Quizno's 2007 UFOC

Submitted by Free UFOC on Thu, 2007/03/22 - 18:01.

Here's the latest FREE Quizno's UFOC or Uniform Franchise Offering Circular (pdf file, also attached below) as of January 2007. It is 427 pages long.

Of interest is the Earnings Claim, Item 19, on pdf page 72 (page 64 of the paper document). Average annual gross sales for the system was $414,625 with 42.1% of units meeting or exceeding the average.

Quiznos Franchise Agreement starts on electronic page 86.

And starting from electronic page 342 to 362 is a list of Quiznos owners and Area Developers who left the system. It contains their contact information. A prospective franchise owner will want to speak with a number of these Quiznos ex-franchisees.

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Quiznos Business Model

Submitted by michael webster on Thu, 2007/03/22 - 19:21.

From the front page:

QFII UNIT UFOC01/2007 

CHGO130827740.6 

4. AS OF DECEMBER31, 2005, 2940 QUIZNOS FRANCHISEES HAD NOT OPENED 

THEIR RESTAURANTS WITHIN 12 MONTHS OF SIGNING THE FRANCHISE 

AGREEMENT.  THIS NUMBER REPRESENTS APPROXIMATELY 66.7% OF ALL 

FRANCHISEES WHO HAD NOT OPENED A RESTAURANT AS OF THAT DATE.

5. WE MAY TERMINATE YOUR FRANCHISE AGREEMENT IF YOUDO NOT OPEN 

YOUR RESTAURANT WITHIN 12 MONTHS AFTER YOU SIGN THE FRANCHISE 

AGREEMENT.  THE FRANCHISE FEE IS NONREFUNDABLE. 

Why bother?  Burn your money instead.

Michael Webster PhD LLB

Misleading Advertising Law

Big Issue

Submitted by Joe Mathews on Thu, 2007/03/22 - 22:27.

In and of itself, not opening a restaurant within 12 months of signing the franchise agreement is very common.  It takes a good 3-9 months to try to find an acceptable small box location and another few months to negotiate the lease.  Then there is the permitting and build out.  12-18 months is common and evidenced by the Quizno's UFOC.

What is not common (and quite frankly despicable) is terminating of franchise agreements.  A franchisee can be operating in good faith, putting forth best efforts, engaged in intense competition for sites, and still be terminated.  Apparently Quizno's has a history of such terminations.  This is inexcusable. 

To avoid losing their deposits franchisees wil accept subprime locations which in the food business is death waiting to happen.  Its a lose/lose unless of course Quiznos is no longer in the royalty collections business, but in the lucrative terminating franchise agreements and keeping the 20K deposit business.

I hope the new CEO will restore Quizno's lost integrity.

Joe Mathews

Franchise Performance Group
Co-author Street Smart Franchising

Quiznos Coupon Scam

Submitted by therocket on Sat, 2007/03/24 - 09:25.

The UFOC is just the beginning of the problems at the Q.  Franchisees complain that it's still business as usual despite the rhetoric.  Case in point is the current coupon campaign. 

How many of you received the current Free Sub coupons in the paper?  Would it surprise you to learn that Quiznos used franchisee ad dollars to launch a free sub campaign with the expectation that franchisees would be required to cover the entire cost of the food giveaway?   That with no ROI or any kind of numbers to franchisees about expected costs, expected benefits, demographics, ect.  Nothing.  And with absolutely no input from franchisees.

Those of you looking at Q and listening to those who talk about the change coming better think twice.  There is no real change, just cosmetic touches to shut up franchisees and attract new franchisees into what seems to be a failing system.  Buyer beware!   

 

67% of Quiznos Franchisees Are Not Opening Within 12 Months

Submitted by Bob Frankman on Thu, 2007/03/22 - 20:41.

...So Lose $20k Franchise Fee Refund Rights

Good catch, Michael. Am I reading this right? Talk about a backlog. It looks like CEO Brenneman and Chairman Schaden need to put some bodies on this BIG PROBLEM.

