DALLAS -- In the last two years, at least a dozen franchisees of 7-Eleven Inc. have sued the company, alleging it stripped them of their convenience stores for false reasons, according to a report by The Los Angeles Times.
Some plaintiffs say 7-Eleven targeted successful stores in high-traffic areas, then "flipped" them to new franchisees willing to pay the company higher fees, according to the report.
7-Eleven counters in court documents that some of those franchisees were stealing--depriving the company of its full share of the store profits, often by falsifying sales records. Company investigations led to "hardball" negotiations between the store owners and 7-Eleven, which pressured franchisees to give up their stores or face potential prosecutions, according to court records cited by the newspaper.
"Good, hardworking, independent franchisees are the backbone of the 7-Eleven brand," 7-Eleven said in a statement provided to CSP Daily News. "As to those few franchisees who violate the law or the franchise agreement, we are determined to protect our guests, employees and other franchisees by ending the relationship, where appropriate. We are confident in the thorough and lawful system that we have in place to accomplish this."
The statement continued, "7-Eleven Inc. will vigorously defend any actions that former franchisees file against the company. During the course of litigation, certain information about franchisee conduct may become a matter of public record, just as it has in other situations where 7-Eleven Inc. has filed suit to terminate a franchisee relationship based on its thorough investigation and conclusion that the franchisee has violated the law or the provisions of the franchise agreement."
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.
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