5 ms·

Yes this is very common. I know McDonalds and Chick-fil-a both have clauses that if their operators refuse to comply they can shut down and replace them. Usuall

Yes this is very common. I know McDonalds and Chick-fil-a both have clauses that if their operators refuse to comply they can shut down and replace them. Usually the building/land the stores are located on are owned by HQ as well so they have options on that end to revoke leases if need be. I wouldn't be surprised if 7-11 has the same setup.

lotsofpulp 8y ago
I always assumed franchised businesses weren't owned by the brand that was franchising. Sounds like a terrible deal for the franchisee if all they're doing is renting a license to operate a business and not gaining any equity. I thought the whole point was so that the could work and gain a bit of equity in their business while using the marketing and quality assurance of the brand they franchise.
- tomschlick 8y ago
  Depends on the business. CFA handles a lot of the upstart and operating costs such as land, building, equipment, technology, branding, liability, etc for it's operators. As such, they take a large chunk of the profits and maintain strict rules for brand integrity.
  - lotsofpulp 8y ago
    Then I'm confused as to what the franchisee is getting out of the situation. It sounds like being a mid level manager, without any benefits that a normal employee would get, that is liable if things go wrong, but almost never shares in upside since royalties can just go up if the business does well.
- scarface74 8y ago
  It seems like most franchisees are not starting a business, they are buying a job.
  - lotsofpulp 8y ago
    And the liability for lawsuits from employees, customers, or the government!
- bluGill 8y ago
  That should be the idea, but the brand has requirements. When you go to a McDonalds and order a burger you know what it will taste like. The reason you know that is McDonald's requires all franchises to do quality control. I don't know the exact arrangement, but probably the franchise is not allowed to source their raw materials elsewhere. If a McDonald's burger doesn't taste right they will take action up to taking away your franchise rights - I've never heard of this happening, but they have the right to protect their brand in this way. When you buy a franchise you get a territory. You know you will not have to compete with anyone else. If the brand thinks it would be good to have a store a few blocks from yours they will either offer you the new store first, or give you a guarantee that your business won't suffer for the competition. While there is risk, if you buy a franchise and work hard it is a path to a nice life. You won't become richest person in the world, but you should be able to get to upper middle class. The first 30 years are mostly paying the bank though, so be prepared for a long term investment (but after 30 years you can sell your franchise and get the equity back - enough to retire on). Note that I started with should. Some franchises are better than others. Some will try to sell you a bad territory where it is impossible to live on the earnings. Some will force you to buy (sell) product that your customers don't want. It can be a good deal, but it can also be a ticket to bankruptcy.
  - lotsofpulp 8y ago
    >(but after 30 years you can sell your franchise and get the equity back - enough to retire on). If the franchisee doesn't own the land or building, it doesn't sound like they have any equity. All they have is the licensing agreement with the brand, which I'm sure has an expiration date, but all the power rests with the brand. Unless there's a clause in the franchising agreement that forces the brand to only license to you, the franchisee doesn't seem to be left with anything at the end of the licensing term.
    - bluGill 8y ago
      The devil is in the details. There are thousands (more?) of different things you can franchise. Each has different terms! Some are outright scams. Some are great deals. Some are in between where your skill as a business manager is the largest factor. Owning the land/building is often a negative for a small business - you want to focus on managing your business not maintaining your building (an accountant can explain other reasons why renting is usually better).
- winningcontinue 8y ago
  They are building equity in the form of earning cash income and then using it to invest in additional cash generating franchisees. It's cash, so they could put that money into owning 7-11 stock, the real estate the store is on or whatever.
  - lotsofpulp 8y ago
    I assume the corporation can see any excess profits being made and increase the royalty fees to make sure the franchisee isn't left with much, which it does seem like 7-Eleven is doing according to the article and another poster. It just seems like a very crappy deal, but I guess that's worth taking if you have no other options.
belorn 8y ago
It is sometimes said that McDonalds business model is not in selling burgers but rather being in real estate. They rent out a building and a model for using it, with the goal to rent out more buildings. I don't know how true it is but I have heard that McDonalds as a company don't earn money from any profits from burgers, only from rent. Would be interesting to know how true that is.