For those interested in seeing those exact same words in the Quiznos UFOC because they are in a state of disbelief, just put in page "3" in Adobe Reader. It's on the bottom of the page and top of electronic page 4.

Is it toasted?

Submitted by FranSynergy on Fri, 2007/03/23 - 04:32.

As Joe points out the process of opening a restaurant can take a while.  Can it be done in under 12 months yes, can it take longer yes.

In fairness one needs to note that A:) the UFOC says "We may terminate...." it does not say "We will terminate..."  Now I'll say, if I were assisting a prospective franchisee we would have an addendum which would provide adequate protection against this possibility.  However one must also evaluate the franchisors history in such terminations, so we look to Item 20 and we look at the column LEFT THE SYSTEM OTHER (4) and we see that based on the total number of unopened units, it does not appear as though they jump to quickly terminate based on failure to open within 12 months.  

I'm sure that we all understand that Franchisors must include language which motivates a franchisee to take those steps which are necessary to open.  Some new franchisees believe it or not, will acquire the rights to the franchise, and then procrastinate.  The franchisor must protect themselves from individuals and legal entities from buying the franchise with no intent to open.  There are dozens of additional reasons for the franchisos need to establish timelines for opening.

I think the two biggest questions which result from this particular discussion line is 1) What are the issues which are causing so many to be slow in opening, 2) Why over the past 3 years has the average Transfer/termination/Cancelations averaged 17% of the year end stores open.

Irregardless of who, what, why, how the Quizno's integrity was damaged - it has been, at least within the franchising community and amongst many of it's own franchisees.  I agree that with Joe in that it is now the responsibility of Greg Brenneman to restore Quiznos integrity.  I wish him the best.  Quiznos offers a great consumer product, They've done well at sharing the dream --- now they MUST help transform the dream into a reality --- otherwise it will be the story of a franchise concept which got toasted!

Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!

Get A Job While You Wait

Submitted by Guest on Fri, 2007/03/23 - 06:01.

Let me see if I understand this. Being excited about the Quiznos concept, I have the locations in mind and ready when I plop my franchise fee down. Then I wait 14 months for approval. After 12 months my $20k is no longer refundable. Then, I wait 3 or 4 months for negotiating, build-out, etc.

What do franchise owners do for 18 months while they wait for their restaurant to open in which they can begin to generate some revenue? Get a job?

Quiznos Coupon Outrage

Submitted by Guest on Sat, 2007/03/24 - 09:57.

The big and visible CHURNER has predatory instincts and since under the adhesory contract they don't have to provide an ROI or any kind of numbers to franchisees about expected costs, expected benefits, --nothing ---they don't!
Their profits are central to all of their planning, you can be sure, and the franchisees' profits are just incidental to theirs and are not absolutely essential to the franchisors' profits because the franchisor collects the royulties, fees, and commissions regardless of whether or not the franchisee is operating at a loss, breakeven, or profit.
This, oc course, provides the franchisor with the incentive to churn an appearance of viability of the business plan when failed stores are discounted and sold to third parties for almost nothing to try again. At the same time, new franchises are sold to franchisees who build new units for Quiznos. This should be illegal and we would hope that the courts would condem this predatory practice if they are made aware of this practice among large networks. .
Thanks, Rocket, for the update. Let the Buyer Beware! Good advice!

These coupons

Submitted by Tinker on Sat, 2007/03/24 - 10:07.

were also a point of frustration for Meineke franchisees as well.  They STILL do these crazy $19 oil changes WITH a tire rotation.  Now think about it.  Everyone knows the costs of filters & oil, well now add about 30-45 minutes labor to that.  And you are losing money on every one of them.  You've also tied up your rack and technician that could have performed a brake job in that time.  Now the premise is that these hooks will lure in new customers for you to 'find' something else to up-sell them on and occassionally that can happen.  But the reality is that the VAST majority of those coupon redemptions come in for that give-away and nothing else.  Even if they need brakes, well you'll spend an additional 10-15 minutes showing them everything they need and providing them an estimate, only to have them tell you to put the tires back on and they'll have their brother-in-law do that weekend. 

