Longest Tenured 7-Eleven Franchisee Tells All

…a limit on the number of products not offered on 7-Eleven's recommended list. Under the new agreement, 85 percent of inventory purchases (at cost) had to come from approved vendors, he explained, or franchisees would forfeit 2 percentage points of the contract's 50-50 gross profit split, up from a 48-52 percent in older contracts.

Convenience Store News
June 2, 2009

Longest Tenured 7-Eleven Franchisee Tells All
Barbara Grondin Francella

SANTA CLARA, Calif. — When Dick Newmark became a 7-Eleven franchisee, there was no such thing as a Slurpee. His was the first 7-Eleven store to sell coffee to-go and fountain sodas, and convinced the national chain to sell ready-to-eat hot dogs.

The Santa Clara, Calif.-based retailer, now operator of two 7-Elevens — he has been in and out of 11 — opened his first 7-Eleven store in 1962 in a spot now occupied by an apartment building.

Having grown up in the family grocery store, which his father owned in the '40s and early '50s, Newmark began ringing up sales at age 12. After getting out of the Army in the late '50s and working in supermarkets, he took over a mom-n-pop.

"The term 'convenience store' wasn't used until the early '60s," he noted. "I remember when the first Convenience Store News came out, and I would read it. A reporter interviewed the folks at 7-Eleven soon after the magazine started publishing and my store was noted as being one of the two highest-volume in the country then."

Newmark became a 7-Eleven franchisee, he said, because the initial investment was reasonable, and the advantage of being a 7-Eleven operator was significant. Back then, he paid a franchisee fee of 12.2 percent of sales.

"But it wasn't until 7-Eleven began raising money for the Muscular Dystrophy Association in the mid '70s, did business really take off," Newmark told CSNews.

"Previous to that, we were considered 'rip-offs', because of the pricing. But when we joined MDA in their efforts to raise money, that put the white hat on us. People changed their whole vision of the convenience store industry. It put more value in our name, sales increased and attitudes toward 7-Eleven stores — and probably all convenience stores — improved."

Newmark's first field representative was Dick Dole, who later served as president of The Southland Corp., (now known as 7-Eleven Inc.). His second field representative was Ray Berry, who became a vice president at Southland and is founder/president of Fresh Market Inc., a chain of upscale specialty grocery stores.

Over the years, Newmark said, the relationship between franchisees and corporate headquarters has been "up and down."

"We had a very close relationship until Southland's bankruptcy and then the purchase of the company [by the largest 7-Eleven franchisee, Japanese firm Ito-Yokado in 1991.] The way [the new owners] did business was so much different and the change in the profit structure caused a big rift."

However, one of Ito-Yokado's changes — close daily inventory counts of every item — wasn't new to Newmark. "I would use our vendors' invoices and line off areas on the paper to keep track of their sales. Then, when we got a computer, we did the same thing on the computer."

Newmark's inventory turns always have been very impressive: at least twice a month. His advice: "You should buy what you sell."

And sell he did. In 1964, Newmark made up an urn of instant coffee, selling it in Styrofoam cups. "I'd pull the cups off the shelf and sell the coffee at a nickel a cup. I had to start ordering two cases of cups a week."

In the late 1960s, Newmark began selling fountain drinks before any of his competition. He also was the first in his market to sell packaged sandwiches, distributed by a local deli supplier. "I went into a local bar and noticed the flash of an infrared oven. The employees were putting sandwiches in it. I took the [supplier's] phone number off the oven, and went from there."

Later, another deli supplier made fresh sandwiches especially for Newmark and delivered them to the stores daily. "We tried everything," he said. "Later, we started carrying 7-Eleven's proprietary sandwich."

Newmark also was the first franchisee to sell hot dogs, starting in the mid-1970s. In 1987, Dole visited Newmark and asked, "What's the next big home run?" Newmark suggested selling hot dogs. "I was selling 100 a day, for two for $1 at each of my four stores from a steamer — and running out. We made 30 percent margin on them."

Dole took the thought back to Dallas and months later 7-Eleven introduced the Big Bite. "I thought, 'Oh my God, why did they call it that?'" Newmark remembered. "I made mistakes with the names, but my ideas were good."

Indeed, Newmark was one of the first franchisees to sell Slurpees, which helped boost the stores' average 25 percent gross profit to closer to 28 percent. "When Slurpees first came out [in the mid-1960s], I thought it would be a dud. When they named it 'Slurpee' I thought, 'How ridiculous.'"

In the late '80s, all of the 7-Eleven franchise agreements were extended to 2000. "After that, we theoretically didn't have a new contract until 2004," a contract that Newmark calls "the worst thing that ever happened to the franchisees."

The most onerous aspect of the new contract, in Newmark's view, was a limit on the number of products not offered on 7-Eleven's recommended list. Under the new agreement, 85 percent of inventory purchases (at cost) had to come from approved vendors, he explained, or franchisees would forfeit 2 percentage points of the contract's 50-50 gross profit split, up from a 48-52 percent in older contracts.

"They gave us 50 percent, but they also hit us with a promotional/advertising charge of 1.5 percent of gross profit for high-volume stores to as little as 0.5-percent for a low volume stores," he said.

When Newmark continued to carry sandwiches from a non-recommended supplier, which had a loyal following among his customers, alongside 7-Eleven's proprietary sandwiches, Newmark found himself in breach of contract. "I was prepared to fight it," he said. "My argument was by selling only the proprietary sandwiches, I was not able to maximize my profits. Eventually, I discontinued my other supplier's line altogether, as 7-Eleven grew the category. But since then, our sandwich business has not done as well."

Still, Newmark said, 7-Eleven's foodservice products are very high quality and his sandwich business has picked up. But his other sandwich supplier guaranteed the sale and those products carried a 40 percent to 45 percent margin. "Now, we have to eat our [leftover] sandwiches and profit is 31 to 35 percent," he said. "My net is lower.
"I used to sell anywhere from $500 to $800 per week in sandwiches. Now I am lucky to sell $200. The program is working in some places, but not so much in my store."

In terms of 7-Eleven's private label program, Newmark said some of the products, such as the water, look like winners. "However, I think the labels are terrible," he complained, but noted he was told 7-Eleven is working to improve the labels.

"The products are cheaper and the profit is better for us, but the labels need work!" he said.

The chain's prepaid card efforts don't generate a huge profit, considering the labor expense on the category, but they are paying off in traffic generation, Newmark added.

Today, Newmark's two stores bring in more than $3 million, without the sale of gasoline.

Although Newmark has had the opportunity to retire, he said, "Without the store I don't know what I'd do. I don't need the income, but I need the activity."


Brought to you by WikidFranchise.org

Risks: Attempts to rehabilitate image, Bankruptcy, Breach of contract, Innovation in spite of, Royalty payments as a % of profit, Tied buying, United States, 20090602 Longest tenured

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License