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DENVER – Leaders of the newly formed Quiznos Franchisee Association came away from last week's Las Vegas convention feeling encouraged. But they also know that store owners are hanging by a thread. They need store profitability now.
The independent association president Keith Rentschler told Blue MauMau that QZFA was allowed to set up a booth with other vendors during the convention cocktail party. Not only were group leaders able to socialize with Quiznos’ new owners Avenue Capital Group, but also with other franchisees. “It was the first time franchise owners have gotten together in the Quiznos system in nine years,” Rentschler said.
Franchisee Rentschler was elated to have the chance to talk with fellow owners. The QZFA president said, “They [franchise owners] were both willing and excited to join the association.” The group signed on 100 members.
The association’s board of directors also received the chance to attend dinners with Quiznos’ newly selected board of managers. “It was a social setting that allowed for initial introductions and a chance to get to know one another, paving the way for future conversations and dialogues in perhaps not so social environments,” Rentschler said.
Before conference, franchisees requested "true dialog" with Quiznos
Just a month before the Las Vegas convention, the franchisee association heads sent an urgent plea to Avenue Capital Group’s board. The private equity firm became the majority owner of Quiznos early this year, after a financial restructuring plan was put into place. It allowed the franchise company to shed one third of its outstanding debt of $300 million, and it provided a significant infusion of $150 million in new equity from Avenue Capital.
While QZFA leaders praised the company for the progress it had made since the association was formed nine months ago, they declared it was not enough.
QZFA leaders state in a letter to Avenue Capital Group’s new board of managers that there is an extreme sense of urgency to discuss “how to adjust, fix and maintain a sustainable business model at the franchise owner level.” While the board is implementing some exciting programs, the franchisee leaders emphasize that it is not enough “to keep the lights on at many of the stores, which currently are hanging by a tread.” They add, “. . . nor will it be enough to entice current owners to extend leases or open additional units.”
The independent association said the lack of profitability has sapped the energy out of many franchise owners and has left a culture that is still extremely contentious and negative. QZFA told corporate executives that they will find it difficult to get franchisees to buy into new programs as long as store profitability is down.
The QZFA formed in 2011 as part of the class action lawsuit settlement the year before. Quiznos agreed to pay out $206 million to franchisees, and to the system as a whole. Although monetary payments varied and amounted to small awards for many store owners, Quiznos also gave debt forgiveness on royalty payments to some.
The independent association vowed in its letter to continue to be professional in its approach to working with Quiznos and its board, to help the brand be profitable for all parties. But it cautioned, “With that being said, the association cannot hold off much longer without some true dialogue related to these issues and concerns as well as truly beginning to see real, tangible progress in these areas.”
Quiznos moving forward
One of Quiznos’ challenges going forward is to service the debt. Insiders say there is still a chance the franchisor will have to file Chapter 11 bankruptcy. One source said, “If they are not able to turn the company around and get franchisees stabilized, they may not make it. When they run up against their loan covenant, the numbers banks want to see in the debt, then they could find themselves right back in it again.”
Quiznos at one time had 5,000 stores in the U.S. Today it has under 2,300. Although the closure rate has likely slowed, franchisees continue to run out of money and walk away.