The 7-11 Franchise Fee Structure

The convenience store chain, which had its start in 1927, in the Dallas, Texas area, has been selling franchises longer than most, and perhaps that is part of the reason for their unusual franchise fee system, which is profit-based.

According to an article in Franchise Times, “The profit-based royalty is rare among franchisors that generally charge sales-based royalties and ad funds.” 

The article said that 7-Eleven officials were surprised that others do not do something similar, and continued, “7-Eleven operates more of the business than a typical franchisor, because it owns and leases the buildings.  However, the payments are generally higher than the 8 to 10 percent of sales most franchisees charge for royalties plus advertising and marketing funds.”

“For example, according to the company’s FDD, a middle-of-the road store in Central Los Angeles may take in $1.6 million in sales.  After paying 7-Eleven to lease the store and buying the inventory, the owner is left with $605,000 in gross profit.  Half of that, just more than $302,000, is paid to 7-Eleven as a royalty.  If calculated on a sales royalty, that fee would be roughly 18.5 percent.  The owner then pays for other expenses, including payroll and bills like telephone and garbage.  In the end, that store generates roughly $97,000 in income for the owner.  That’s roughly 6 percent of the store’s sales.”

That is indeed a unique structure, which seems weighted to 7-Eleven’s benefit.  We think it unlikely that you could start a franchise program today with such a plan, as new franchisees normally look at several opportunities before buying, and this will probably seem expensive.  Nevertheless, they do successfully sell franchises and have momentum going for them.

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