Economics of a 7-11 or a dry clean store

I'm curious about the possiblity of running a small business like this, could be a 7-11, dry clean store, or whatever small business that requires little down payment.

Anybody have had any experience with that?  

Comments (47)

 
Most Helpful
Jan 31, 2021 - 1:38pm

Couple of things...

- One of the brands you have named is a franchise, and the down payment is not a small amount. 7-11's and similar branded convenience stores are very expensive to start, and, depending on what you expect to get in return, could be a good ROI. the brand can be powerful and you will get the national/local advertising, as well as the infrastructure like loyalty/rewards solution, full training/support, etc - but you will pay every month for these services. A franchise system may be a good solution for some (if they don't know what they are doing), or a very bad solution for others. During the pandemic many franchisees lost their shirt on their businesses but were still expected to run promos/deals, pay for marketing expenses, or even update their stores! In some cases the franchisor has a tremendous amount of influence over the business. they may also not allow absentee operators (meaning you have to work in the store).

- a dry cleaning business, laundromat, unbranded convenience store, small market, liquor store, c-store within gas station, pet care, senior citizen care, handyman services, cafe, etc can be part of a franchise, but they don't have to be (can be independent). If you don't need the franchise model you could just build one on your own.
- biggest hassles are business licenses, insurances, zoning laws, branding, employee training, employee churn, minimum wage increases, food safety/hygiene, inventory costs, breakage, employee theft, and robberies or homicides in your business (yes, stores get robbed and staff get shot or killed)

- We are in an economic downturn, so cheap rent might be more useful than buying any commercial property
- Not everything requires a brick-and-mortar store; some service based businesses can be managed from home or from a truck, etc
- If you DO go ahead with a brick-and-mortar business, location is SUPER important. please look into this with all the time you have, check KPIs, traffic count, etc
- Make sure you do your homework on the legal aspects for all of these (more complicated to sell cannabis or guns compared to a chocolate bar)
- Do not attempt to do this without the right legal support! there are franchise lawyers, cannabis lawyers, real estate lawyers, etc - don't cut costs here, shop around but do interview multiple lawyers! You may even need multiple lawyers for one business, depending on what it is.
- If you are buying an existing business, please ask for official tax and account statements, not just back of the envelope type stuff. And most cash based businesses don't report full earnings all the time. Multiples are available through the web in almost any industry.

ROI on some of those businesses can be very good. A good friend quit banking to launch a chain of laundromats and he became a millionaire in 3 years.

source: I own or have owned multiple small businesses (no franchises yet)

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  • Intern in PE - Growth
Jan 31, 2021 - 8:46pm

+1. What kind of returns are we generally looking at, if done right? Unlevered and levered

 
Feb 1, 2021 - 3:15am

all of this depends a lot on the location, state, type of store and more.

on est. $1M in revenue, about $300K to $350K can be expected in gross profits, about half of that goes to 7-11
7-11 will pay the rent and a lot of the other stuff which will give 7-11 about $120K in pretax profit
From your half you will handle staff, cash and other costs

roi is about 75-125 on an investment of 250-500K (estimated), this all again depends on each individual store

you effectively have to work there yourself for at least 1 shift, since hiring a manager for the store would kill off the remaining profit. most franchises are only there so "you can buy a job for yourself".

Sadly, in these type of businesses you are dealing with low income employees, low income customers, homeless people, and in some cases criminals who want your  money (ie robbery or more). Think whether you want to deal with this kind of situation all the time. and before anyone claims I am biased against low-income groups: I am not. I have worked in many of these type of businesses and my comment is in reference to how you, as a business owner, might be treated. People will yell at you, they may spit at you, they may throw your own products at you or will straight up try to rob or kill you. All of these things will happen in retail establishments across many areas of the US.

 

note: all numbers are estimates.

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  • Analyst 2 in IB-M&A
Jan 31, 2021 - 7:25pm

One thing to keep in mind about dry cleaners is that dry cleaning services may be less in demand than before due to new WFH life that may be here to stay, at the very least in some partial form. This means that people will be wearing their work clothes that are typically dry cleaned less than in previous years which means less frequent demand for dry cleaning services.

It really even extends beyond specifically dry cleaners. In the case of a 7-11, if I'm not walking by the 7-11 I normally would on my way to work as often because I'm not needed in the office as often, I'm not spending as much there as I used to (on a morning coffee or afternoon snack or whatever it may be).

My $0.02.

