After more than 25 years playing a prominent role in the retailing scene, 7-Eleven Malaysia Sdn Bhd – the owner and operator of all 7-Eleven outlets in Malaysia & Area Licensee of the largest 24-hour convenience store in the world – recently announced an ambitious plan to sign up 200 franchisees by this year end and increase the number of franchised stores up to 50 percent of the total number of stores. The company also plans to expand its network to increase the stores to over 2,000 in the next few years by offering opportunities for more Malaysian entrepreneurs to share in the growth through its franchise programme. Ng Su Onn, its Executive Director, explains about this strategic move to Franchise Asia, and why now is just the right time to become a 7-Eleven franchisee.
7-Eleven Malaysia Sdn Bhd’s plans to have 2,000 stores nationwide in the next three to five years, of which 50 percent will be franchised. How close is 7-Eleven in achieving this target?
Currently we are in negotiation with one of our partners, Shell Malaysia, to convert its 500 Kedai Shell outlets into 7-Eleven stores in our pilot project. If our talks with Shell Malaysia materialises, then reaching 2,000 stores within three years is quite possible, even though the conversion process of Kedai Shell outlets to 7-Eleven stores could take some time. If it’s through organic growth alone, then it may take longer but we are confident to reach our target within five years. At present we have 1,100 stores with 600 to 700 of them ready to be franchised. We will decide to franchise the remaining stores when they reach a certain profitability level.
In summary, we are opening 113 stores to the general public and 50 stores to PERNAMA, which adds to 163 franchise stores. Therefore, 200 franchise stores by end of the year looks very possible.
It was reported that the 7-Eleven franchise scheme received 1,300 applications from potential franchisees, of which the company selected only 76. Why the small number of approval, how do you evaluate a franchisee as suitable and what is the process?
The response was tremendous but we only selected 76 of them because physically we can only process 50 to 100 franchisees a year after they complete a two-stage screening tests.
To participate in the franchise scheme, potential franchisees are required to invest RM250,000, of which RM100,000 is non-refundable initial franchise fee for use of system and brand, and training, another RM100,000 for the purchase of stocks and RM50,000 as security deposit. Although 7-Eleven has struck an agreement with Ambank to provide unsecured loans of up to RM175,000 for franchisees but to be fully committed, franchisees still needs to invest at least RM75,000 onto this business.
The first stage screening involves short listed candidates being ‘tested’ where we let them get a real feel of working in 7-Eleven stores for three consecutive days and nights, during which time they get a chance to evaluate us in return. If they are keen to proceed after this, then only we produce the franchise agreement for them to sign. After which, there is a ten-day cooling off period for them to think it over. I am glad to say that our franchise applicants are generally those who had done their own research before finalising on ours. As part of the evaluation process we also conduct a CTOS search on their financial as well as their business backgrounds.
The second stage screening is done by me personally where I conduct in-depth interviews to find out more about the franchisees. Once finalised, the franchisees will attend an eight-week training stint. As a 100 percent committed franchisor, our store managers are also sent to assist the new franchisee while they recruit and train their staff. After training I will see them again one more time before they take over the store. Our Field Consultants will then visit them once a week to audit them. Our Consultants often sit with them to find ways to maximise their sales and profit. And the best part is we don’t charge for these support services.
As for the type of franchisee, we prefer to work with hands-on operators who have the passion, enthusiasm and entrepreneurial desire to add value to their operations. We have received many applications from investors, but I think it defeats the purpose if we have investors opening 7-Eleven stores and recruiting our store managers to run the operations. In that case, we might as well operate them ourselves! With due respect to all the investors, we would rather recruit entrepreneurs with a strong drive and commitment to run our franchising programmes.
I am proud to mention that our first batch of 10 franchisees are doing very well by achieving sales between 15-20 percent higher than projected. We are different from many franchisors as we franchise out our existing stores with good track records and even allow franchisees to choose their choice locations.
It was reported that 7-Eleven also plans to expand and provide services including bill collection for utility companies, telcos and others. Will these services be provided in all 7-Eleven stores? If this is the case, how will franchise stores be compensated in this new revenue stream?
We are constantly improving our store services and offerings to meet our customers’ demands and expectations. Eventually we want to be a community centre where we can provide all kinds of services instead of just being a convenience store. There are many initiatives we would like to implement, but we will take it one step at a time, with simple improvements. For a start, all our stores will be equipped with new digital photocopiers, scanners and fax machines in April this year. The next important service we will provide is bills payment in all our stores. But this might take a while to implement as we are currently upgrading our stores and back-end office software to support bills payment capabilities.
The franchisees will be compensated based on automatic profit sharing from the revenue of the store. The franchisee will be responsible for the direct operating costs of the store such as employees’ salaries, phone bills, stationery usage, water and some maintenance costs. 7-Eleven on the other hand, will take care of expenses such as store rental, electricity bill, some maintenance costs, equipment, general insurance, royalties, inventory audit and merchandising services.
It was announced recently that 7-Eleven signed an agreement with Perwira Niaga Malaysia (PERNAMA), or the Armed Forces Trading Corp of Malaysia, to offer 100 ex-servicemen resettlement opportunities with job placement at 7-Eleven stores, with the aim to make them 7-Eleven franchisees. Can you elaborate a little on how this system works and how successful it has been so far? And do you plan to extend this to other organisations?
