48% or More of Quizno's Unprofitable?

Getting any kind of earnings or break-even reports on franchises is not an easy task. But recently one of the members of Franchise Pundit, an outstanding blog in the franchise blogosphere, found an explosive earnings estimate report for Quizno stores (pdf file). The report estimates only 50% of the restaurants in their whole network have positive earnings. The original report is posted on Quizno's independent franchisee association's website. Here's how Pundit describes the report.

"[It is] a document posted at the Toasted Subs Franchisee Association. The document purports to be a summary on Quiznos store profitability. Is it legitimate and accurate? I have no idea, but it’s probably in the ballpark. It’s apparently based on estimates gathered by franchisee sources reporting."

 

According to the report, an average new store (opened in the last 12 months) can break even with sales around $7,000 to $8000, depending on how high the store's fixed costs (depending on equipment costs, etc.) are. If you do the math on the report posted on Toasted Subs, Quizno's independent franchisee association, roughly half of the Quizno stores are unprofitable. (See chart below.)

Those numbers seem high. However, the calculation of 48% of stores taking losses was simply an average of a thin range given by the report. Unprofitable stores can be higher.

Still, one cannot help but ask -- Does Quizno's independent franchisee association support these numbers? It is on their website. Still, the numbers aren't that proposterous since Quizno's own lawyers back in 2003 cited similar statistics that 40% of its stores were losing money. They argued this in order to show the court that the low share value that they had compensated shareholders with when going private was justified.

"Quiznos' attorneys argued that the company's profits were falling below expectations...Forty percent of Quiznos' units are not breaking even, and same-store sales increases are down."

However, there are definition problems with the report and certain information seems obfuscated. For example, the report is somewhat skewed in its presentation of Tier 1 stores.

"Likely not more than an average wage job paying $60,000 a year.The very best stores proftiability would equate to a day job making $90-$100,000 a year, equal to an up-scale blue collar or midlevel white collar day job."

Even if this were the case, it is conveniently forgotten and should be pointed out that besides dividends from store profits, an owner typically pays himself a wage. So, an average owner could dip into $60,000 a year, pay himself a wage, and reap extra tax benefits from store expenses.

Source of chart numbers and loss estimates: Toasted Subs Franchisee Association, Quizno's independent franchisee association