Franchising Properties

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DISADVANTAGES AND ADVANTAGES OF FRANCHISING

Text of Franchising Properties

Corporate visionOur vision is to be the best retailer of convenience for emerging markets.Core PurposeTo make daily life easier by providing modern convenience.Oath of 7-Eleven EmployeesI want to treat everyone honestly and promise to try my best to serve our customers in order to create a better future for the company, my family, and myself.The 5 7-Eleven fundamentals are quality, speed, selection, and value in a safe and pleasant environment.Core Values Customer focused Teamwork Integrity Reliability Results orientedThe first seven years OnOctober 26, 1982, Philippine Seven Corp. (PSC) acquired the license agreement to use the 7-Eleven Convenience Store system in the entirePhilippinesfrom Southland Corporation ofDallas,Texas. After a month, PSC was registered with SEC on29 November 1982. The incorporators were Jose T. Pardo, Vicente T. Paterno and Francisco R. Sibal. The companys chief mission was to introduce an entirely new retailing concept to the Filipino consumers, i.e. operating a chain of 24-hours convenience stores. The first corporate office was located at the ninth floor of theCenturyTowerbuilding inSalcedoVillage,MakatiCity. In order to apply Southland technology in all phases of managing a 7-Eleven convenience store, PSC sent five of its employees to various Southland installations in theUS. The so-called Five-Man Team was consisted by Francisco R. Sibal, Executive Vice President; Ramon de Jesus, General Manager; Jose Blanch, Merchandising Manager; Wilfredo Villanueva, Accounting Manager; and Teodoro Wenceslao, Store Operations Manager. They left onFebruary 15, 1983to undergo a five-week in-depth training in their respective fields. Upon their return to the country, the Five-Man Team immediately set out to practice what they've learned from the functional training: site selection, design and construction of the first 7-Eleven store, negotiation with suppliers, ordering of equipments, recruitment and training of first batch of employees. The assassination of Ninoy Aquino at theManilaInternationalAirportonAugust 21, 1983triggered the steady deterioration of the economic and political situation in the country. In spite of the bleak state of the market, PSC decided to proceed with the 7-Eleven project. On this account, the company needed fresh capital to build its first two stores. The Board of Directors increased their respective equity contributions in PSC and invited two outstanding businessmen, Mr. Jorge L. Araneta and Mr. Ernesto B. Rufino Jr., to become new shareholders and directors of PSC. Despite the aggravating political and economic adversities, PSC gamely opened its first 7-Eleven convenience store, located at the corner of EDSA and Kamias Streets in Kamuning,Quezon City, onFebruary 29, 1984. This store proved to be a tough one as it weathered all types of calamities, the EDSA revolution, and coup'd'etats. The second 7-Eleven convenience store was opened atPresident Ave., BF Homes, Paraaque, which was adjacent to the entrance of a posh subdivision, in April 1984. Having been able to open two stores within the same year, PSC was able to make necessary comparisons in the operations of its stores. It has learned that the primary customers of 7-Eleven stores came from the middle class: the salaried, busy employee who preferred a quick fix, while on his/her way home or to the office. Because PSC steadily lost money during the years of 1984 to 1985, and due to the outrageous impossibility of securing bank loans, Francis R. Sibal was compelled to sell his share in the company and relinquish his responsibilities as executive vice president and managing director. His duties as Managing director was assumed by Mr. Vicente Paterno, while his responsibility for external affairs was taken over by Mr. Jose T. Pardo. To infuse additional capital into the company, PSC sought the assistance of a friendly large Philippine organization who later offered a substantial semi equity term loan. Because of this, the company had adequate funds to open its third 7-Eleven convenience store at the corner of Harrison and Libertad Streets inPasayCityin October 1985, and patterned it to the characteristics of the Kamias branch. Management also came up with a clever leasing scheme wherein the lender participates in store profit when an individual store achieves higher than target sales volume. This was an effective way to source out funds for the construction of more stores. The first 7-Eleven Convenience Store built through this scheme was the branch located in Nagtahan Rotonda, at Santa Mesa,Manila. On May 19, 1988, PSC's sister company, Philippine Seven Properties Corporation (PSPC) was registered with SEC, and its incorporators were Manuel Agustines, Jorge Araneta, Jose Pardo, Vicente Paterno, and Alfredo Ramos. PSPC undermined the difficulties posed by the Constitution, and made it easier for PSC to raise money through acceptance of foreign and corporate