lotsofpulp 8y ago

I always assumed franchised businesses weren't owned by the brand that was franchising. Sounds like a terrible deal for the franchisee if all they're doing is renting a license to operate a business and not gaining any equity. I thought the whole point was so that the could work and gain a bit of equity in their business while using the marketing and quality assurance of the brand they franchise.

tomschlick 8y ago
Depends on the business. CFA handles a lot of the upstart and operating costs such as land, building, equipment, technology, branding, liability, etc for it's operators. As such, they take a large chunk of the profits and maintain strict rules for brand integrity.
- lotsofpulp 8y ago
  Then I'm confused as to what the franchisee is getting out of the situation. It sounds like being a mid level manager, without any benefits that a normal employee would get, that is liable if things go wrong, but almost never shares in upside since royalties can just go up if the business does well.
scarface74 8y ago
It seems like most franchisees are not starting a business, they are buying a job.
- lotsofpulp 8y ago
  And the liability for lawsuits from employees, customers, or the government!
bluGill 8y ago
That should be the idea, but the brand has requirements. When you go to a McDonalds and order a burger you know what it will taste like. The reason you know that is McDonald's requires all franchises to do quality control. I don't know the exact arrangement, but probably the franchise is not allowed to source their raw materials elsewhere. If a McDonald's burger doesn't taste right they will take action up to taking away your franchise rights - I've never heard of this happening, but they have the right to protect their brand in this way. When you buy a franchise you get a territory. You know you will not have to compete with anyone else. If the brand thinks it would be good to have a store a few blocks from yours they will either offer you the new store first, or give you a guarantee that your business won't suffer for the competition. While there is risk, if you buy a franchise and work hard it is a path to a nice life. You won't become richest person in the world, but you should be able to get to upper middle class. The first 30 years are mostly paying the bank though, so be prepared for a long term investment (but after 30 years you can sell your franchise and get the equity back - enough to retire on). Note that I started with should. Some franchises are better than others. Some will try to sell you a bad territory where it is impossible to live on the earnings. Some will force you to buy (sell) product that your customers don't want. It can be a good deal, but it can also be a ticket to bankruptcy.
- lotsofpulp 8y ago
  >(but after 30 years you can sell your franchise and get the equity back - enough to retire on). If the franchisee doesn't own the land or building, it doesn't sound like they have any equity. All they have is the licensing agreement with the brand, which I'm sure has an expiration date, but all the power rests with the brand. Unless there's a clause in the franchising agreement that forces the brand to only license to you, the franchisee doesn't seem to be left with anything at the end of the licensing term.
  - bluGill 8y ago
    The devil is in the details. There are thousands (more?) of different things you can franchise. Each has different terms! Some are outright scams. Some are great deals. Some are in between where your skill as a business manager is the largest factor. Owning the land/building is often a negative for a small business - you want to focus on managing your business not maintaining your building (an accountant can explain other reasons why renting is usually better).
winningcontinue 8y ago
They are building equity in the form of earning cash income and then using it to invest in additional cash generating franchisees. It's cash, so they could put that money into owning 7-11 stock, the real estate the store is on or whatever.
- lotsofpulp 8y ago
  I assume the corporation can see any excess profits being made and increase the royalty fees to make sure the franchisee isn't left with much, which it does seem like 7-Eleven is doing according to the article and another poster. It just seems like a very crappy deal, but I guess that's worth taking if you have no other options.

belorn 8y ago

It is sometimes said that McDonalds business model is not in selling burgers but rather being in real estate. They rent out a building and a model for using it, with the goal to rent out more buildings. I don't know how true it is but I have heard that McDonalds as a company don't earn money from any profits from burgers, only from rent. Would be interesting to know how true that is.