Last year, news came out that Philippine Seven Corporation (a.k.a. 7-Eleven) is offering franchising packages at a simpler and much affordable price of PHP300K. Naturally, this piqued the interest of many retail investors and entrepreneurs out there. For one, franchising is a big hit among Filipinos, and two, a P300K outlay for a 7-Eleven is indeed a bargain, at least from the surface. Of course, if you are a wise and reasonable investor, you ought to expect that there is catch with this offer.
From the limited information we gathered, 7-Eleven will convert their existing operational, mature and company-owned stores (operating for at least a year now) into franchised ones. In a sense, they are letting franchisees temporarily own the existing stores for PHP300K, while the company will use such extra cash to build new stores and maintain its market leadership in the Philippines. In short, you will run the existing stores, not as an employee, but as a franchisee. Then you split the gross income with 7-Eleven.
The company, also listed as “SEVN” in the Philippine stock exchange, confirmed that this offer is on a limited test basis for now. In the past few years, the competition in convenience stores heated up as new players came in. Before, it was mostly 7-Eleven and Gokongwei’s MiniStop here in the Philippines (plus some Finds / All-Day stores from Villar) but now we have the Sy’s Alfamart, and the Ayala’s FamilyMart — which eventually the Ayalas had to sell to Dennis Uy of Phoenix Petroleum precisely because of challenging profitability. There’s also Circle K, Lawson, etc. So 7-Eleven is trying this to boost growth and leave competition behind.
According to 7-Eleven, the PHP300K package is meant as a safety deposit, which the investor will get back after the agreed contract has ended. It’s just sort of a bond to ensure that the franchisor will not run away with the gross sales since 7-Eleven has a share of it. They are targeting entrepreneurs and those who have experience in managing fast food / quick service restaurants and ex-employees of convenience stores because they are the ones who will manage the existing 7-11 stores. And then, 7-11 and the franchisor will split the income from that store. Mind you, the P300K is not the only expense to be shouldered by the franchisee.
So this is a sort of hybrid franchising vs the traditional franchising set-up that we know of. The similarities are: the term is limited, franchisee uses the established name of the brand, takes care of most of the operational and and day-to-day requirements while the franchisor earns from the sales of the store as royalty.
The differences are: the franchisee need not look for new locations and build a new store, which is very costly, instead the franchisee will manage an existing store, that is why the initial investment is much smaller at PHP300K compared to the traditional franchising. 7-Eleven will be the one to pay for the electricity and maintenance, because in reality, it is still their store. Likewise, the catch is, since the initial investment is just PHP300K, the franchise agreement is probably much shorter, and the share of 7-Eleven in the income is probably much bigger vs the 66%-34% split in favor of the franchisee in the traditional setup. By how much, they did not divulge the details.
As of last year, they have converted 50 existing stores for this package and judging by the inquiries we get until now, there are still many more out there who want to try this out.
UPDATES FROM FRANCHISE EXPO
Weeks ago, we dropped by the #FranchiseAsiaPH2018 expo held in SMX Convention Center in MOA (which I’ll write about separately). So we visited the booth of 7-Eleven to inquire more about this in-demand PHP300K franchise.
The lady representative was kind enough to answer a few of our questions, but in terms of the PHP300K franchise program, here are her updates:
- The program is currently ON HOLD, and they are not accepting new applicants as of the moment, at least not in the said expo, or if ever, very select few, and again, not during the expo
- It is true that there are existing stores that were converted already, and the company is monitoring how these pilot sites will perform
- Depending on the performance of these pilot sites, the company will determine whether to accommodate more applications and entertain more potential investors in the future, make some adjustments, or stop it altogether.
In short, wait and see. At least that’s what she told us. Whether she’s 100% honest, or she just wants to sell more of the traditional franchise than the P300K franchise, we cannot tell for sure.
Mentioned to her that it seems that this promo is a hit judging by the inquiries this site gets regarding this. But of course, they also want to protect the brand and ensure that the pilot sites perform the same or even better now that it is under management of a franchisee who only shelled out PHP300K. So they are learning by doing in a contained environment, so to speak.
THE TRADITIONAL 7-11 FRANCHISE
She then gave me a flyer on the traditional 7-11 franchise package they were offering during the expo. See the following details:
- Land: Franchisee (this means you!)
- Building: Owned or Leased
- Store Management: Franchisee
- Merchandise: P800,000
- Equipment: c/o 7-Eleven
- Franchise Fee: P600,000 (subject to VAT)
- Joining Fee: P2.03M construction cost (subject to VAT)
- Store Supplies: P170,000
- Advance Rent and Deposit: Depends on lease terms (but this is on you too)
- TOTAL CASH OUTLAY: P3.5M and up
- Operating Expenses: Franchisee
- Rent: Franchisee
- Electricity: 50% – 50%
- Supplies: Franchisee
- Inventory Variation: Franchisee
Expected Store Opening / Turnover: 4 to 6 months
Income Sharing: Fixed gross profit split of 66% Franchisee (YOU) and 34% to 7-Eleven
Contract Term: 5 years, renewable for another 5 years
For those having a hard time finding that winning location, the girl at the expo also mentioned that interested parties can actually franchise the stores that are still under construction, as long as it is not yet operational. Juan will just reimburse 7-Eleven of the costs they have already incurred in the construction. So if you see any 7-Eleven out there that is still ongoing construction, you might want to inquire whether you can franchise that one instead (if you have the P3.5M ready why not?!?)
ROUGH ROI ESTIMATES
Doing a brief and crude calculation (caveat, this is just for illustration purposes), to recuperate the P3.5M in 5 years, you need P700K net income annually. That means you need to register 58,333 per month net income. Factoring in the split of 66%, it will become 88,383 so you need this net income per month since you only get 66% of the income (34% goes to 7-Eleven).
The lady in the expo mentioned a profit margin or mark-up of 30% to 50% depending on the item, so let’s assume 40% (for every P1 sold, you earn 40 cents). So for a net income of 88,383, you need to sell P650,000 a month factoring all expenses listed below. Taxes, registration fees, licenses, etc not yet included.
Is my math correct? Please do not take this as gospel truth ok? We’re just doing rough computations. When you attend a franchising briefing, you’ll get a more accurate flavor of what the numbers will look like.
Speaking of which, for interested parties, there’s a regular franchising briefing every Monday and Thursday at 10am and 2pm at Philippine Seven Corp., 7F Columbia Tower, Ortigas Ave, Mandaluyong City (near POEA).
Confirm your attendance via 726-9968; 0920-950-8651; 0917-871-1686.
You may also email them at firstname.lastname@example.org. Those who want to inquire about the P300K franchise may also send an email to said address.
What do you think? Is the traditional franchising worth-it? If you have a great location probably worth a shot. Or you’ll try your luck first with the PHP300K?
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Here’s a related article from Inquirer.net – 7-Eleven Franchising
Images from 7-Eleven website and Pixabay.