Now from the franchisor's position, these coupons are a win-win.  If you up-sell, great; you've just increased their royalties too.  If you don't up-sell, no problem to the franchisor............it's not like THEY are responsible for the cost and to make it even sweeter, you'll still pay royalties and advertising on that give-away price that you already lost money on. 

Burning Cash for a LOOOONG Time

Submitted by Bob Frankman on Fri, 2007/03/23 - 06:23.

Waiting 18 to 24 months from the time you lay down your $20k to open, then burning operating cash for another 18 to 24 months before break-even point (the point where you make a penny more in inflowing cash over your outgoing cash) puts the buyer at 3 - 4 years of burning cash.

That is a long time for ANYONE (millionaires and billionaires included) and a recipe for disaster. The process needs to be sped up.

Even in the best scenario, while the new franchise owner did not give himself a salary and waited only 1 year to open their doors (67% of Quiznos owners take over that time), and then they were lucky enough to break even with ten dollars to spare in month 18 of operation, that would still be 2 1/2 years of burning big money and living without an income.

If franchisors want less franchise failure and a healthier system, they need to look at speeding up the time from signing the franchise agreement to grand opening.

Frankman

Wow

Submitted by Guest on Fri, 2007/03/23 - 06:38.

Normally, I am reticent to fuel the fire on these types of topics, but they admit that a significant majority of their zees do not find locations within 12 months, that they can terminate the franchise agreement if a site is not opened within 12 months, that the franchise fee of $10,000 - $25,000 is nonrefundable, and that it may take 8 to 18 months to just find a site or get a lease - given those terms, I would question any attorney that recommends this as anything but a significant and substantial risk of loss of investment.

67% Not Open

Submitted by Guest on Fri, 2007/03/23 - 07:03.

This is classic Quiznos....been there---got screwed----now bankrupt!! This system is the worse I have ever seen. To really bring it home, 67% not opened, many have forfeited their $25,000 (Current Franchise Agreement Cost) due to Quiznos terminating them. Many others have finally been enlightened to the corruption at Quiznos Corporate and have gladly walked away. If you look at my situation, one store open 7 years and the other 4 years once nicely profitable, and how Quiznos told us we would be the only two stores in our small city, they lied and in a city of 120,000 brought in 2 more stores and plans for 2 more were in the works(totaL of 6). Now if I still know how to do math, Q Corp along with our AD told us that their goal was 84,000 population per store and that is what it took to support a Quiznos, so we were pushing the envelope by opening the second but better us than someone else. So for six stores the population per store would be 20,000.

Now put into play that the failure rate of a Quiznos is estimated to be 48%, and why??..horrific inflated costs for food and all supplies mandatorily purchased from Quiznos and its' Subsidiaries and over saturated markets with some stores that are actually able to look out their front door and can see the nearest Q less than a football field away. Folks...This IS the Truth!!!

Now mix in the requests made by corp. This was said to me by my AD when I was working 40 plus hours a week, raising two young children alone and going thru a divorce. Couldn't afford sitters because I had to stop taking a pay. (Let me preface this by saying that if your sales are low and you are not making a profit, it is your fault...you, the owner, are not doing enough! You are a poor operator. You are not committed to your biz and other types of BULL!! This is what our beloved corp says about the people who make their livings. So, back to what I was advised to do. I was told that business owners have to make sacrifices....like I wasn't....and we needed to do whatever it took to raise sales and cut labor. I was instructed to be there almost from open to close seven days a week. When I chimed in about my children needing me and their dad was gone, I was told that sacrifices have to be made and if that means sacrificing my family and children...so be it!!! That was the beginning of the end for me. I began to look closely at what this company was doing to me, my health, my marriage, and most importantly my children.

So if you have a FA that you paid $25,000 for. It is just a small drop in the bucket to turn and run. You will have lost only $25,000. I am now in debt up to one million dollars including the law suits (leases, corp). In fact, My Area Director, while I was still open, told me that sometimes bankruptcy is a good thing and I should consider it to help my business survive.

