Adele Ferguson & Sarah Danckert, 1 October 2015
The new chairman of 7-Eleven, Michael Smith, will front franchisees at a series of meetings next week after confirming it is looking at the business model and “everything is on the table” including opening hours.
Mr Smith was yesterday elevated to the position of chairman at 7-Eleven after sitting on the board for 16 years and being deputy chairman since August 2014.
His appointment followed the resignation of company founder Russ Withers as chairman, and the resignations of chief executive Warren Wilmot and general manager of operations Natalie Dalbo. The group has appointed long-serving 7-Eleven director Bob Baily as acting chief executive.
Despite his resignation from the operating entity of 7-Eleven, Mr Withers has confirmed he will attend the meeting, which could get fiery if franchisees don’t feel they are getting a “fair deal”.
Franchisees were notified last week that 7-Eleven would be holding franchise business updates in Melbourne, Sydney and Brisbane between October 8 and October 12 where the changes “impacting both the agreement and the current profit share structure” would be outlined, according to a letter sent to franchisees.
Mr Smith told Fairfax Media changes needed to be made to the company’s business model.
When asked whether 7-Eleven would still reveal the business changes at those meetings, Mr Smith said, “It will probably be that and more … This is really complex.”
“The needle needs to move and the needle needs to move for that group of franchisees who are for some reason not doing as well.
“Everything’s on the table and we’re modelling all of these things – whatever we come up with, the first test it has is it fair?,” Mr Smith said when asked about changing the share of the fuel commission.
“I think it has to be open, widely understood and it has to be fair – fair to shareholders and fair to franchisees,” Mr Smith said.
7-Eleven has four shareholders in Australia: Mr Withers, his wife Di Withers, Mr Withers’ sister Bev Barlow and her husband Doug Barlow. The four are estimated to be worth $1.5 billion combined.
A joint investigation between Fairfax Media and Four Corners revealed widespread wage fraud across the company’s network of 620 stores.
Internal documents showed the company audited 225 stores in July and found 69 per cent had payroll compliance issues. Mr Smith confirmed wage fraud was probably occurring in more than 50 per cent of stores.
The media investigation also showed the financial plight of 138 of 7-Eleven’s stores, which make a profit below a level where they are able to pay full wages and penalties.
Mr Smith said the profit split between head office and franchisees needed to change. Currently head office receives 57 per cent of gross profits on non-fuel sales at stores while the franchisee receives 43 per cent.
Head office receives the revenue from fuel sales but pays franchisees a commission of 1¢ per litre for fuel sales.
Mr Smith was more circumspect about changing store hours but refused to rule it out when asked by Fairfax Media. Several franchisees have complained that their stores have little foot traffic at night and they would prefer to close at 11pm.
“It is sort of reputational. By and large it’s better to keep them open,” Mr Smith said.
“The name came from those being the opening hours [7am to 11pm]. I don’t think it’s kind of a major issue but we’re open to everything.
“You do need to consider it and we’re not going to rule anything out.”
Extracted in full from the Sydney Morning Herald.