.
| News.. |
Quiznos update
Are things getting better for Quiznos franchisees?
The last time this reporter looked into Quiznos was three years ago, when the company had major problems: (1) Franchisees said they were not making any money because the products they had to purchase from company-owned AFD were too expensive. (2) Quiznos allowed stores to be built too close together, cannibalizing franchisees' market share. Although Quiznos was then called the country's "fastest-growing franchise," scores of stores were closing. (3) Much of that growth was measured by the collection of franchise fees, but, just like Piotrowski and Blickman, thousands of people had paid $25,000 fees but never found a location that Quiznos approved for a store. According to their franchise agreements, if they didn't open within a year, they forfeited the $25,000. (4) Quiznos offered little support, or even sympathy, for the franchisees' dilemmas. Company founder and then-CEO Richard Schaden blamed franchisees for their own problems. (Schaden sold a portion of his company to JP Morgan Chase in 2006 and now serves as Chairman of the Board.) (5) The company was beset by franchisee lawsuits. Are Quiznos franchisee relationships really improving now? Are franchisees becoming more profitable? After reading through current FDD's and contacting Quiznos franchisees at random, the answer is still unclear. The biggest difference today is that corporate acknowledges that problems exist. CEO David Deno, whose background includes stints at YUM and Burger King, has launched initiatives, including a Profit Planner Program, in which company representatives sit down with ailing franchisees to go over every aspect of their business, said Joe Hodas, Quiznos spokesperson. This winter, Quiznos attempted to increase franchisees' business by unveiling a value pricing strategy, promoting 20 sub sandwiches priced at $5 or less. The franchisees we talked to said the lower prices have brought in more customers, but product is still so expensive that reducing prices hurts their margins even more. Stores are still closing, at such a rapid clip that in 2007, Quiznos had no gain at all in the U.S., opening and closing exactly 439 stores. Thirty-six new stores did open in Puerto Rico that year. Numbers for 2008 won't be released until March, but preliminary statistics don't look good. At the end of 2007, the company projected 358 U.S. openings for 2008. As of March 15, 2008, 89 more stores had closed - and that was before the economy turned really bad. A tally taken at the end of January, 2009, showed that Quiznos closings were outnumbering openings by three to one. Scores of Quiznos are for sale, often at fire sale prices. One day in early February, over 10 percent of the first 140 franchises listed for sale on www.businessesforsale.com were Quiznos, with prices ranging from $60,000 to $375,000. Sellers had pulled the Quiznos name from listings that had been on the Web site longer, offering simply an outlet of a 'national sandwich chain.' Their prices included $30,000 for a store in Nevada; $59,000 for one in Thousand Oaks and "any reasonable offer" for one in Florida. A franchisee with two Quiznos called at random said one of his stores is "doing pretty well, the other one is not, and it's for sale. I bought these stores at high prices. If you could pick one up for $30,000, you could do pretty good with it." At the end of 2005, Quiznos had 3,003 signed franchise agreements for stores that had not opened; by the end of 2007, that number was down to 2,653. Some of those people had opened stores, but most of the agreements had reached their one-year limit and were terminated by the franchisor. Deno seems to be trying to clean up that problem. An Addendum to the 2007 FDD provides a way for a prospective franchisee to get a refund of a 'site specific' franchise fee if he or she cannot obtain a lease for the property. More significant, Hodas said the company is close to reaching a settlement on a class action lawsuit filed in 2007 on behalf of over 3,000 people who had paid $25,000 franchise fees and never opened a store. The list of other lawsuits is also shrinking. A revised 2008 FDD filed in late January, 2009, shows that Quiznos attorneys have recently completed or settled 37 lawsuits, paying franchisees amounts that vary from $2,500 to $475,000. In most of these, the FDD states that Quiznos admits no wrongdoing, but wants to avoid the cost of litigation. According to Hodas, many of the company's 28 pending lawsuits may be settled soon as well. The large number of store closings may be settling Quiznos encroachment issues, because those that remain should gain market share. But that may not matter. Ellen Blickman said she's still hearing from franchisees who can't turn a profit, no matter what they do. Danny Kessels, president of the Toasted Subs Franchisee Association, representing 1,000 franchised stores, is more optimistic. Kessels said his Quiznos, in Boulder, Colorado, is profitable. "Quiznos has a great product and I still believe in the brand. If they could just fix the problems within the corporate offices and with our business model, everyone could make money," he said.
