Quiznos is growing again, outside the U.S. at least
A sleek store design.
“Quiznos has had its ups and downs, to be sure,” says Richard Eisenberg, the brand’s master franchisee in Costa Rica and a handful of other Latin American countries.
That’s certainly an understatement, as Quiznos famously shrunk from a high of 4,700 U.S. locations in 2007 to a mere 308 at the end of 2018 as bad real estate decisions, unqualified operators and dismal unit volumes finally caught up with it.
On the international front, however, Eisenberg notes his stores “generally do about 50 percent more volume than in the U.S.,” which is one of the reasons he wants to keep expanding the brand, recently signing a 20-store development deal to open more restaurants in Costa Rica, plus Honduras, Panama, Nicaragua and El Salvador. (A Technomic estimate puts Quiznos’ domestic AUVs at $227,500 in 2016, the last year information was available.)
“We’re still seen as a premium sandwich brand, more so than some of our competitors, such as Subway,” says Eisenberg, who’s been a Quiznos master franchisee for 20 years since founding QSR International and opening an office in San Jose, Costa Rica. He’s also a master franchisee for Smashburger and Teriyaki Experience in Latin America.
Richard Eisenberg, above, is Quiznos’ master franchisee in Costa Rica. His stores “generally do about 50 percent more volume than in the U.S.,” he says.
But the brand’s international footprint hasn’t been immune to some struggles, going from more than 600 units in 2012 to around 200 today in 30-plus countries. Eisenberg’s own unit count has dwindled, from a high of 140 restaurants to 56, which he attributes not to issues with the Quiznos brand but to larger factors in the regions where he operates.
“We have had some Central American countries essentially blow up their economies” in recent years, says Eisenberg, namely Guatemala, which has been plagued by economic stagnation and corruption scandals, and where Eisenberg at one time had 17 restaurants. The region at large is also still feeling the effects of the global recession in 2009.
“If the U.S. gets a cold, Central America gets the flu,” says Eisenberg, adding the countries he operates in are about seven to 10 years behind the U.S. so are just now showing signs of recovery. That economic uptick is among the reasons Eisenberg wants to start growing Quiznos again.
“The Costa Rican economy is starting to rebound after some very serious tax changes,” he says. Costa Rica’s tax reform law, “The Law on Strengthening Public Finances,” is aimed at increasing revenue with adjustments to sales and income taxes while also limiting government spending.
Solid international model
“Quiznos is positioned as a healthy brand here,” says Eisenberg. And yet, “80 percent of all orders go out with fries.”
Healthy is subjective, he continues, and in Latin America it’s equated largely with quality, something consumers attribute to Quiznos in abundance as an American brand. “I think consumers in Latin America are always looking to U.S. brands as being better, superior to local brands,” says Eisenberg. “The trust in North American brands is there … consumers recognize it, they give us credit for it.” And those fries, he points out, are a premium waffle fry from Idaho-based potato company Lamb Weston and are “better than Chick-fil-A’s” thanks to a potato starch coating. Marketing materials call attention to our “100 percent breast meat versus processed” chicken.
QSR International’s restaurants also have more salads on their menus—and the sales to go along with them, with salads accounting for 14 percent of orders versus 4 to 5 percent at U.S. locations—plus breakfast items, pizza and the all-important espresso programs. Those espresso programs, which “we kind of pioneered way before Starbucks was down here,” says Eisenberg, include premium cappuccino and lattes, and help grow the 3 p.m. to 5 p.m. daypart.
“The international model has always understood you can’t make money with just one daypart,” says Tom Harper, VP of international development at Quizno’s parent Rego Restaurant Group since July 2019. “Franchisees have to have breakfast, lunch and dinner” and the espresso programs capture what he terms “passive sales” during those hours between mealtimes.
A new Quiznos store in Costa Rica, where economic recovery is lagging the United States.
Understanding the necessity of adaptations is something Harper says he learned in past restaurant consulting roles and earlier in his career as a managing director within Yum Brand’s international portfolio. “I’m so grateful for those experiences. I saw so many U.S. concepts go international with no changes,” he says. “What I learned is take the core concept, that 60 to 70 percent, and meld it with 30 to 40 percent local adaptation.”
Harper is putting his stamp on Quiznos’ international development program in other ways, including by seeing every master franchisee twice a year in person. “Before, Quiznos didn’t travel, they tried to operate everything out of Denver,” says Harper, referring to Rego’s headquarters. “So, before I took the job, I said I need to be able to travel.” That’s enabled him better understand local operations, improve support and scout new potential markets.
Perhaps the biggest change, though, was to Quiznos’ royalty structure at the international level, which, says Harper, was previously too high. “The biggest concern with franchising is that someone is making money at the expense of someone else,” he notes.
Master franchisees pay a royalty of 5 percent of gross sales, along with 2 percent to a marketing fund; they in turn can’t require their sub-franchisees to pay more than a combined 9 percent of sales for royalty and marketing fees “because the model can’t support it.”
“Five percent royalty and 3 percent marketing is what we recommend,” says Harper.
As for attracting interest from master franchisees to a system that’s trying to claw its way back since being acquired by private equity firm High Bluff Capital Partners in 2018, Harper says he takes a direct approach. “The history of Quiznos is well documented,” he says. “It had unprecedented glory and then an unprecedented collapse in the U.S. But we explain that the international model looks totally different from the U.S.”
For Eisenberg, who as he opens company restaurants is also looking for franchisees, it’s a matter of demonstrating the performance of the brand in his markets. “We still have great volume and great stores,” he says, while acknowledging the state of the brand in the U.S. does come up. “Generally, we’re always up against explaining the situation in the U.S. and what’s been happening.”
Sophisticated operators, the ilk Eisenberg is after, understand the potential for Quiznos in Latin America, he says. “We definitely are not looking for mom-and-pop franchisees. We’re looking for people who can sign development agreements.”