Q&A with 7-Eleven PH President Victor Paterno on Franchising

1

Q1: Your franchise package used to cost P3.5 million, then P1 million, now at P300,000. Briefly, what are their differences in terms of risks versus rewards? What is the insight behind P300,000?

A1: To clarify, the P3.5m package is still around, available for new stores, and it still makes up most of our franchises. We call it the investor package, because it’s high risk, high return. The lower risk, lower return industrial partner package has been replaced with the 300k-500k package (depending on sales volume).

The idea was to make it more affordable to franchisees willing to be store managers of their own stores, where they are expected to report a minimum of 40 hours a week. To do that, we rethought the entire package. Profits are tied closer to sales and directly controllable costs, and simple enough to calculate so that you know how much you made at the end of each day. There is also greater downside protection – if you manage the store well (as measured by our customer service metrics), you will earn money even if your sales drop (because, for example, a competitor opens up beside you). To reduce risk further, it is only available for stores open a year or more.

Q2: What are the competencies, attitudes and behaviors of successful 7-Eleven franchisees versus those unsuccessful?

A2:For the investor package, to be honest, a lot has to do with your choice of location for your new store. Emerging markets have a high degree of uncertainty because of their rapid evolution. That said, good management can make a good location twice as profitable.

For the industrial partner, we’ve done everything we can to reward good management rather than location choice.

For both though, someone with strong people management skills who work the stores on a daily basis always outperform their locations. Convenience store staff have to multi-task more than typical service industry workers, so managers who can coach, control, and inspire their staff to serve the customer do well.

We prioritize those who have strong track records managing branch operations – grocery, boutique, or restaurant, etc.

As an aside, many of my friends have called about the 300k franchise when it came out in the papers, and I’ve had to tell them it likely wasn’t for them. It takes a lot of focus and dedication to be a full time store manager, and you really will have little time for anything else.

Q3: You allocate 1 truck for every 5 franchisees for daily delivery. How many delivery turns can these trucks do in a day? What is your vision for this?

A3: Those closest to the warehouse can sometimes manage a second trip, which we need especially during peak periods, but traffic is making this increasingly difficult.

Q4: First mover and economies of scale are two of your biggest advantages. Looking at the industry landscape, can a mini-mart format, pricing their products same level as supermarkets, outsmart your advantages?

A4: Anything is possible of course, but we look to other countries for what’s likely. And what we see tells us that, although the convenience and minimart formats nominally cater to different customers (the end consumer and the housewife, respectively), where one is dominant, the other struggles. In Thailand, where 7-eleven has 10,000 stores, minimarts have not taken off, despite determined efforts by successful large format players Tesco and Central. Meanwhile, in Indonesia, where Alfamart and Indomart have 12,000 stores each, 7-eleven is closing it’s 150 store operation.

That said, drugstores here have, in my opinion, already played the minimart role for decades, and we’ve managed to grow out of their shadow, so perhaps the Philippine market favors convenience stores.

Finally, the minimart format, even when successful, just isn’t as profitable: Alfamart Indonesia market cap is 1.6B (about the same as 7-eleven Philippines), while 7-eleven Thailand’s market cap with fewer stores is 14B.

Q5: What trends are you seeing in convenience stores and franchising?

A5: As an operator matures, he tends to franchise more for talent (which is scarcer the larger her gets) and less for capital (which becomes more abundant).

Josiah Go

Josiah Go is the Chairman and Chief Innovation Strategist of Mansmith and Fielders, Inc., and Chairman of Waters Philippines (the market leader in the direct selling of premium home water purifiers in the Philippines). He is Chairman / Vice Chairman / Director of over a dozen companies. Known as one of the Philippines’ most respected marketing gurus, he is the most awarded business educator of the Philippines having been recognized as one of the Agora Awardees in 1994, one of the Ten Outstanding Young Men (TOYM) of the Philippines in 2001, one of the Ten Outstanding Young Persons (TOYP) of the World in 2002 (the 1st and only Filipino in Business Education given by World JCI in a competition of over 1,000 TOYMs), and one of only two Lifetime Achievement Awardees by the Association of Marketing Educators (2007), the youngest marketing educator to be bestowed this honor. He was also given the Brand Leadership Award during the World Brand Congress in India (2009). His accomplishments was recognized by the international community where he has been included in the 10th edition of the International Who’s Who of Intellectuals (England). He is also the first Filipino to have completed the Blue Ocean Strategy qualification process in Blue Ocean Institute in INSEAD, France and is the first in Southeast Asia to have taught this as a 3-unit, full semester course in a university. He specializes in the fusion of marketing and innovation using the lenses of data-driven entrepreneurship and teaches advanced marketing subjects like Market-Driving Strategies, Business Model Innovation, 5 Skills of Master Strategists, Marketing Innovation, Mastering Innovation and Defense Strategy. He has given talks and facilitated over 1,000 marketing seminars in the Philippines and internationally to teams in diverse industries, in different situations and contexts. A thought leader with 18 bestselling and recordbreaking marketing and entrepreneurship books, Josiah has taught at the De La Salle and Ateneo Universities. He is an Executive Scholar of the Kellogg Business School (in Marketing and Sales Management) as well as the MIT Sloan (in Strategy and Innovation). He also took advance marketing programs at Harvard, Wharton and at the London Business School. His industry affiliations include being National President of the Philippine Marketing Association (1991), Chairman of the Direct Selling Association of the Philippines (2002), National President of the Association of Marketing Educators (2004-2005). He continues to be involved in various advocacies aimed at youth empowerment and entrepreneurship namely, the Young Market Masters Awards (YMMA), Mansmith Innovation Awards, Day 8 Business Academy for SMEs, and the MarkProf Foundation.

One thought on “Q&A with 7-Eleven PH President Victor Paterno on Franchising

Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

The Personal Branding of Leni Robredo by Josiah Go

Mon Jul 10 , 2017
Leni Robredo is the duly elected vice president of the Philippines. She won over her closest rival, Senator Bong Bong Marcos, with a slim gain of less than one percent of total votes while the number of her votes was over 4.4 million more than that of her presidential running mate, former Secretary Mar Roxas. Whoever had chosen Leni Robredo […]

Josiah Go features the movers and shakers of the business world and writes about marketing, strategy, innovation, execution and entrepreneurship

Archives

Send this to a friend