investments. PSPC was able to successfully generate additional funds which were used by PSC in the construction of six stores in 1988, and five stores in 1989. Indeed, a tremendous blast of enthusiastic action from PSC Management. Though still inexperienced in the field of the convenience store industry, PSC showed remarkable results. In fact, according to Southland's technical representatives, PSC's 7-Eleven stores compared favorably with other 7-Eleven stores anywhere in the world. The stores were clean, comfortable, and the ambience was very inviting and pleasant. Surely, the company has learned its lessons well.Corporate history Philippine Seven Corporation (PSC)was registered with the Securities and Exchange Commission (SEC) on November 1982.It acquired from Southland Corporation (nowSeven Eleven, Inc.) ofDallas,Texasthe license to operate 7-Eleven stores in thePhilippinesinDecember 13, 1982. Operations commenced with the opening of its first store inFebruary 29, 1984at the corner ofKamias Roadand EDSA Quezon City, Metro Manila. Considering the countrys economic condition at that time, the Company grew slowly in its first few years of existence. In July 1988, PSC transferred the Philippine area license to operate 7-Eleven stores to its affiliate, Phil-Seven Properties Corporation (PSPC), together with some of its store properties. In exchange thereof, PSC received 47% of PSPC stock as payment. Concurrent with the transfer, PSC entered into a sublicensing agreement with PSPC to operate 7-Eleven stores in Metro Manila and suburbs. As part of PSPCs main business, it acquired or leased commercial properties and constructed retail storebuildings, leasing the buildings to PSC on long term basis together with most of the capital equipment used for store operations. In effect, PSC concentrated on managing its stores and effectively took the role of a pure retailer. In May 1996, the stockholders of both PSC and PSPC approved the merger of the two companies to advance PSC groups expansion. InOctober 30, 1996, SEC approved the merger and PSPC was then absorbed by PSC as the surviving entity.With the consolidation of the respective lines of business of PSC and PSPC, PSCs retailing strengths were complemented by PSPCs property and franchise holdings.Their management as a single entity enhanced operational efficiency and strengthened ability to raise capital for growth. PSC listed it shares (SEVN) in the Philippine Stock Exchange and had its initial public offering inFebruary 04, 1998. The shares were offered at the price of P4.40 per share from its par value of P1.00 per share. InSeptember 17, 1998, PSC established Convenience Distribution Inc. (CDI), a wholly owned subsidiary, to provide a centralized warehouse and distribution system to service its 7-Eleven stores. With the effectivity of the Retail Trade Liberalization Act (R.A. 8762) onMarch 25, 2000, foreign entities were allowed to invest in an existing retail company subject to the requirements of the law. President Chain Store Corporation of Taiwan (PCSC), which is also the 7-Eleven licensee inTaiwanoperating about 2,700 stores, purchased 119,575,008 common shares of PSC or 50.4% of PSCs outstanding capital stock at the price of P8.30 per share. The purchase was made under a tender offer during October 9 toNovember 7, 2000by President Chain Store (Labuan) Holdings, Ltd., a Malaysian investment holding company, wholly-owned by PCSC. The acquisition is meant to forge a strategic alliance which aims to provide PSC with technical support from PCSC in strengthening its organizational structure and operating systems. This shall enable PSC to pursue store expansion plans on sound and profitable basis.A new affiliate, Store Sites Holdings Inc., was also established onNovember 9, 2000, as the entity to own land properties of the Company.These land properties are leased to PSC by SSHI.The Corporations area license to operate 7-Eleven Stores in thePhilippineswas renewed in August 2007 for another term of 20 years, renewable every 10 years.The Renewal Area License Agreement has been approved by andregistered with the Intellectual Property Office as ofSeptember 25, 2007. The Corporation initiated the establishment of PhilSeven Foundation Inc. (PFI) in October 2007 to support its corporate social responsibility programs. PFI was granted certificate of registration by DSWD last August 6, 2010. The company had a manpower complement of1,921 personnel, 655 of whom are regular employees, 301 contractual/probationary and 965 cooperativemembers to augment temporary needs during peak hours or season in the stores and the support services units. There is no existing labor union in the company and collective bargaining agreement. There is an Employees Council which communicates to management the employee concerns. There has been no strike or threat to strike from the employees for the past three years. At year end, PSC is operating 551 stores, 211 of which are franchise stores, 130 stores are operated under a service agreement, and th

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