7-Eleven Japan Reduces Royalties from Profits
With some 35,000 outlets, the world’s largest franchise and chain system, Japan’s Seven & I Holdings Co., is seeing its Japanese subsidiary cut royalties. Franchisor Seven-Eleven Japan Co., will cut its royalties that it collects from bottom-line profits of its 12,000 Japanese franchises by three percentage points.
Owner-operators wanted to sell the old food items at discounted prices instead of the waste of disposing of them with no sale. But the franchisor felt that the heavy discounting of old food would harm the brand.
In a business culture that values nemawashi, a word that connotes harmony through consensus and avoidance of conflict, franchisor and franchisee are expected to give and take for the benefit of the whole. Franchisor Seven-Eleven substantially lowered its revenues after discovering franchise discontent that came into the open when an earlier standards mandate banned the lowering of prices on expiring food items by outlets.
In June, Japan’s Fair Trade Commission ruled that such price fixing was an antimonopoly violation. The company obliged. The cut in royalties has been a move to absorb the franchise losses since outlets had to throw away expiring foods like bento boxes (boxed lunches). It most likely also is a move to help smoothen relations.
[In the past] Seven-Eleven has offered lower royalty ratios to franchises that have been operating for five years or more. Under the new plan, it will expand the scope of outlets eligible for the lower ratios to those operating two or more stores or outlets owned by former store workers, the sources said. It will cut royalties by 1 to 3 percentage points for such franchisees when they begin a new contract. It is estimated that a cut of 3 percentage points would save an average franchise around ¥2 million a year [roughly US$22,000]. - The Japan Times
Seven & I Holding’s Dallas-based subsidiary, 7-Eleven Inc, is one of a very few franchise systems in North America that shares in the profit or loss of its 4,400 licensees by asking for royalties on profits rather than the typical royalty from the gross sales of a franchise.
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