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Quiznos

i worked at the corporate headquarters for many years and saw different leaders come and go. the new management team under stuart mathis was enough for me to finally get out. There are a lot of promises being made to the franchisees, and yet, the business model is still set on how to screw them. there were and are so many opportunities to help these franchisees and ultimately, the bottom line won out. the CFO is a joke, the company is being run by the board, and all the employees are so afraid of losing their jobs, that no one cares to do what is right anymore,for themselves, for Quiznos and definitley not for the franchisee.

Old Sword's picture

Re: that's not why.

Actually, Granville, I am quite familiar with the need for "sustainable" revenues.  While you selected Krispy Kreme (not a fan btw), I would select Cold Stone.  From my conversations with the zees from that system, many actually hit their first year projected gross revenues (granted, net is still poor due to COGS etc).  However, as the 'novelty' wears off so does revenue.  Sales drop and, well, you know the story. 

Subway, however, not only hits their stride in 6 months but - you don't see the failures in the future years.  Why?  Because their system does continue to drive business.  In terms of restaurant management, I will defer to you. 

Regardless, my comments revolve around the numbers.  The article mentions the avg profit - Keith adds to that with an analysis that a typical Subway begins to hit this goal in six months.  The problem is most franchise systems won't provide their real numbers - but with this article it is quite obvious that the franchisors are fully aware of what is going on in their systems.

Granville_Bean's picture

that's not why

OS, you are hammering square pegs into round holes.  We know that you report you were ripped of over a Learning Center and a big issue for you is "how many years" to build up the business.  But not every business is like a Learning Center.

In particular, a food business can actually open stronger than it sustains. For example, this appears to be what happened with a whole bunch of Krispy Kremes. They opened to lines out the door at midnight but a year later they were closed.  A restaurant with a recognized brand name (the primary reason to pay a franchise royalty, NOT the "proven system") will often have people flock to it when it is new. They are curious and excited to try it. And then once they have, for a lot of them their curiosity is satisfied and/or they don't like the experience.

IMHO, generally, if you can't get a hold of your restaurant ops within one year, you never will. We have had sites that it took us a year to figure out but it was NOT because it took that long to build up business. We had the business from the 1st day, that's what we bought a FRANCHISE for.  What took us a year to get a handle on was COSTS, particularly LABOR for the business patterns, which for our sites are heavily seasonal.  But it wasn't volume, the volume was there from the 1st day.

I wish more of the Hurt Zees on this forum who have losing food businesses would realize this sooner.  Things are probably NOT going to  get better if you hang on longer, you'll just lose more money.

Old Sword's picture

Keith, you are correct; Don

Keith, you are correct; Don deserves Kudos.  My comments however were more that you can't get the information needed to make an informed decision from most franchise systems.  That Subway can stabilize in 6 months is a testament to the franchisees who fought hard for years against a franchisor that was willing to canabalize a zee's sales several years ago just to sell another site.  Your franchisor has turned around and now realizes the need for successful franchisees.  Its unfortunate that other systems do not take a lesson from them. 

Keith Miller's picture

Response to Old Sword on Article

Old Sword is correct that this information is not all that should be considered, and that using averages can be dangerous.  I think Don would be the first to admit he would like to publish the additional data you mention.  However, what Don has published is what he has found to be available, and is probably the first time you see a side by side comparison of the data he did publish.  While it is not the answer to everything, it does show which brands tend to be more successful and that you would have greater odds of success versus failure.  But, you will always have some failures in the best brands, and some successes in the worst brands.

Specifically with Subway, and your comments about year one, as a NAASF board member in 2006-2007, I worked with the Buxton Company to develop a modeling program which looked at new store development, expected sales for a new store, and expected impact on surrounding stores.  One of the attributes we looked at was the amount of time it takes a location to stabilize around expected sales.  In most businesses, there is a 2-3 year ramp up period to stabilize.  To their surprise, they found that most Subways saw that stabilization in the first 6 months.  I’m not sure what that time period is for the other brands, but your point is well taken that there is usually a ramp up period.

Lastly, to go back to your point questioning the use of averages, I have advocated the pre sale disclosure of not only average sales in a system, but also the distribution of those sales.  A taller, narrower bell curve would of course indicate the average is less skewed by extreme highs or many lows, while a flat distribution would likely be a cause for concern as less stores are actually close to average.

We have to give Don credit for publishing more comparison data than others, with the understanding that we will continue to challenge him to provide even better data and comparisons in the future as he gets access to additional data.

