‘Lucky’ P711M: 7-Eleven PH earmarks pay-when-you-can loan for franchisees
Leading convenience store operator Philippine Seven Corp. (PSC), the exclusive Philippine licensor of 7Eleven, is disbursing P711 million in zerointerest, paywhenable loans to help its franchisees cope with what could be a longdrawnout battle against the new coronavirus disease (COVID19) pandemic.
The Pandemic Support Program (PSP) was unveiled by PSC during its first online franchise town hall meeting in early June, while disbursement of funds began on June 20.
“We recognized immediately that the country’s [and the world’s] battle with COVID19 would be long and painful, so the first thing we did was request our bankers for an increase in our credit lines. Thankfully, they responded quickly and generously, and our next focus became how to deploy this access to capital strategically during the pandemic. The PSP is one such example,” PSC president and chief executive Jose Victor Paterno said.
As to why PSC decided to earmark the specific amount of P711 million, Paterno said this was the amount that the company would commit for now. “So might as well pick a lucky number so that all this ends quicker than we expect,” he said.
As of endmarch, PSC had P6.1 billion worth of cash reserves and P1.8 billion in debt. It reported a first quarter net profit of P104 million and P14.1 billion in sales from its 2,916 stores.
However, due to the pandemic, 22 percent of its stores were closed as of endapril, and 11 percent as of endmay.
“We remain highly confident in the worst case that we will get to the other side of this not just intact, but stronger. Aside from our resilient and innovative culture, we can also count on continuing access to debt and capital markets. Others in our ecosystem are not so fortunate, so in the spirit of ‘bayanihan,’ we need to do our part to get them through this storm,” Paterno added.
“But don’t get me wrong, we are in the same boat as our franchisees with regard to profitability challenges. Just because you can borrow doesn’t mean you’ll make money, just that you’ll survive for longer until you do. You’ll see when we release our second quarter numbers how profits will be extremely challenging for the foreseeable future. We are cutting costs across the board, including forced leaves, retrenchments, and a freeze on hiring, salary increases and store openings.”
Paterno called on landlords to share in the pain and help their tenants survive, noting that over 1,000 of PSC’S franchisees would have to pay rent. Otherwise, he said franchisees would have to shutter stores, while PSC would likewise have to give up some corporaterun stores.
“We have a very long list of unprofitable stores right now, and we expect the situation to continue until December at the very least. If and when that happens, expect that space to be vacant for a very long time,” he said.
Paterno noted they were supposed to build 400 new stores this year, but chose to halt the expansion “for the foreseeable future.”
PSP was designed in a way that franchisees will not have to shell out interest payments on a monthly basis. This likewise allows them to draw down on the program’s credit line as needed.
If and when the franchisee’s situation improves, the debt can be paid on a monthly basis, at zero interest. For franchisees who will choose to discontinue the franchise contract, all outstanding balances from PSP will be forgiven.
Waldo Abad Santos, PSC Franchise Advisory Council cochair, said: “Franchisees proudly share the 7Eleven culture of service in times of crisis, such as typhoons and other natural disasters. But this is no calamity that lasts a week, and many of us were worried where we’d find capital to continue to serve when we were losing so much.”
“Nobody wants to lend it seems, so we are grateful the PSP was launched to enable us to continue serving our communities. When all this is over, PSC’S concrete commitment to longterm partnership is something we franchisees will never forget. I personally don’t know of any other franchiser supporting its franchisees to this extent,” he added.