We are pleased that PERNAMA has chosen 7-Eleven as an avenue to develop their ex-servicemen into entrepreneurs. We also take it as part of our Corporate Social Responsibility (CSR) initiatives to offer opportunities to the ex-servicemen who had dedicated their lives for the nation. We welcome these ex-servicemen as they are highly committed, disciplined and focused – all quality attributes to excel in the franchise business. In fact in the USA, ex-servicemen had won many accolades as best franchisees due to these fundamental qualities. We believe a 24-hour operation like 7-Eleven would be an ideal platform for them to excel. All they need now are strong business skills and the knowledge to take off.
Under the programme, 7-Eleven Sdn Bhd will provide a three-month on-the-job training to candidates selected by PERNAMA and screened by 7-Eleven. Upon completion of the training, the candidates can either choose to work as store managers or operate an existing 7-Eleven store on a franchise basis. The selected candidates will receive financial support to fund the franchising fee of RM100,000 and another RM100,000 to invest in the store inventory. An additional RM50,000 security deposit will be provided by PERNAMA in the form of corporate guarantee. The ex-servicemen will go through a multiple level screening; first by PERNAMA, second by Perbadanan Usahawan Nasional Berhad (PUNB), the funding arm, and lastly by us. To date, 13 of them have been approved after participating in our comprehensive training programme. PERNAMA will send the 13 ex-servicemen in batches for the next training. Once they are assigned to 7-Eleven stores, we will conduct a compliance check every week. We are also planning to initiate a similar programme for Koperasi Polis DiRaja Malaysia (KPD) and are currently in discussion with them. We will make an announcement when it is finalised.
What is your view on franchising in Malaysia? Is Malaysia a fertile ground for franchising compared to other developed franchise-friendly countries, e.g. USA and Australia, where almost 50 percent of its economy is supported by the franchise sector?
In the US, almost all 7-Eleven stores are franchised while in Australia all except one 7-Eleven store is company owned. 7-Eleven stores in countries like Taiwan, Japan as well as in Scandinavian countries are 80 percent franchised. In Malaysia it is required under our License Agreement with 7-Eleven Inc. to keep a very small number of 7-Eleven stores as company owned. Although approval has been granted to franchise at least 90 percent of our stores but we believe it is only sensible to have a healthy balance between company-owned and franchise stores. Basically company-owned stores are necessary for us to conduct training, test new concepts, products and services before we successfully roll them out to the market. We cannot conduct trial and errors in franchised stores.
7-Eleven Malaysia was awarded the ‘Best Sales Growth’ by Malaysian Franchise Association (MFA) last year. How does the management feel about it and what are the factors that you think made 7-Eleven stand out from the rest to win this award?
We are extremely honoured. Actually, we were taken aback by the award, for the fact that we started franchising only last August. We thank MFA and the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) for nominating and having the trust in us. In fact the jury was surprised to see how structured we are while they were auditing our systems. For instance, our IT systems itself cost almost RM60,000 per store, company owned as well as franchise-stores. We do not cut corners and differentiate between company owned and franchisee owned. Another factor that I think impressed the jury was the relentless drive of an international brand like ours to promote local entrepreneurial products. We would certainly like to win more awards this year as we gain more franchising experience in Malaysia.
As the pioneer and largest 24-hour convenience store operator in Malaysia, what is the management’s expansion plan in terms of franchising?
In hindsight, we should have franchised 7-Eleven much earlier. It has been a wonderful experience for us in total. However, it took us more time than anticipated to sort out the training, to formulate the programme, to restructure the system, to update the software, to upgrade the training facilities, to train our trainers and so forth which undeniably incurred heavy investment from us. Even 7-Eleven International (SEI) USA and 7-Eleven Japan (SEJ) were caught by surprise and were impressed with our high quality franchise implementations when they audited us for franchise certification approval. Our next phase would be to offer franchising opportunities to our own employees akin to that being practised in the USA and other parts of the world. We feel the efforts would be much smoother as the staff are more familiar and experienced with our store operations. We want to be seen as a parent company that takes care of our family in every aspect.
Although store count is important for our growth, we must be wary not to churn out more stores that could exceed sales demand or may not meet sales targets. Matching the demand and supply is crucial. We also need to stimulate more customers to come to us by way of innovative advertising and promotions, contests, etc., and by offering more products and services through novel concepts. An idea we are currently focusing on is the introduction of fresh fruits at our stores. Fresh food is a big hit in Taiwan, and we have conducted a study by sending our team there. Another interesting concept in the pipeline is offering affordable quality lunch packs affordably priced below RM5. This concept has attracted great response in Taiwan and Japan. And for coffee lovers out there, be ready as we are preparing to equip all our 7-Eleven stores very soon with coffee-makers to brew your favourite cuppa made from high-quality Bolivian and Brazilian coffee beans.
As a company committed to shape the future of Malaysians, we want 7-Eleven to be among the top employers where future generations would be proud to be associated with. This is important because the younger generation is more inclined to support and respect companies with better management practices, good corporate governance, environment-friendly, and with a high sense of corporate social responsibility. In line with this, we are currently working with some charity and welfare organisations, old folk homes, World Wildlife Fund (WWF), as well as the environment ministry for future initiatives. With 1,100 stores and more to come, and with the most reach, we believe we can play a bigger role in simple ways and contribute meaningfully towards the nation’s growth. We want Malaysians to remember 7-Eleven as a company that gives back to the society.