Bad B A Q

Granville. I think some of these Zees are just really pissed off at their losses - for good reason. Mean Q and the false McD dreams that were handed out is all they can see for the moment. They want to vent off steam so let 'em vent. Feel better now? Q owners have company.  B and A owners are in bad shape too.

Granville_Bean, Q Sucks

Quiznos said everything from "We are McDonalds!" to "Wait till you see, we'll have more Quiznos than Ray Croc ever saw!". Quiznos repeatedly said We were McDonalds. heck they even passed out copies of "McDonald's: Behind The Arches" By John F Love, find it here on Amazon:
http://www.amazon.com/McDonalds-Behind-John-F-Love/dp/0553347594
I received two copies, and they would test us on the book over and over. Different chapters every week and monthly. Find other store owners from 2003-2004 era and you will see them tell you the same things.

Old Sword's picture

Sandwich Chain Shop Profits.

Actually there is a major flaw in this article.  First, you are using an average of ALL  franchisees - Subways, for instance ($70,000): those open anywhere from only one year to 10+ yrs and lumping them all in to get your number.  This skews the "profit" up significantly - I seriously doubt first yr shops are performing as well as those established for 3+yrs.  As an example: Huntington Learning Center stated the average of $469,000 in gross revenues for their centers.  This number was derived by compiling data from all franchisees - exactly like what Subway is doing.  However, the average gross revenues for a brand new FIRST year franchisee was only $250,000 - about HALF that of the all-in average.  Obviously, first year sites generate significantly less revenues.

Prospective franchisees will read this - especially those purchasing a franchise because it is a turnkey business model - will not understand this and believe that $70,000 is typical.  They may be underfinanced and unaware of the full cost of starting up a franchise - which is more costly than starting up your own business (no buildout specifications, no 10% gross revenue fee, etc).  The numbers are also skewed up because these are the surviving franchisees.  Those that had folded or had to sell out at a significant loss (the new buyer gets in dirt cheap so there is less monthly overhead cost and therefore more positive cashflow) are essentially taken out of the equation making the number look stronger.

I won't even point out issues regarding SBA funding.

News To Me

I've been out of the Q orbit for a lot of years but I never remember Dick Schaden ever modeling the purchasing system after McDonald's. He may have said it but liars say a lot of things that aren't true. My advice is to invest in a 'winning' concept only if franchisees control the supply system and advertising to keep Dick's filthy hands out of the till.

Granville_Bean's picture

And that's with the FO working....

Matumbo notes: "Quiznos does lose 25k a year annually. Amazing isn't it? Modern day slavery perhaps?"

And that's with the FO working how many hours a week, to save a minimum wage labor shift every day, so as not to be losing $40,000/yr. instead of "only" $25,000.

Granville_Bean's picture

What should they do?

Guest tells us: " You're correct in saying that Rome is burning. Corporate has access to a fire truck to put the flames out but sits back and roasts marshmallows."

What should Corporate do? If you were CEO, what would you do? Give up vendor rebates to lower food costs? But what if they structurally can't; can't survive without that revenue?

New products? Should those be low end or high end? FOs didn't like low end; Q can't compete with Subway on price alone (see again, difference in food cost structure). High end?  Makes ya feel good as an idea but can Q really convince customers that it is more than fast food and deserves a premium price? Maybe Corporate knows it can't.

Better advertising? With declining units and sales per unit, not enough of an Ad Fund. And can a slick commercial really sell a sow's ear as a silk purse? What SHOULD the new CEO be doing that he isn't?

BTW, as a customer, I liked Q.  I would always have the same steak sandwich, IIRC it was "Peppercorn Prime Rib". But that was on the FEW times I went there. Then the only Q in my whole county closed. But I always thought my favorite sandwich was pricey for a sandwich that you stood on line to order at a counter, and that you then carried to your own table on a tray. The customer experience was not much different than a Subway or a Burger King except that I got less change back from my twenty dollar bill. To me the heart of the problem is the food cost situation, but can any Q CEO solve that if it is structural to the F'sor company?

Exactly Granville

"Unless a Q CEO implements a viable business model."

We don't care who does this. We don't care if he or she is likable. We would like to get on with running our stores. The complaints we have now are the same as we've had for many years. We have a office building full of stooges at corporate who don't know which way is up. You're correct in saying that Rome is burning. Corporate has access to a fire truck to put the flames out but sits back and roasts marshmallows.

Granville_Bean's picture

Did they ever really?

Francis tells us: "...many years ago Quiznos tried to follow Mc. Donald's business model and well greed got the best of them."

