Adele Ferguson, Sarah Danckert & Damien Murphy, 8 October 2015
7-Eleven has offered to radically change its business model in an attempt to improve the financial position of its franchisees following the worker exploitation scandal that has rocked the convenience store giant. But franchisees were unconvinced, raising the prospect of class actions.
The proposed changes could strip more than $30 million from the $143 million gross profit reaped by 7-Eleven shareholders, the Withers and Barlow families, which together have built an empire worth $1.5 billion.
Franchisee sources said the offered changes were expected to deliver an average 4.5 per cent increase in income to the chain’s 620 store operators.
The convenience store’s “new deal” was outlined at a meeting of NSW-based franchisees in Sydney on Thursday. Management walked through a security phalanx on hand to keep the media and franchisees under control.
At the first of three meetings to be held nationwide, franchisees in attendance were unconvinced on the new tailored model. Some said they were “very hurt” and “gutted” by the proposal, raising the possibility of a class action against the convenience store chain by some disgruntled franchisees.
The meetings follow an investigation by Fairfax Media that revealed most 7-Eleven franchisees had been exploiting workers.
It is understood that 7-Eleven will introduce a clause into its franchisee agreement to allow head office to terminate a franchisee for “payroll issues”.
The new business model is no longer a one-size-fits-all profit split of 57 per cent to head office and 43 per cent to franchisees.
For those 138 stores that deliver income to franchisees of $300,000 (before wages are paid), the profit split will be 50-50.
A further 360-plus stores that produce gross income of $300,000 to $500,000 a year have been offered 48 per cent of the gross profit of sales at their stores while head office takes 52 per cent.
The remaining 100-plus stores will have their gross profit share lowered 1 per cent for every additional $100,000 their store earns.
7-Eleven has also proposed an incremental increase in the fuel commission received by franchisees for handling fuel sales at their store from 1¢ a litre to 1.2¢ a litre for the first 400,000 litres a month, and 1.4¢ a litre on sales of more than 400,000 litres during the month.
Under the proposed deal, franchisees will no longer have to pay for bad merchandise delivered to them by the suppliers.
A franchisee who declined to be named said franchisees were still negotiating the final terms of the deal with head office.
“We’re still negotiating but most franchisees are very hurt and gutted.”
One 7-Eleven franchisee emerged from a marathon three-hour meeting outraged at the company’s offer.
“It’s worse than before. Please do not identify me. I’m scared of the company. They told us we had to accept their offer and that was that. But we cannot go on what they are offering. They are not interested in us, only themselves.”
Another franchisee said even a 50-50 split was not enough. He said the extra 7 per cent in his favour would result in an extra $50,000 a year for him, which wouldn’t cover legal wages.
He said the business would still lose money even if he worked long hours.
The 7-Eleven whistleblower said the change to the profit-share model shows how unfair the old arrangement was to franchisees at the lower end of the scale.
“They and their staff have been suffering for years,” he said.
A third franchisee said she had owned a store with her family for 12 years and had always been treated like a slave by head office.
She explained that only when someone purchased a store did they truly become aware of their fate and that they would have to underpay to survive and work like a slave themselves.
She has been threatened with instant termination if she speaks to the media and broke down crying while speaking about her plight.
Franchisee sources said the offered changes were expected to deliver an average 4.5 per cent increase in income to the chain’s 620 stores.
Consumer advocate Michael Fraser, who attended the meeting but was refused entry, said he had spoken with 20 franchisees outside the meeting and they had mixed feelings about the offer.
“There is clearly a consensus among the franchisees that they are very unhappy with the speculative figures that have been passed around by leading franchisees that have had recent discussions with head office.”
“Many franchisees will not be happy with the offers on the table and many franchisees are already wanting to sell. This will get a lot worse for 7-Eleven Australia before it gets better.”
7-Eleven chairman Michael Smith said the updated business model would deliver a considerable shift in value to franchisees from 7-Eleven that is over and above what was contained in original franchise agreements.
“The updated model recognises the changing retail landscape and is part of a suite of measures that provide an appropriate and lasting remedy to the challenges being confronted by all of us.
“7-Eleven’s success has been founded on strong, deep and open relationships with franchisees, and the initiatives will help ensure this remains the case into the future,” Mr Smith said.
Stewart Levitt, who is preparing a class action against head office on behalf of franchisees, warned franchisees about accepting a deal from head office.
“Any franchisee who was misled into acquiring a franchisee should be very careful about giving away their valuable litigation rights”
“I abhor any attempt by 7-Eleven to seek to trade its way out of culpability for serial infractions of the industrial and migration laws of the Commonwealth,” Mr Levitt said.
Extracted in full from the Sydney Morning Herald.