three to five years of retail, operations and management experience, have excellent credit and at least $50,000 in liquid assets.

LAS VEGASAWAITS YOU

Interested in Becoming a

Multiple Store Owner?

Know Someone Who

Wants to Own a 7-Eleven?

Joe Galea, ChairmanNational Coalition of Associations of 7-Eleven Franchisees

• FOAC Newsletter Editorial Contacts •Editor: Alisa Bay

847-266-9053 • alisabay@comcast.netPlanner/Art Director: Hashim Syed

847-293-8551 • hj.syed@gmail.com

The FOAC newsletter is designed and printed by Semper Fi Printing & Promotions, LLC located in Arlington Heights, ILwww.foachicago.com • Telephone: 847-353-9999 • Fax Number: 877-387-FOAC (3622) • Email: FOAChicago@gmail.com

Please call the FOAC Hotline at 847-293-8551 with any problems that require immediate assistance.

Congratulations to Hitesh Doshi on his recent changeover. He is now the proud owner of store

#33067 on Milwaukee in Chicago. We'd also like to welcome him as a member of the FOAC!

Rumors also began to swirl that Suzuki wanted Isaka out in order to position his son as his successor, which Suzuki vehemently denied. “I don’t know why the issue of my son came up, and it’s a complete surprise that such rumors have emerged inside the company,” said Suzuki. According to news reports, Suzuki was embarrassed regarding the circumstances surrounding his exit, but denied all accusations of nepotism.

During a press conference to announce his departure, Suzuki stated that he had lost control of the company’s future. “It is my lack of virtue and I am unbearably ashamed,” Suzuki told those in attendance. “I was supposed to attend an analyst meeting tomorrow,

but I cannot go there and explain this year’s prospects after I decided to quit. I’m to blame for my resignation. I am ashamed that I have to make such explanations.”

So, what does all this mean to 7-Eleven in the United States? No one really knows for sure. The tension and unrest in Japan could certainly trickle down to franchisees in the States, but we may not know the true affects for several months, if not years.

As of the now, SEI has not commented or made any statements concerning Suzuki’s resignation. It is unknown as to whether or not SEI leadership thinks that the Japanese shift in power might affect the company. Only time will tell.

“ Mr. Suzuki’s departure doesn’t surprise me. I only hope that his resignation doesn’t cause problems

or challenges for us in the United States. I do believe that this sudden change in

power will most likely affect our 2019 contract. ” -Hashim Syed

Suzuki story continued from page 1.

The opinions expressed in bylined articles within our newsletter don't reflect, in any way, the opinions or observations of the 7-Eleven FOAC.