One of the major features of the McD business model is that its Zees are supposed enjoy a food & supplies purchasing ADVANTAGE by going through the system. Did Q ever do this, or did they always treat Zee food cost as a profit center for Q Corp.? I don't know enough about the early history of Q to know if they ever did this. It seems iffy to me given that other Schaden conc*pts have treated Zee purchasing in a similar way.

"Bill would and will never

"Bill would and will never work again except as a philanthropist with his wife."

It's not that Bill Gates is busy. It's also not that Bill Gates would not be interested in leading Quiznos. He wouldn't. The problem is that Bill Gates has no experience and understanding of the tricks of franchising, nor would he know how to turn around troubled Quiznos. He'd be the wrong man for the job.

All correct

Everyone on this comment page is correct. Q Sucks, Granville Bean, and numerous Guests. Granville Bean does make a good point about a previous comment about having Bill Gates run the place. I wonder if that commenter meant a business model like Bill Gates, hence Microsoft. One truly knows Bill would and will never work again except as a philanthropist with his wife.

I know many years ago Quiznos tried to follow Mc. Donald's business model and well greed got the best of them. Then years later they tried to follow Subway's business model and failed again. Problem is poor business model, numerous terrible employees who are still there from the Rick & father days who want to run it the same way, terrible menu that is not cost effective at all, Regional Directors that do not care about the store owners and many other problems that go on and on. Store owners are disgruntled because they poured so much money into their stores and worked countless hours keeping them maintained. How do I know?

I was a store owner and a board member for the store owners.

Granville_Bean's picture

Yup.

It's like a religion to them, they want a guru to follow, and a devil to blame. A while back a Q FO even posted that it only Bill Gates would take over at Q, it would be successful. But why the heck would he bother to take the job??

Unless a Q CEO implements a viable business model, it wouldn't matter who it was. And if he does, it won't matter who he is. But people want to make it about calling a person insulting names.  Meanwhile Rome burns and the ship sinks.

Okay. Mathis will be gone, a

Okay. Mathis will be gone, a new CEO will come and you'll still be there losing money. I can't figure out why you are so angry at the CEO of the moment when your problems are so much bigger.

Stuart Mathis And Quiznos

What does it take to become CEO of Quiznos. Simply a desire to lie, steal, cheat, and walk away with a golden parachute when your B.S. has run it's course. Sorry Stuart, your B.S. does not make sense, never did make sense and you will be gone shortly. Move on to your next target please.

Granville_Bean's picture

Blimpies Fail

Don wonders: "You know, I'm still shocked at how quietly Blimpie stores have gone off the scene as their network shrank. I would imagine that there are a lot of sad stories by owners in that system as they've lost their fortunes. "

For about 10 years our administrative office was in a former Blimpie's.  In our opinion that Blimpie's was doomed from the start due to the site's poor access and deficient parking. (It worked fine as a back office that didn't need to attract customers.)  The Blimpie's lasted maybe a couple of years. One of our employees had a 2nd job there, sometimes he'd be the only one in their store.

The Owner went bankrupt.  His attorney tried to get me to buy his business from him (they were tenants in the building). Yeah right, why would I do that. I think the reason he didn't lose his fortune was that he didn't have a fortune invested, and that he got out in a reasonable time rather than throwing money at it for years, sinking lower every year like so many Coldstone or Quiznos owners.

The owner became a manager for a different, top tier franchise.

Now this explains why Kahala

Now this explains why Kahala asked it Cold stone franchisees to CO brand with Blimpie
it make sense now

Quiznos Runs

Like it was set up to run. The goal is to suck every dollar out od the franchisees' bank account and then churn, churn,churn. That's the business model. The only thing that has changed is Q can no longer churn the closed restaurants. So the Wall Street fatcat is sucking the franchisees dry and squeezing the 'investors' who thought they were takers and are now sinking with the franchisees. And to top it all off Q is run by the failed former head of UPS stores. How do you think the story is going to end?

Darnelle White's picture

Opportunists

Guest: What assets (as you wrote) could a new buyer pick up from a Quiznos (store)?

Yes. I made a mistake there. That's too narrow. It should read the new franchisor can grab all of your assets, not just grab the few assets of what's left of your store.

Running fast as you can isn't good enough

Zee unit | Simple payback period
Arby's | 15 yrs
Blimpie | never
Quiznos | never

To the franchise owners in these three brands, remember the madness that the Queen of Hearts told Alice in Wonderland. "My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”

Darnelle

What assets (as you wrote) could a new buyer pick up from a Quiznos. Do you honestly think there is value in Quiznos equipment? If so, you need to open up a warehouse and start buying the equipment from owners who are closing right and left every day.

