Franchisees Allege 7-Eleven 'Flipped' Their Stores

Company counters with allegations of falsified records, violated agreements

7-Eleven (CSP Daily News / Convenience Stores)

The company has said in court documents that its asset protection agents rigorously investigate suspicious franchisee behavior, viewing hours of in-store footage, taking covert photos and tracing red flags in sales records.

Some investigations of franchisees amount to a "predatory program," alleges Kurt McCord, who said in court documents that he was briefly a corporate investigations supervisor for 7-Eleven before stepping down last year because of his objections to the company's strategy.

The company employed a tactic known in the franchise communityas "churning," McCord alleged in his affidavit. The company generates "tens of millions of dollars in additional profits" by inventing accusations of franchisee fraud, then taking back and reselling the stores, according to McCord.

7-Eleven prioritized stores in areas with high resale values or locations operated by outspoken franchisees, McCord alleged. The company set a yearly target for the number of stores it sought to take back, he said.

7-Eleven has not responded to McCord's affidavit in court and declined requests to comment on his allegations. But the company last month won a gag order barring McCord from publicly discussing the case, said the report.

Terry Powell, founder of the Entrepreneur's Source, a franchisee coaching firm, said that disgruntled franchisees often band together to create a domino of lawsuits, pressuring the company to settle.

"Unfortunately, they're like weeds--once one pops up, they're going to pop up all over the place," he told the paper. "With allegations like these, there are always two sides of the story and often three."

More than three-quarters of the 7,800 U.S. 7-Eleven storesare operated by franchisees who pay for the right to use the company's name. Franchisees split their gross profits evenly with 7-Eleven.

Click here to view the full L.A. Times report detailing specific cases.

Part of CSP's 2014 Convenience Top 101 retailers