Take the loss and run like the wind as far from a Q as you can.

Frankman

Submitted by Guest on Fri, 2007/03/23 - 07:54.

"A case has not been persuasively made about why Quizno's sticks out in not having a viable franchise model."

Your words Bob. Still feel the same way??

Let me help you. Quiznos has a problem simply because it sold more franchises than any market could handle. (also encroachment issues)

The franchise model is broke. That's why they brought in Brenneman. Food costs are too high. Marketing and advertising is terrible. Complexity of the system is a problem. Absentee ownership high due to lack of store profitability. Most owners are forced to going back to work to support the financial drain the Quiznos is causing. I could go on but why?

Why do some Franchisors cheat and steal?

Submitted by Guest on Fri, 2007/03/23 - 08:54.

Because they can!

Coupons

Submitted by michael webster on Sat, 2007/03/24 - 13:14.

Tinker,

Were you required to participate in the 19.95 program?

Michael Webster PhD LLB

Misleading Advertising Law

Cause of Death: Weakened by Others Decisions

Submitted by Les Stewart on Sun, 2007/03/25 - 06:36.

When a franchise investment fails it is usually a result of multiple, very unglamorous causes. Seldom is it one, massive shock that breaks the franchisee's back.

The visible, overt causes of death are seldom the real reasons.

Selling below Cost
The distinctive feature of franchise investment decisions is this one:
franchisees will stay in business even when they are compelled to give away free products (as in Tinker and therocket's examples) or sell their products below their true cost of production.

Franchisees are logical and good businesspeople (at least in the short run) to continue well past what an independent businessperson would do because of the sunk cost dilemma they face.

Independents would say: nuts to this, I won't offer this service or good. Or they would abandon a business that consistently has variable costs greater than selling prices.

Question

Would you knowingly throw away 85% of your life savings (tied to the unusually low liquidated value of your store's assets) to resist a one month free sub giveaway?

No. You will allow yourself to be further weakened financially, rationally hoping that the future is more positive than your past or present (see optimism bias).

Predictably bad decision making, that is only visible in hindsight.

Les Stewart, MBA
FranchiseFool.com :: the Wise learn to say No

Meineke Association

Submitted by Jim Blue on Sun, 2007/03/25 - 10:35.

Tinker,

Was the Meineke Dealers Association active in addressing this problem and was the association a positive part of your Meineke experience?

Re: Quiznos Coupon Outrage

Submitted by Guest on Mon, 2007/10/29 - 15:33.

I think "buyer beware" is good advice for anyone thinking of purchasing a franchise...not specific to Quiznos! I know a Subway franchisee who was basically raked over the coals by the franchisor! Talk about predatory! Essentially, he had no choice but to open 3 more locations in and around his first store or else run the risk of someone else opening up these stores and potentially taking away his customer base! More than 3 stores opened up anyways, by different franchisees, and of course cost my friend to lose money in 2 of his 4 stores! Did Subway care? Nope! That's their "MO"! Hence, that is why you see all those Subways around town!
I'm sure all franchises have their methods of making money, but it may not always be in the best interest of the franchisee.
Best to do the research first, before getting involved. I know my friend regrets his decision to go with Subway, but I'm sure there are other franchisees who swear by them. Who knows? I think if my friend was more involved he would have walked away from the deai...maybe gone to Quiznos instead!!!
But thanks for the "tip" anyways!

Sad Story

Submitted by Bob Frankman on Fri, 2007/03/23 - 07:27.

Going through a divorce, a husband that split, taking care of two small children, and left by yourself to start a new restaurant business is a tough combination.

WOW!! I'm in awe.

Visability vs. Viability ---Quiznos and UPS

Submitted by Guest on Fri, 2007/03/23 - 07:41.

