It’s Not Heaven for 7-Eleven Franchisees : Retailing: Many operators say they are being squeezed by tougher competition, longer working hours and the burden of the parent company’s corporate debt.

Ah, the joys of running your own 7-Eleven store.

Late-night robberies, even if they strike far less often than years ago, still are a nasty occupational hazard. Finding capable clerks who won’t steal merchandise is only a little easier than keeping a Slurpee from dripping on a summer day.

As if that isn’t worrisome enough, the overall industry is getting pinched by stepped-up competition and hefty debts from corporate buyouts gone awry. Just last week, the Circle K chain sought bankruptcy court protection. 7-Eleven’s parent company, Southland Corp., suggests it will do the same if it isn’t rescued by an investor.

All in all, events have conspired to make a hard life even harder for many of the 3,100 7-Eleven franchisees across the United States.

“You work your butt off, and you risk a lot,” said Ross Pacini, president of the Northern California 7-Eleven Owners Assn. “You make your money one penny at a time.”

The situation at 7-Eleven, the nation’s biggest chain of convenience stores, shows how parent company policies and industrywide turmoil reverberate through the daily routines of franchisees. As people in business for themselves, yet tethered to the vast 7-Eleven chain, the franchisees are foot soldiers in the convenience store wars.

At 7-Eleven these days, some operators are squirming under the pressures of a new companywide image-improvement program. At the same time, they are watching their stores become run-down as remodeling money is diverted to pay off Southland’s corporate debts. Many also say they are working 60 hours a week or more and cutting their staffs because of tougher business conditions.

For the hardy entrepreneur, there still are ample rewards. Pacini, for all of his concerns, says he loves the business, even after 13 1/2 years as a franchisee in the Sacramento area.

Among other things, franchisees say they enjoy setting their own schedules. Beyond that, Southland’s franchising system--like other successful franchising programs--provides enough help to prop up inexperienced business owners who otherwise would flop.

The company says it also has provided opportunity for blacks, Latinos, Asians and other minorities, who account for one-third of all franchisees. And for people in low-paying or dead-end blue-collar jobs, ownership of a 7-Eleven store can mean financial independence.

Southland says the average franchisee in the Los Angeles area makes $55,000 in profits and wages annually. “These are people who otherwise might make $20,000 to $35,000, and they’re able to upgrade their lifestyle,” said Michael C. Hodes, a Maryland lawyer who represents 7-Eleven franchisees in the Baltimore area.

A top operator--one of the few who own more than one 7-Eleven, or someone with a choice location--can net more than $150,000 a year. (By comparison, managers of the 3,000 U.S. 7-Eleven stores that Southland operates itself draw salaries averaging $23,000, plus up to $11,500 more in bonuses.)

Profits, however, usually are hard-earned by franchisees who, in many cases, run their stores with the help of their spouses and children. Many franchisees go years without a vacation, unable to afford the salary of a manager who could take over for them.

“It’s not a job for an absentee owner,” said Neil Stern, a retailing consultant with McMillan-Doolittle in Chicago.

The routine drives some people away. Southland says the average franchisee keeps his 7-Eleven store for just under six years.

Those who stay with 7-Eleven have limited leeway in running their businesses, even compared to other franchise operations. (One consultant derisively calls the setup “sharecropping.”) Southland pays the bills, owns and maintains the real estate and equipment, and hands down detailed merchandising guidelines.

Franchisees even deposit their daily receipts in a Southland bank account. The parent company normally returns nearly half of what its accountants determine to be a store’s gross profits to the franchisee, and keeps the rest. In other organizations, franchisees simply pay a fixed percentage of sales to the parent company.

Lawyers who represent 7-Eleven store owners usually describe Southland as more fair to deal with than most franchisers. But disputes between the company and its franchisees arise from time to time.

Franchisees occasionally complain that Southland’s accounting and bookkeeping system is error-prone. Also, some say, ever since Southland went private in a costly leveraged buyout three years ago, the company has taken a harder line on charging franchisees when inventory appears to be missing or when clerks ring up the wrong prices.

Southland is “tightening the screws as much as they can,” said Hodes, the Baltimore lawyer.

In a class-action suit, California franchisees have claimed that Southland has violated the state’s usury law since the late 1970s. The suit maintains that the company charges franchisees interest prematurely, slapping interest on invoices even before Southland actually pays the bills. A panel of arbitrators tentatively ruled in favor of the franchisees in September, and a settlement with Southland is expected shortly.

On another front, Southland was hit by suits from two black former franchisees in Los Angeles who accused the company of racial discrimination. This year, Southland prevailed in one of the cases, and negotiated a confidential settlement in the other.

