Top 4 Reasons to NOT Buy a 7-Eleven Franchise
Is 7-Eleven a Good or Bad Investment? How Much can I Earn?
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Top 4 Reasons to NOT Buy a 7-Eleven Franchise - by Robert Edwards
Here at Franchise city we are brokers and help people find the right franchise. A lot of that has to do with educating investors as we try to do in these videos on our Youtube channel.
One of the brands we are frequently asked about is the 7-Eleven Franchise. 7-Eleven stores can be found on almost every street corner and they are one of the most visible franchise brands. Many people think that means it must be very successful, and that 7-Eleven stores will make you rich. But what does 7-Eleven's corporate success mean to you as an individual franchise owner?
If your dream is to buy a 7-Eleven and you really want to invest intelligently knowing both sides of the story let's look at 4 reasons you might not want to invest in a 7-Eleven franchise.
1. 50% or more of Revenues to 7-11. 7-Eleven is an "Operator Model", or what we like to call "buying a job". So 7-Eleven buys the store, land, building and equipment and then leases it back to you - the franchisee. Despite the relatively large investment you will make, typically $150,000 or more 7-Eleven corporate will take close to or in same cases over 50% of your revenue. Franchise owners often find they have to work in the store themselves in order to make any money at all. Its interesting how 7-11 describes this arrangement on their website " A gross profit split means we are invested" and you can see in the image here. 7-Eleven in my opinion is misleading buyers by not disclosing they take at least 50% of your gross revenue upfront. And if you think 50% is bad wait until your store starts earning more money. Unlike many other franchises that reward you for doing well with a declining royalty - 7-Elevens fees go up the more money you make. so 52% 55% 56% and on and on. How much does a 7-Eleven store owner make? Well a lot depends on what you are selling as some items have much higher margins but a very approximate estimate is 5% of store sales so a store doing $1,000,000 in sales would generate about $50,000 for the owner. There are more accurate ways to forecast 7-Eleven franchise earnings but that will give you a ballpark. Now you know why you often see owners working in the stores.
You can see in these images taken from their website nowhere do you hear about this until much later in the process and AFTER you have completed a 7-Eleven application. If 50% profit share is so great, why not disclose it?
And viewers make note of this tactic because it is what we call the "Puppy Dog" sales tactic. Once a buyer falls in love with a particular franchise early in the process and has all these positive visions of owning the franchise, it is very difficult later down the process to change their mind even after seeing things like 50% share of revenues. We see this frequently with our own clients where we show negative franchise attributes like massive failure rates or franchisee dissatisfaction yet they hold on to this false idyllic vision that was instilled on them early in the process. Never let emotions guide you through the franchise process.
2. Lack of Control. One of the benefits of franchising is that you have a nice blend of owning your own business with the support of an established brand. With most franchises you maintain a decent level of control. It's no secret however that the 7-11 business model has been considered by many actually as an employee/employer relationship rather than franchisor/franchisee. It's interesting that David Kaufmann, a lawyer representing 7-Eleven stated: “I frankly think there is no merit to the argument that 7-Eleven is an employer instead of a franchisor. And 7-Eleven has taken folks from Pakistan, India and Vietnam, taught them how to operate a store and introduced them to the American economic system. I think it is specious and insulting to claim that 7-Eleven is targeting these franchisees” I guess there is 2 ways to view this. One is they are targeting people who just don't know any better and using them - another is that they are giving them an opportunity. That's up to you to decide. However ask yourself why we don't see any franchise industry experts, investors, or celebrities buy a 7-Eleven.
The SBA (Small Business Administration) also shunned 7-Eleven. For those of you who don't know the SBA is a government organization that provides support to entrepreneurs and also guarantees loans on most franchises. A few years ago in an email to Franchise Times, FRANdata President Edith Wiseman said the U.S. Small Business Administration has “identified issues within the 7-Eleven franchise agreement that they would have to overcome to obtain SBA financing,” including excessive fees, the requirement that store receipts are deposited into the franchisor’s account and the fact that the franchisor owns the assets of the business and provides its payroll services. So again we are seeing elements of what many consider to be excessive control.
7-Eleven stores are also not eligible for the E-2 investor visa as the US Department of Immigration dept. has also decided the lack of control makes 7-Eleven a poor investment for E-2 investor immigrants.
3. 24/7 Lifestyle. As a 7-Eleven franchise owner you are legally obligated to keep your store open 24 hours a day 7 days a week. Because 7-Eleven is just about everywhere do you think the best neighborhoods are available? Keep in mind that every year there are 7000 robberies at gas stations and 15,000 at convenience stores - is that something you want to bring into your life?
4. Gouging and Perceived Unethical Practices. If you take 2 minutes to search online you will find no shortage of owners and ex-owners quite displeased at 7-Eleven. Take a scroll through Unhappy Franchisee's website on this page - I'll post the clickable links down below. You will find comments from actual owners on many topics related to their negative experiences to do with gouging, unethical practices, hard work for low pay, and many more. Or how about this franchise owner pushed out by 7-Eleven who ultimately opened up a competing store across the street called 6-Twelve? Interesting story how he had to throw out food nobody wanted to the tune of $200 a day but 7-Eleven forced him to do so. Or what about this news story "7-Eleven takes bite out of American Dream". There is lots more if you take the time to research.
So is 7-Eleven a good choice - they will provide you the positives, and there definitely are positives, we have given you some of the negatives now it's up to you to decide.
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