Also who knows better how to screw franchise owners better than what we've had the past decade. Schaden was rotten to the core. I think he discovered every way to screw franchise owners that exists. Hence the hundreds of pages of lawsuits in the franchise agreement.

There are evil opportunist out there who are bad. We've experienced that in the past still have more of the same with new ownership. Bring on the next round of crooks I say. They can't be as bad as what we are used to.

Right on the money

Quiznos does lose 25k a year annually. Amazing isn't it? Modern day slavery perhaps? Pyramid Scheme?

The Quiznos model may not be

The Quiznos model may not be broken in Denver but it sure the hell is broken on Main Street. FOs shoppping at Restaurant Depot? Only one or two people staffed after 2pm? Routine maintanence not afforded? Stores behind in rent? And so on, you are correct about the brass in Denver not being able to publicy admit it but its no secret and in my opinion its too late to fix it. With less and less people eating Quiznos each day there is certainly nobody in their right mind that would actually invest in one of these losers. Where will the current FOs be in two years? Behind in rent and shopping at Restaurant Depot.

Don, your Quiznos numbers are spot on. I saved 25,000 each year after I got out and had all day to work somewhere else. For those who are still optimistic about this brand just look at the comments from stories in the past. Its a broken record singing about a broken model.

Don Sniegowski's picture

Ranking of Top Ice Cream & FroYo Shops by Profits Is Do-able

Yes. A survey of EBITDA and ROI on ice cream and yogurt shops under franchised brands would be very do-able. However, it takes resources and time. And unfortunately, I'm sitting on top of several news stories, including a number of franchisor CEO/COO interviews that I conducted weeks ago. (So sorry readers and interviewees. I promise that these articles are coming.) My guess is that if you contact Mr. Gordon of Pacific Management Consulting Group, he could come up with something - for the right fee, of course.

I bet one day when the

I bet one day when the Blimpie subs and Quiznos brands have disappeared, the conventional wisdom in this industry will be that these brands didn't serve delicious sandwiches. Or put another way, that these sandwich brands became too bland in face of growing competition. Not true. I guess the franchise structure and business model is a hard thing for people to grab hold on why franchise systems die.

ROI

Would be interesting to see how the ice cream and yogurt shops would fair in a survey like this

At least with Quiznos owners,

At least with Quiznos franchise owners, it can be said: "Do not go gentle into that good night."

Don Sniegowski's picture

Blimpie Subs

You know, I'm still shocked at how quietly Blimpie stores have gone off the scene as their network shrank. I would imagine that there are a lot of sad stories by owners in that system as they've lost their business and personal fortunes. The franchise owners under their sister company, Cold Stone Creamery, have been considerably louder.

Darnelle White's picture

Quiznos zor threshold for broken different than zee's

First of all, Mathis is not free to declare that the business model is broken. He would be replaced in a heartbeat if he ever publicly acknowledged that. Second, his breaking point is different than yours, the franchisee. As long as he can sell franchises, make enough on your sales to pay for his expenses, or package the system to look pretty for a new private equity firm buyer, his model works fine.

The key for Quiznos is how low can franchisee revenues go and how much can the franchisor cut admin costs without the franchisor's viability being in doubt. With the number of stores and systemwide revenues quickly disappearing, I suspect that the franchising model may be reaching the point of not being operationally viable for Stuart's bosses, the franchisor owners. He's under tremendous pressure to get systemwide revenues up. I would imagine that should he fail, Quiznos owners can always elect to file to reorganize credit and put Quiznos on the market for cheap. A good national brand for consumers will attract buyers, no matter how badly the original system was run.

Some buyers will think they can fix the chain's operating system. Others will be vultures who don't care. They'll see assets to pick, like your franchise agreements and what it gives them the right to do. With the cleverest legal counsel, they'll find in your signed franchise agreements both traditional and also innovative ways in which to abuse and grab store assets.

Yet it is obvious to all that the franchise owners and their profitability must be fixed for any long-term survival of both the franchisor and this brand.

Quiznos CEO Says Business Model Not Broken

Quiznos CEO Stuart Mathis is widely quoted as saying Quiznos Business model is not broken. If the average franchise owner loses $25,000 a year, I wonder at what point he would say that the business model is broken. Maybe he's waiting for the figure to go down to losing $50,000 a year to say it's broken, I can't fix it, and I'm out of here.

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