It looks like Quiznos stands up on the VISIBILITY of their stores and not the VIABILITY of their stores. Quiznos and The UPS Stores produce corporate profits at the expense of unknown numbers of individual franchisees who struggle to make a living, and who often fail and lose everything.
Again, these two BIG CORPORATE BRANDS are still touted as great franchise successes by the business media who spread the word and innocents are taken in by the VISibILITY of the brand in our communities.
If only the Blue Mau Mau Site address were known to more prospective franchisees, some could be saved from financial and personal ruin and would "guard" their money and run!

Didn't Jim & Tammy Fay face criminal charges

Submitted by Tinker on Fri, 2007/03/23 - 08:18.

for doing this very SAME thing.  Selling more 'partnerships' than could be accomodated.  At what point does it cross over from incompetency to criminal fraud?  Thus another reason for franchise regulations that provide enforcement  through both civil and criminal courts.

Being Persuaded

Submitted by Bob Frankman on Fri, 2007/03/23 - 08:23.

I'm such a softy when it comes to persuasive argument. As more information is released and discussed, a persuasive case on the problems with Quiznos is definitely being made.

I have also been no fan of senior management's heavy-handedness in terminating the franchises of the TSFA board.

"Absentee ownership high due to lack of store profitability." - Guest

And now we know why. There's such a long wait for a location, store opening and then finally to break-even point that franchisees have to work. The good news for Schaden and Brenneman is that these are internal, operational problems that can be fixed.

How Viable?

Submitted by Jim Blue on Fri, 2007/03/23 - 09:01.

Is there a set of facts supporting viability that we are not discussing?  Are we talking about the Q menu or how Qzor runs its busines?

AMEN!!!

Submitted by Tinker on Fri, 2007/03/23 - 09:17.

ARROGANCE and GREED

Cause of Death ---Franchisee Intensive Care

Submitted by Guest on Sun, 2007/03/25 - 08:49.

Franchisees who have spent their capital to break even are often stuck for years at break even to prevent failure and total ruin.
The definition of "break even" varies, of course, and includes those franchised businesses where the owner works for nothing and pays PT help with the hope and dream that some day there will be profits from which he/she can be paid a salary and other stockholders, perhaps, can receive distributions.
Often break evens borrow even more money in bad months with the thought that things will get better and that an infusion of more capital is the only solution that will save them from financial ruin and allow them to get beyond break even.
The added burden of "liquidated damages" that some franchnisors can demand under the franchise agreement for an early termination of the franchise agreement normally holds the break-even franchisee in place and the franchisee becomes a prisoner of the franchisor. The franchisee then looks to a sale-transfer of the business wherein he/she may may be able to avoid personal bankruptcy because the lease and the "liquidated damages" will not be a debt factor if they can transfer the franchised business to someone else. There are always third parties available who see the opportunity in acquiring someone's $300,000 investmentin a new unit for a few thousand dollars with the view that they, perhaps, can break even because they will have low investment costs and, perhaps, no debt to service.
This, of course, provides the "churning" franchisors with the opportunity to put another franchisee in the unit at very low start up costs and there is no interruption of the franchisors' royalties, fees and commissions. The franchisor does not lose in the failure of the first generation franchisee.
Churning franchisees like Quiznos and UPS have built their networks to a great extent on "discounted stores" and this has been hidden in Item 20 of the UFOC's!
The franchisee must service the debt or fail and failing franchisees spend a long time in intensive care before they actually die from lack of capital. The second franchisee, who gets the business and the sales that have been built up, has the opportunity to work toward "break even" with very low investment costs, and perhaps very low or no debt to service.
The penalty for failure in the franchised business is not clearly disclosed in the franchise agreements but the predator franchnisors have contemplated and premeditated the failure of the franchisee in the terms of the agreement, and use these terms to their advantage to acquire the assets of failed franchisees to build their networks. This provides these franchisors with visibility that is interpreted as viability by innocent new prospects as well as business magazines, etc.. who help these predator franchisors to sell even more new units to new prospects.

