Quiznos Bites More Than It Can Chew

DENVER – Quiznos seems to have a lot on its plate this summer. While the company promised its franchisees a settlement of their class action lawsuit by June 30, the Illinois district judge has still not issued her final decision, one month and five days later. The class action settlement will provide more than $206 million in benefits to franchise owners and the system as a whole.

While franchise owners patiently wait, some are questioning Quiznos’ business strategy and new marketing tactics that it is aggressively pursuing.

One such approach is the Operating Partner Program launched in January, which the company describes as a unique ownership opportunity for the right prospects. For an initial up-front fee of $5,000, normally $25,000, interested entrepreneurs with previous restaurant management experience can earn the opportunity for full ownership of a franchise while operating a Quiznos location. CEO Rick Schaden explained, “The primary objective . . . is to engage with solid restaurant operators with entrepreneurial drive and excellent industry experience.”

Quiznos has marketed this program all across the country with full-page ads, seminars and reports featured on television news segments, websites and publications. In addition, it has engaged recruitment agencies by placing ads on job recruiting web pages, and promoting the program as a job opportunity on social media sites like Craigslist, Facebook and Linkedin to find candidates.

But while Quiznos has stated that it is seeking up to 200 qualified applicants nationwide, John Fitchett, president of its Operating Partner Program, stated in a Nation’s Restaurant News interview May 17, that the franchisor currently has only six operating partners in place.

The second promotion is Quiznos’ “growth initiative” designed to develop up to 600 new stores nationwide by the end of 2010, via both corporate-owned and Quiznos-funded joint venture opportunities. Again, nationwide news programs and publications have picked up on the company’s marketing crusade. Schaden proudly announced, “We have a world-class business model and our belief in that model is so strong we want to increase our corporate profitability by investing in these corporate-owned stores.”

A report on ABC News Money on May 19 stated that the privately held chain, which currently has approximately “4,000 restaurants,” could create about 7,500 jobs with its planned expansion. A spokesperson for Quiznos said so far they had fewer than five stores.

Yet another announcement made by Quiznos in March, focused on its plans to open quick-service outlets inside convenience stores. The company’s senior vice president of convenience development told Denver’s Business Journal that building and operating locations within convenience stores costs just 20 percent to 25 percent of the cost of stand-alone stores. He thinks a convenience site often has a higher Return on Investment. The Quiznos executive said, “There’s much room for growth, since only about 10,000 of the roughly 140,000 convenience stores nationwide contain a quick-service restaurant.” He concluded saying, “The company aims to double its number of convenience-store locations in the next 18 to 24 months, then double it again in the 12 to 18 months after that.”

Darren Tristano, senior vice president of Technomic’s information services thinks the first two initiatives make sense for Quiznos. He thinks Quiznos has run into problems with its franchisees, who have not been able to manage the restaurant the way an experienced operator would. “It would give Quiznos a chance to develop a refranchising program and to put store operations in the hands of a more experienced stable of operators. That makes great sense.”

Tristano thinks trying to open 600 corporate-owned stores this year is very lofty. “We’ve not seen a big growth from Quiznos in terms of opening restaurants. And obviously with only five month left in the year, it would be very difficult to accomplish that with less than fifty open at this time,” he said. 

The food consultant added, “I think it’s wise from the standpoint that there is likely some opportunities to get spaces and leases in place. Franchising has been the successful growth opportunity, but if you are capitalized well you can do it through your corporate ownership and have better control over it, especially if you have a plan to refranchise,” he explained. They open the restaurant and then sell the franchise. That way they can prove that it was working before they actually sold it,” he added.

Some franchise owners are questioning what Quiznos is up to with its aggressive marketing tactics. Recently on a franchisee website, one shop owner posted a comment regarding a reply he received from Quiznos about his store closing. He asked if the company would be interested in re-opening his restaurant as a corporate store. The franchisee said he was told that Quiznos has decided “not to pursue the Operating Partners Program.”

That program was launched by the franchisor just over three months ago.

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