7-Eleven Accused Of Trying To Drive Out Franchisees, Resell Their Franchises

The 50,000-store 7-Eleven chain has been sued by two New Jersey franchisees who say 7-Eleven makes it impossible for them to compete effectively with other convenience store chains and is trying to drive them out of the business, the Courier-Post reported.

The lawsuit, filed in federal court in Camden, N.J., says the chain "failed to change its stores, products and marketing despite the ever-changing market and the expectations of consumers," and adds that "the convenience-store business in the Southern New Jersey area has become dominated by a competitor of 7-Eleven." That's presumably a reference to Wawa, which has 595 stores in the mid-Atlantic and central Florida areas. There are about 8,600 7-Eleven stores in the U.S. and Canada.

The two franchisees—Sam Younes owns two 7-Elevens and Tamer Atalla owns one—also complain that 7-Eleven's franchise rules prevent them from adjusting the sound of TV ads or the temperature inside their stores, and that 7-Eleven is slow to perform maintenance for stores that are small or have low sales.

They say that the chain is trying to create conditions so hostile that the store operators will give up their 7-Eleven franchises, which would let the parent company sell to new franchisees. Younes and Atalla each paid franchisee fees of between $100,000 and $150,000 and are asking for compensation for lost profits, punitive damages and legal expenses.

The chain has asked for the lawsuit to be dismissed, saying it wasn't properly served with legal papers.

It's always embarrassing for a retail giant to come in second to a smaller competitor in some area—for example, Walmart (NYSE:WMT) trails Kroger (NYSE:KR) badly in grocery sales on Kroger's home turf in Cincinnati. And the challenge of chain-wide or nationwide operating rules is that what works most places might not be best in certain markets.

But a bigger problem for 7-Eleven is the claim that it's actually trying to drive franchisees out after they have paid large fees. The chain's Japanese parent, Seven & I Holdings, said recently that it wants to increase the number of U.S. stores to as many at 30,000. If the franchisees can convince a jury that the convenience-store giant has a very specific financial motive for trying to drive them out—to flip their stores and collect hundreds of thousands of dollars from new franchisees—whether 7-Eleven has unreasonable rules or has trouble competing with Wawa may be irrelevant.

For more:

- See this Courier-Post story

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