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Dick Newmark, the longest tenured franchise owner of 7-Eleven talks about how the franchise chain has changed from the days when there was no such thing as a Slurpee. He’s built his small convenience store to two stores that bring in more than $3 million. Since he started in 1962, he’s been in and out of eleven 7-Elevens.
CS News interviews Newmark and his observations on the biggest changes to 7-Eleven’s franchise system.
Newmark became a 7-Eleven franchisee, he said, because the initial investment was reasonable, and the advantage of being a 7-Eleven operator was significant. Back then, he paid a franchisee fee of 12.2 percent of sales. "But it wasn't until 7-Eleven began raising money for the Muscular Dystrophy Association in the mid '70s, did business really take off," Newmark told CSNews. "Previous to that, we were considered 'rip-offs', because of the pricing. But when we joined MDA in their efforts to raise money, that put the white hat on us. People changed their whole vision of the convenience store industry. It put more value in our name, sales increased and attitudes toward 7-Eleven stores -- and probably all convenience stores -- improved."
Another big change was when Japanese management took over a bankrupt American operation to revolutionize convenience store inventory control.
Over the years, Newmark said, the relationship between franchisees and corporate headquarters has been "up and down." "We had a very close relationship until Southland's bankruptcy and then the purchase of the company [by the largest 7-Eleven franchisee, Japanese firm Ito-Yokado in 1991.] The way [the new owners] did business was so much different and the change in the profit structure caused a big rift." However, one of Ito-Yokado's changes -- close daily inventory counts of every item -- wasn't new to Newmark. "I would use our vendors' invoices and line off areas on the paper to keep track of their sales. Then, when we got a computer, we did the same thing on the computer.
A number of system wide inventions originated from Newmark’s stores – like fountain drinks, hot dogs, and proprietary sandwiches.
Newmark had a major disagreement over his franchise agreement.
In the late '80s, all of the 7-Eleven franchise agreements were extended to 2000. "After that, we theoretically didn't have a new contract until 2004," a contract that Newmark calls "the worst thing that ever happened to the franchisees."
The most onerous aspect of the new contract, in Newmark's view, was a limit on the number of products not offered on 7-Eleven's recommended list. Under the new agreement, 85 percent of inventory purchases (at cost) had to come from approved vendors, he explained, or franchisees would forfeit 2 percentage points of the contract's 50-50 gross profit split, up from a 48-52 percent in older contracts.
"They gave us 50 percent, but they also hit us with a promotional/advertising charge of 1.5 percent of gross profit for high-volume stores to as little as 0.5-percent for a low volume stores," he said.
When Newmark continued to carry sandwiches from a non-recommended supplier, which had a loyal following among his customers, alongside 7-Eleven's proprietary sandwiches, Newmark found himself in breach of contract. "I was prepared to fight it," he said. "My argument was by selling only the proprietary sandwiches, I was not able to maximize my profits. Eventually, I discontinued my other supplier's line altogether, as 7-Eleven grew the category. But since then, our sandwich business has not done as well."