Convenience-store Company Sells Franchises

DAYTONA BEACH (Saturday, March 08, 2008) - Don Hennessy has managed company-owned 7-Eleven stores in the Daytona Beach area for more than six years, so when the possibility came up of buying a franchise in Port Orange, he was eager.

He reckons it would be a great opportunity to get into a bigger store with a company he trusts and to share more directly the profits of a proven performer.

If the deal goes through, Hennessy, 61, would pay about $250,000 in cash for the business, but not the real estate, he said. In return, he would get a rent-free store and use of the company's well-known brand and its management support and products.

That sale would likely be the first of a major transformation that 7-Eleven Inc. plans for 32 of its 34 stores in Volusia County, all now corporate-owned. The company is seeking to convert its stores here into hybrids that give owner-operators a bigger stake in the business, but still keep the real estate in the hands of the parent corporation.

The impetus, of course, is money. At an estimated average of about $195,000 a unit, including a down payment on each store's inventory, that adds up to a nice way for 7-Eleven to take some valuable capital out of its business.

Also, a spokeswoman at the company's Dallas headquarters, Margaret Chabris, said franchise owners are more committed to a store's success than employee managers, making the stores more profitable for franchisee and franchiser alike.

"They work harder, have family members work in the store," she said. They also want to get more involved in their communities than hired hands, and get to know their customers better, Chabris said.

About 72 percent of 7-Eleven stores in the United States are franchised, and the company only recently started the sale of corporate stores in Florida. In December, 7-Eleven began offering franchises for sale at 76 stores in all of Volusia and Brevard counties and a small portion of western Seminole County, said Michael Da Re, the company's franchise sales manager for Florida. That's all but six units in the territory, which for the moment are being withheld either for use as "training stores" or because the company's leases are too short or for other reasons, Da Re said. The company has no stores in Flagler County.

Offers were made to store managers first and then extended to the outsiders in January, Da Re said. Potential buyers are vetted in a process that usually takes about four months, he said. The company expects sales of all the company's stores available in the territory to take as much as four years.

Hennessy, who currently runs the company's store at 3610 S. Atlantic Ave. in Daytona Beach Shores, is the only manager so far to commit to a deal, Da Re said. "But we have several outside in the process."

In the arrangement 7-Eleven offers, the company carries the costs of real estate, including taxes and lease payments. After profits from sales are calculated -- but before the cost of wages is factored in -- franchisee and franchiser share what is left over. That money is split "around 50-50," but can vary somewhat based on factors such as the store's overall performance, Chabris said.

From his share, the franchise owner covers labor costs. That's an arrangement that would exclude the franchise owner, and possibly family members, from wage and hour laws such as overtime pay requirements. Hennessy said he would have to provide his own health insurance and profit sharing.

The structure of the deal "is certainly unusual," Jim Combs, a Florida State University management professor, said. The company apparently is trying to keep franchisees from deviating from 7-Eleven policies and to make buying a franchise cheap enough for people willing to work in the store. Many franchises are so costly that investors do not work in the business, he said.

Hennessy, for instance, said he had looked at such other franchise options as Dunkin' Donuts but had found them out of his reach financially.

He said he expects to be able to recover his 7-Eleven investment within five to seven years. In the meantime, "I will be able to pay myself a salary and drag some profits out of it."

barry.flynn@news-jrnl.com

Area 7-Elevens

There are 34 7-Eleven stores in Volusia County:
Daytona Beach 12
Daytona Beach Shores 3
DeLand 2
Deltona 2
Holly Hill 2
New Smyrna Beach 3
Ormond Beach 5
Orange City 1
Ponce Inlet 1
Port Orange 2
South Daytona 1

View all 7-Eleven Press Releases

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