 
Feb 1, 2021 - 11:21pm

lol nice one

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 2, 2021 - 9:00pm

xiaochengopalbatista

Good business. 7/11

I went to a 7/11 in Australia in Melbourne and they had a $10,000 automatic espresso grinder that I used everyday there and the whole feel felt like an upper class cafe. It was way nicer than places I've been to in the US. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
  • Prospect in HF - Other
Jan 31, 2021 - 8:46pm

Owning a laundramat/dry cleaning is SUPER lucarative, you do have to pay your dues for the initial 2-3 years in setting up the business and renovating and what not but after that expanding/maintaing is extremely easy once the business gets rolling. The two main things for these types of businesses I would say is being in a prime location that has solid foot traffic, area with decent amount of apartments/townhouses and making sure there isn't too much competition in the area where you want to establish. Also, focus more on customer experiance and quality over advertising the business as customers will do the advertising for you as long as quality and prices are worthy of it. Getting a good rent deal and having a handy man on call to fix a machine is also something that will help alot in the long term. 

source: my dad owns a laundry

 
  • Analyst 1 in IB - Gen
Feb 2, 2021 - 12:29am

how much do they typically cost and how much profit do they generate a year? 

 
  • Prospect in HF - Other
Feb 2, 2021 - 5:36pm

He spent about 325k ± 30k on purchasing the business (90K) and then the rest went into new machines and renovating and other stuff. He got return on investment back in about 2.5 - 3.5 years and currently makes about 150-175k in profit. Also, since there is a dry cleaning shop in the complex of the store, he can't legally operate one but if that dry cleaning store wasn't there, he'd be making significantly more. Profit can also be different tho as my aunt and uncle had two laundramat/dry cleaning store in North Carolina and were likely clearing 500k per year which is alot in that state so it really varies on a lot of factors.

 
Feb 2, 2021 - 8:38pm

I wonder how my uncle did it? He owned a few Popeyes back in the day. I know for a fact he didn't meet the net worth requirements. Though, he was (still is) personal friends with Shoukat Dhanani who's probably a billionaire. So that may have something to do with it.

 
Feb 2, 2021 - 9:04pm

If I ever bought a restaurant chain franchise or something, I would feel very adamant about putting in shifts every now and then. You have to stay in touch with your employees and customers.  

Then, focus on training a store manager and build from there (more locations). The cultural imprint you leave on each location should be personal and effective. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 2, 2021 - 9:22pm

I lend to a lot of 7-11s and other franchises. I can give you a detailed breakdown via DM if you are serious about them. One thing that I can say is that 7-11's franchise agreements are EXTREMELY restrictive and they take a large split of the gross revenues of each store. Other franchises mean that YMMV but generally its 4% gross revenue off the top and 4% marketing fee. The rest depends on the franchisor. I would go for an unfranchised drycleaner/laundromat personally. No one really cares about brand names, they are low operating cost and throw off a ton of cash.

 
Feb 3, 2021 - 1:34am

I agree with you that franchises can be very, very expensive to operate. Also, you don't own anything in that operation, everything is leased. the franchise documents I have read are exactly what you have said: restrictive.

BUT, for most generic finance staff in a bank or the average office employee, finding/designing/planning/building and operating a new business can also be very frustrating, time consuming and difficult. It is not as easy as it looks. a franchise model could take away a lot of the work. Also, franchises are one way of obtaining the E2 visa for qualifying nations. Not every immigrant can get into a T10 school or even wants to study. The US are one of the few Western nations with that investor visa and it is easier to obtain with a franchise.

Just as an example:
Laundromats require so called "hook up fees" per machine, and they have to be paid in cash upfront. They can range from a few hundred to several thousand dollars per machine. I have interviewed laundromat owners who have had to invest >60K $US in these sewage fees. A laundromat may be unbranded, but like other businesses, it is one of the more expensive ones to start.

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Feb 18, 2021 - 1:20pm

Back when I was a teller in a rather middle class rural type town, the 7-11 owner would come by and deposit $5-10k in cash every day. A good chunk of the cash we had in the vault came from him. He owned two locations and would always pull up in expensive cars. Always wondered how profitable those locations were with that cash flow. 

 
  • Analyst 1 in S&T - Equities
Feb 3, 2021 - 11:01am

FWIW 7-11 seems pretty bad. I've looked into it and it seemed to have one of the lower yields across the board than anything else I looked at. I showed a friend who has quite a few 7-11's one for sale that I was interested in that was grossing something like $3mm and long and short of it is he said that kind of top-line wouldn't be nearly enough to replace the income I was making at the time.

 
Feb 17, 2021 - 5:31am

I worked in several of these businesses before, mostly 7/11, convenience stores, gas stations and similar when I was younger. My uncle owns a chain of convenience stores in Southern California. In order to make a decent profit it is all about scaling the business up. 1 store alone might not be enough, especially if the owner is also working a regular job. There are easier ways of making a side gig work, running a retail business requires more time and work. Gas stations make almost no profit on gas, and more and more consumers are not coming into the store (because of the pandemic or other reasons).

