7-11 computation of royalty revenue morphs in strange ways

My point is that while royalty may be stated to be a percentage of net, if the franchisor is also the landlord and the suppplier, what is left as net is whatever the franchisor wants to have left as net. This may not be what it seems to be when transparency is imposed on the way the accounting is done.

Blue MauMau
June 2, 2009

7-11 computation of royalty revenue morphs in strange ways
Richard Solomon

When I represented their franchisees in 5 states 35 years ago, there were so many way in which 7-11 could plow you under that the contract was virtually meaaningless except as a device for busting franchisees.

For instance, everything you sold in the store that was made in the store had to be made from what you bought from 7-11/approved vendors. Everything in inventory was costed out at retail selling price. Any discounting from retail selling price showed a net loss, which was deducted from your equity account. What you were required to sell sandwiches for - that were made from store inventory ingredients - was less than the retail price inventory cost of the ingredients. You lost money from your equity account on every sandwich. When I showed this to the 7-11 lady during her deposition she started to cry.

My point is that while royalty may be stated to be a percentage of net, if the franchisor is also the landlord and the suppplier, what is left as net is whatever the franchisor wants to have left as net.

This may not be what it seems to be when transparency is imposed on the way the accounting is done.

Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

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Risks: Forensic accounting, Royalty payments as a % of profit, Tied buying, Why franchisors sublease to franchisees, United States, 20090602 7-11 computation

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