Not everyone is willing to go public with complaints against Southland. Several people interviewed for this story asked that their names not be used, expressing concern that Southland would retaliate for their comments by delaying necessary maintenance on their stores or otherwise giving them a “bad time.”

By far the biggest nuisance for franchisees, though, is finding employees. Partly because of concerns about crime and nighttime hours, not many people want to work for 7-Eleven, and the nation’s labor shortage only makes matters worse.

Jim McDougall, owner of two 7-Eleven stores in Fountain Valley, says he recently ran newspaper help-wanted ads for a week and got only one job applicant. After losing a manager and two full-time clerks at one of his stores in January, he wound up working up to 80 hours a week for four months until finding replacements.

“If you can’t find someone to hire, someone has to cover those hours,” McDougall said.

Franchisees tell horror stories about the workers who are available, citing problems with theft of cigarettes and other merchandise. Scott A. Pearce, owner of two 7-Elevens in San Bernardino County, said a clerk--who eventually confessed--stole $5,000 in cigarettes at one of his stores before a Southland accountant spotted the losses.

In fact, employee theft has become a much bigger problem than armed robbery. Southland says that since 1976, robberies have declined 50% at its stores. FBI crime reports, on the other hand, show that convenience store robberies overall rose 16.1% in 1988, the most recent year for which extensive statistics are available.

“The long-term (robbery) trend at 7-Eleven is bucking the industry trend,” said Cecilia Stubbs Norwood, a Southland spokeswoman. “It’s a real high priority for us.”

The company credits, among other special measures, the installation of special safes that can release no more than a single bill every two minutes--too slow for a criminal interested in making a quick getaway.

McDougall said that after opening his first franchise in 1977, it was held up three times within the first six months. But in the past three years, his two stores have had a total of two robberies. Other franchisees say they have gone years without a robbery attempt.

While the crime situation has gotten better, the business environment for 7-Eleven has gotten tougher. The main change in recent years has been the emergence of the oil companies’ combination gas station-convenience stores, which have siphoned off sales from 7-Eleven and Circle K, the second-biggest convenience store chain.

“For a while, we didn’t have any (competition). We were the only game in town in many parts of the country,” said Joe Saraceno, who from his Glendale office heads the National Coalition of Assns. of 7-Eleven Franchisees.

To battle the competition, 7-Eleven stores have offered more prepared foods over the years, recently experimenting with hamburgers, pizza and salads. While those items bring in more business and profit, they also give employees more to do and make it harder to train new workers.

Recent financial results for U.S. and Canadian 7-Eleven stores were mixed. After taking inflation into account, sales of merchandise other than gasoline fell an average of 2.4% in the first quarter of this year, following a 1.5% decline for all of 1989. But the stores’ gross profit margins, which fell last year, rebounded.

Meanwhile, a new companywide program to improve 7-Eleven’s image and performance is stirring up franchisees. In April, Southland began sending evaluators to the stores to judge the customer service, upkeep and presentation of merchandise.

Owners of stores that score well will get a boost in their cut of the gross profits, from 48% now to an even 50-50 split with Southland. Trouble is, some franchisees already are complaining that the grading isn’t fair.

Saraceno said he received a complaint from a franchisee who was penalized because a customer snuffed out a cigarette on his floor just moments before the evaluator arrived, and there was no time to sweep it up. Another franchisee said an evaluator cited him because he hadn’t gotten around to cleaning the tray of his Slurpee machine after the last customer used it.

Saraceno expressed confidence, however, that the problems in the program will be ironed out.

A bigger headache is the financial health of Dallas-based Southland, even with the recent pickup in profits. Ever since the company went private in a $4.9-billion deal, it has struggled to meet debt payments. One result: Money for remodeling has been harder to come by, and many franchisees say their stores are overdue for improvements.

On top of that, Southland has warned that it might have to file for bankruptcy court protection if it fails to attract a big infusion of cash from an investor. Southland’s Japanese affiliate, Ito-Yokado Co., agreed in March to acquire 75% of the company and to pump in $400 million in cash, but the deal hinges on a chancy bond-swap proposal.

Many franchisees are rooting for the Ito-Yokado deal to work out. They say that along with providing money for remodelings, the Japanese retailer probably would bring its admired computerized cash register and inventory-tracking technology to the U.S. stores. But nervous speculation also has circulated that the Japanese company would want to phase out the franchise system and make all the stores company-owned.

On the other hand, the prospect of bankruptcy and concerns about how a judge could limit Southland’s options in revitalizing itself also worry franchisees. Said McDougall, the franchisee in Fountain Valley: “Everybody’s in the dark right now, and it’s a little unnerving.”

THE GROWTH OF CONVENIENCE STORES

Most of the increase in the convenience store business has come from outlets owned by oil companies.