Most people look at c-stores as a growth business, but 7-Eleven franchisees are leaving the chain in large numbers, which is resulting in a high number of available stores. A recent statement from the National Coalition of Associations of 7-Eleven Franchisees (NCASEF) offers the organization’s take on the current state of affairs.
Currently 18 percent of U.S. 7-Eleven locations are available for franchising, per the NCASEF. Since April of 2018, the number of available stores increased more than 57 percent to a total of 1,578. Since that date, stores owned by franchisees and put up for sale has grown by double digits in many larger states. Sales of franchised stores more than quadrupled between 2013 and 2018. Turnover of franchised stores due to terminations, non-renewals and abandonments grew to 314 in 2018 from 150 in 2013.
What’s driving such turnover? Some of the problem may stem from the 2019 franchise agreement which requires a much steeper gross profit split with a marginal rate as high as 59 percent in favor of the company, per the NCASEF. The agreement requires franchisees to purchase 85 percent of their products from the corporate supply chain, which does not guarantee the lowest prices. Franchisees are also unhappy about the 7-Eleven’s loyalty program, which requires the stores to sell food and beverages at a discount.
Earlier this year the franchisee association voted “no confidence” in 7-Eleven management. All this may explain why so many 7-Eleven stores are up for sale.
Economic News This Weeks
- Initial-jobless claims increased 2,000 for a final reading of 208,000 for the week ending September 14. The 4-week moving average was 212,250, a decline of 750 claims.
- The N.Y. Federal Reserve’s Empire State Manufacturing Survey showed “sluggish” growth in September. The General Business Conditions Index fell to 2.0 from 4.8 in August. (Any reading greater than zero indicates expansion.) The New Orders Index fell to 3.5 in September from 6.7 in August. The Shipments Index fell to 5.8 from 9.3. The Unfilled Orders Index, which stood at minus 9.7 in August, improved but stayed in contraction territory at minus 2.6. In contrast, the employment indicators moved back into growth mode with the Number of Employees Index rising to +9.7 in September from -1.6 in August.
- The Philadelphia Federal Reserve’s Manufacturing Business Outlook Survey showed business continued to expand in September. While some indicators fell, all stayed positive. (Any reading greater than zero indicates growth.) The General Business Activity Index fell 4.8 points from August to 12.0 in September. The New Orders Index slipped by just 1.0 point for a September reading of 24.8. The Shipments Index rose to 26.4 in September from 19.0 in August and the Unfilled Orders Index rose to 17.6 from 9.1. Both employment indexes showed large gains.
- Industrial production increased 0.6 percent in August, per the U.S. Federal Reserve. Manufacturing production rose 0.5 percent. Mining production increased 1.4 percent. Utility production rose 0.6 percent. Capacity utilization for the manufacturing sector increased 0.3 percent in August, which is a rate that is 2.6 percentage points less than its long run (1972-2018) average.
- Privately owned housing starts for residential construction increased 12.3 percent In August from July on a seasonally adjusted basis. August housing starts increased 6.6 percent compared to the same month in 2018. Single-family housing starts increased 4.4 percent for the month. Building permits issued for privately owned housing increased 7.7 percent in August compared to July and increased 12.0 percent over August 2018. Building permits issued in August for single family housing increased 4.5 percent over July.
- Builder confidence hit a yearly high according to the National Association of Home Builders. The September reading was 68, a number that was last seen in October of last year. Home builders sighted low interest rates and strong demand for their optimism.
- August sales of existing homes increased 1.3 percent from July for a seasonally adjusted annual rate 5.49 million. Sales were up 2.6 percent from August 2018. Realtors are concerned that there is only a 4.1-month inventory of existing homes available which is pushing up prices. A 6-month supply is considered normal.
- The Conference Board’s Leading Economic Index remained unchanged in August with a reading of 112.1. A spokesperson for the Conference Board stated that the Index “points to a slow but still expanding economy.”
Foodservice News This Week
- Success with a restaurant in one store has Crate & Barrel planning to grow. The decor chain found its first restaurant in the company’s Oak Brook, Ill., store was profitable in its second month of operation. Known as The Table at Crate, the restaurant operation provides a showcase for the retailer’s dining, kitchen and design products. While no timeline was provided, the chain’s CEO said that Crate & Barrel has decided to add restaurants to its top 10 to 15 stores.
- A US Foods holding company plans to acquire Service Group of America’s five operating companies. The five companies are Food Services of America, Systems Services of America, Amerifresh Inc., Ameristar Meats and GAMPAC /express Inc. SGA’s companies had combined sales of $3.2 billion in 2017. US Foods will pay $1.8 billion to purchase SGA.
- McDonald’s replaced plastic straws with paper ones in the U.K. After doing so, 53,000 people signed a petition asking the burger chain to bring back plastic straws. In other McDonald’s news, a restaurant in Germany went plastic free for 10 days in June. Straws were made of paper, cutlery was made of wood, burgers were served in edible grass paper, condiments and dipping sauces came in edible waffle cups and McNuggets came in paper bags.
- Performance Food Group plans to offer $1.06 billion in senior notes. The company intends to use the proceeds of the offering to meet the cash consideration of the acquisition of Reinhart Foodservice as well as to pay for related fees and expenses from the purchase.
- Corporate Stirrings: Wendy’s franchisee The Briard Group sold 4 locations in Southern New Jersey for $8.2 million to 4 separate unnamed buyers. Muscle Maker Grill acquired a Midtown Manhattan location from one of the chain’s franchisees. The location is one of the highest volume locations in the Muscle Maker system.
- Growth Chains: The Avocados from Mexico Brand will open 3 “avocado centric” concession stands named “TACOS por fAVOr” in the Hard Rock Stadium in Miami Gardens. Toppers Pizza aims for sales of $200 million by 2025, which would probably put the chain’s store count in the high 100’s to 200 range. Chicken Salad Chick will open stores in Virginia and South Carolina.
- Comparable Store Sales Reports: Darden (Blended +0.9 percent, Bahama Breeze down 4.2 percent, Capital Grille up 1.5 percent, Cheddar’s Scratch Kitchen down 5.4 percent, Edie V’s up 1.2 percent, LongHorn up 2.6 percent, Olive Garden up 2.2 percent, Seasons 52 down 4.2 percent and Yard House down 1.9 percent.)
For details and same-store sales of other chains, please click here for the most recent Green Sheet.