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Franchisee Community Speaks out on Quiznos’ New Path

DENVER – As Quiznos addressed the company's franchise community on January 12, expressing the organization's commitment to supporting franchisees and turning around the brand, some store owners are questioning its strategy. Others are applauding it.

Chairman of the board of managers, Doug Benham, stated that with their financial restructuring behind them, Quiznos was able to revise its food costs and supply model in order to help improve restaurant level economics. He said franchisees were expected to see some benefits over the course of the month.

Then the bad news came.

Benham said with less working capital and fewer restaurants, the company's staff needs had changed. The previous Friday, January 9, Quiznos went through a dramatic reduction in its workforce. "These changes have impacted our corporate office staff as well as our field staff. Some franchisees will be assigned to a different Franchise Business Consultant and/or Field Marketing Manager," the chairman stated.

With the new changes, Benham said that the board also felt the time was right to bring in new leadership to execute its strategy. He announced the resignation of CEO Stuart Mathis and welcomed Doug Pendergast as the company's new chief executive officer and president, starting immediately.

Quiznos' January email also asserted that the company planned to aggressively close underperforming stores, and to aggressively default franchisees and bring back fines for franchisees that are not following company operating procedures. "Although Stuart Mathis [former CEO] had stated in the past the company's focus was to support franchisees, company executives have decided to take an aggressive approach with the franchisees and demand that franchisee improve store operations."

Franchisees voice their opinion

As soon as the email outlining the company's "change of plans" hit the Quiznos franchise community, Blue MauMau was alerted by various franchise owners of their concerns of the new company strategy, and what they were already experiencing.

One multi-unit franchisee, who asked to be anonymous, told how franchisees in his area were now being affected. He said Quiznos had eliminated all franchise business consultants. Last year they had eight and now there is only one who services the Phoenix and San Diego territory.

The multi-store owner said with only 130 restaurants left in California, Quiznos will eliminate many of those franchise agreements. He told how store owners were receiving calls from "blocked" phone numbers, from people calling on behalf of Quiznos board members. They told franchisees they would terminate franchise agreements, that their legal team is revising the current contracts. They said they were planning trips to California immediately, and they would be spiking the fines for defaults from $250 to $1000.

"The reason they are rushing this is that their contract with distribution centers, System Services of America, are expiring in the middle of March and they don't have another provider. The distribution centers in California and Phoenix are not going to be renewed," the multi-owner said.

He also told how staffing at headquarters was in disarray. "Stuart Mathis was told to lay off executives, up to 84 or 85, and then they let him go." He said it was a surprise to Stuart. "And they are now blaming him." He added, "These restaurants in California number 130. That's 130 lives. People have invested all their money. A quarter of a million dollars is a lot to invest. We are not rich people."

Another long-term franchisee who asked to remain anonymous said he thinks the store count in the U.S. is now under 1,000. He confirmed that Quiznos had cut the franchise consultants, but explained that with the store count down they just don't need them. If things don't turn around in a year, he predicts that there won't be a good outcome. "To be honest, I always thought someone would come in and buy it for pennies on the dollar. Maybe someone like Yum Brands, and then Quiznos would get away from the hedge fund companies.

The franchise owner said some of the franchisees who recently left had been in the system a long time, and now they are glad they are out. But he added, "Some have their stores paid for, no more debt for the most part. They have a chance to survive."

He also feels that if the business model changed enough and costs go down on food, things have a chance to get better. "But if someone just went out and borrowed $225,000 to open a store, those people have no chance at all right now."

Another long-term franchisee who has been active in the franchise community in past years said he has seen some improvement already with the corporate changes. Jehad Majed has been through litigation with the company in the past, and through the heartbreaking tragedy of his friend and fellow-franchisee Bob Baber committing suicide in California in another owner's restaurant in 2006.

This month he told Blue MauMau, "Quiznos finally restructured the American Food Distribution center. Some of the food prices on my invoices have gone down almost half. As Quiznos goes through the inventory at the distribution cents and replaces them with new inventory, the prices will come down." But he said not everything has decreased yet because franchisees are still going through the product. "Yes, I'm seeing the price of white and wheat bread almost cut in half. Bread is one of the items we buy the most of so this is huge for franchisees." 

 Majed then said, "Quiznos finally did what we've been asking them to do for the past ten years, cutting our costs. But it might be too little too late. If this had happened two years ago, or even a year ago, it would have been easier to turn this ship around." He explained that the problem now is sales. "Sales are in the gutter. If sales don't go up, we are in trouble. Stores will continue to close until sales come back."

In closing Majed said, "The good thing now is we have an executive team that's sincerely trying to do the right things for franchisees."

Anonymous email

One anonymous email sent to Blue MauMau also revealed unconfirmed information about the turmoil inside the company. It is not clear if it came from a franchisee or someone else close to Quiznos corporate.

It tells how after months of internal fighting among executives, the changes now coming out did not bode well for franchisees. "The layoffs are partly a result of the recent closure of the company s food distribution network but primarily are designed to reposition the company focus on improving store operations," the email said. It explained that the high number of cuts were in anticipation of continuing store closures in 2015.

"Quiznos closed over 400 stores last year, in 2014, and two large franchise groups with several hundred restaurants have notified the company of their intention to close all stores. Quiznos executives are preparing the company to end 2015 under 600 restaurants," it continued.

The anonymous email further explained that executives told employees that the move was designed to focus on improving how franchisees operate and run their stores. "A major focus on the operations improvement plan is to aggressively manage franchisee compliance through increased inspections and accountability for the franchisees," it told. It said franchisees will be required to improve store operations and operate within company guidelines or have their franchise agreements terminated.

According to the email, Quiznos plans to aggressively close underperforming stores, and to aggressively default franchisees and bring back fines for franchisees that are not following company operating procedures. "Although Stuart Mathis [former CEO] had stated in the past the company's focus was to support franchisees, company executives have decided to take an aggressive approach with the franchisees and demand that franchisee improve store operations."


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About Janet Sparks

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Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.