What was said above is true regarding difficult customers, but the police were always there when we needed them (I have not seen any shootings, but they do happen).

My uncle invested in several businesses recently and there are a few deals right now; it is still an investment that is on the higher end of the scale for private investors.

 

 
Feb 22, 2021 - 5:41am

I think people are just thinking out loud. What they mean is "convenience store" or laundromat. both are very different businesses but are, in all likelihood, in the ballpark a retail investor could go into (about 100-200K initial investment depending on location). I have also seen both combined, look up  Short Stop in Junction, TX. they have a store, laundromat, pizza place and more in 1 shop. very tiny town though.

 

 
Feb 20, 2021 - 9:45pm

these questions come up every so often. i've also been interested In dry cleaners for about 6 years, then I got interested in franchises. I also did a lot of research on tanning salons.

my plan is to open a fast food franchise. I almost have enough saved up for the initial fee. I'm assuming take home 4-6% on revenue of ~2m GBP on one location. a lot of people mention how the royalty fee is a down side, but a lot of people don't recognise that you benefit from the bulk purchase of packaging and marketing from the parent. Just need to make sure it is a good franchise, and I'd argue a lot of the cheap, well-known brands are fairly recession proof. I've also shot some e-mails back and forth between 'hot' quick food restaurant, for example one place that started in LA, opened up shop in London, I asked if they would franchise me their model for other UK cities.

there was also a guy on here, 'bowser' I think, that had a thread about unsexy businesses, which may have got me interested initially now that I think about it, talking about car washes etc. eventually he bought some billboard advertising (this was probably 6 years ago before social media marketing got so popular). that reminds me ive been eyeing up vacant commercial property continuously for years, seen a couple old/disused gas stations that would make good car washes. 

one other franchise I looked in to was amazon delivery, but you dont make significant profit on that. 

 
  • Prospect in IB-M&A
Feb 21, 2021 - 9:59am

There are a lot of retail businesses that are much more profitable than the three talked about above. Get creative, think about what you hate paying for but do anyways.

 
Feb 21, 2021 - 11:33am

What are people's thoughts on a niche coffee shop that has strong support in its flagship location and seemingly good success in it's second location opened up not far away from the first in the past few years. Would there be an opportunity to buy out and franchise out eventually or would approaching current ownership about opening a third location on terms that are more favorable than a regular franchise oppurtunity per se. Anyone know the ins and outs of this business model vs. other restuarant chains and franchises? I know theres a million starbucks and dunks, but places like Peet's and Blue Bottle still spring up.

 
Feb 22, 2021 - 5:43am

I don't drink coffee or anything expensive, just water. But I had so many meetings, dates and general gatherings at Starbucks and other coffee shops in my life. I totally believe there is a good reason why so many are there. Can't say anything their profitability though.

 

 

 
Feb 21, 2021 - 11:39am

Are small franchises like 7/11 really that lucrative?  Where I'm from they are operated by first generation immigrants that don't seem to be doing so well, more like just getting by.  Surely there are more lucrative opportunities for less work?

 
Feb 21, 2021 - 2:01pm

not sure because 7-11 isn't available in the UK, but from my experience, the immigrants may have pooled together funds from family members in order to get the shop in the first place, hence more mouths to feed.

 
Feb 22, 2021 - 5:44am

It depends on the location, some of them have several million in gross revenue per year. So, yeah, they can be lucrative.
And the immigrants who work there might be just the staff or, if owner, they may have pooled the investment.

 

 
Feb 21, 2021 - 2:51pm

I went through a Zips car wash yesterday and viewed the whole operation as one money making machine. Fast, efficient, lots of customers. And they had monthly plans - wow - great way to keep customers coming back.

https://www.zipscarwash.com

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 21, 2021 - 5:48pm

 

My firm last year bought Mr. Car Wash's (Leonard Green Partner PortCo.) 1st lien term loans and let me tell you those automated car washes are a cash flow machine. Those FCF margins are sweet af. Throw in sale leasebacks and you get magical IRR #s. 

Yeah exactly - the automated car washes. Seems like great returns. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee

 
Feb 21, 2021 - 7:58pm

I think the real danger with a "can't miss" investment is that you end up stuck in a weird low-growth zombie mode where you can't get yourself out of the day to day of the business. Not saying it's impossible, but seems to be the biggest risk with a franchise. You never quite earn enough to buy more and accumulate enough FCF to make good hires.

Being stuck in day to day ops is really really brutal, especially for a super small company where you're managing a lot of $12/hr employees. More raw hustle than intellectual stimulation. 

Maybe the risk is lower if you're younger without dependents and can live off like $25k - $50k for a bit and allocate surplus cash flow into new franchises/low risk businesses but it would still take forever.

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