These predator franchisors, through their attorneys, rely on the optimism bias of the human being who is excited about investing in a "wonderful opportunity" to make a living to obscure the fact that the franchise agreement, in the failure of the franchisee, will insure that the franchisor will acquire the benefit of the franchisee's investment long after the franchisee has died and passed away into obscurity.

Les Stewart of Franchise Fool.com tells us in so many ways and through his inimitable expressions that the "nature" of franchising permits predators to gain at the expense of the weaker party to the contract and that franchisees are always residing between "a rock and a hard place" ----even in success! I agree with him.

Associations are often Silenced because individuals are silenced

Submitted by Guest on Sun, 2007/03/25 - 11:39.

Franchisees can complain through their associations but the Franchisors don't have to recognize their associations or the collective voice of the association and often refer the complainers to the courts, where they appear to have the edge.
Franchising is set up on the concept of the franchisor dealing with the individual small business as always subservient to the needs and policies of the corporate brand. The terminology "a business of your own" is just a myth.
Anything that threatens the balance of power in the franchisor-franchisee relationship is dealt with by punishment of the individual franchisee through use the terms of the franchise agreement. Trouble makers can be dispatched and disposed of and the leadership of the associations can be undermined almost at will by the franchisors who retaliate against individual franchisees.

Absolutely NOT

Submitted by Tinker on Mon, 2007/03/26 - 05:10.

At first, I couldn't understand why since the details were so obvious and even documented.  But then, I get a call from a AAFD rep telling me 'why' they were relunctant to get involved.  It seems the Meineke association was up to their eyeballs in negotiations with Meineke to 'allow' them to bring in Rhino Linings into the Meineke franchises.  Even the association's president had followed our lead and set up a Rhino Linings Dealership at 1 of his 8 shops.  Between that and few takers on Meineke's attempt to get in the spray in lining business with their AeroColours purchase, it seems both parties were willing to negotiate a way for franchisees to bring in Rhino Linings and Meineke to get 5% royalties off them and 2% advertising.  So you see.......................the Meineke association was perfectly willing to burn this sacrificial lamb so that they too could get in on the spoils of war.  And of course, the AAFD followed their lead.

What is so ironic is that when we opened our Rhino Linings in 2003, and saw an immediate positive cash flow as well as the additional business it drove into our Meineke, we openly shared this with the franchisees as well as Meineke.  We didn't ask for a penny but rather were glad to share an option that would help. 

Fixing Profitability Problems? At Whose Expense?

Submitted by Guest on Fri, 2007/03/23 - 08:47.

Frankman indicates that Quiznos can fix the "profitability problems" of their units. But, can they do this without some "contraction" of their operation and without some lowering of their profit margins?

It is not surprising that networks like Quiznos continue to churn their way on the backs of their franchisees to maximize their profits because, of course, they get away with it! Not many of the lawsuits actually get to the courts and the franchisee litigants don't have the money and the time to fight the corporate power and the money and the adhesory contract that they signed.

While a poster indicated that "things were better" and another poster asked for more specifics of the improvements, and specifics were not forthcoming, Quiznos continues to sell new franchises. Isn't this criminal?

Whose Viability?

Submitted by Guest on Fri, 2007/03/23 - 09:51.

Jim B.
When franchisors who profit on churning are not adversely affected when the original units that operate at a loss are sold/transferred at a highly discounted cost to a second franchisee, they don't have the financial incentive to fix the profitability for the franchisees if it means the lowering of the corporate profitability realized from the ooperation of the network of stores.
REMEMBER that the franchisor has no capital investment in the individual stores and the franchisor profits from the beginning to the end and beyond of the individual store whether or not that store operates at a profit or a loss under the first owner, the second owner, and so on.
We haven't heard anything about Quiznos corporate profits and have only heard about the lack of viability of the individual stores due to problems that have not been admitted or identified by Quiznos, except, of course, the cost of supplies.
Remember, QUIZNOS and UPS, were considered to be very successful franchisors because of their visibility and their corporate profits, etc..and were touted by Entrepreneur Magazine.
It is the Visibility vs. the Viability scheme that needs to be dealt with to solve the problems for the franchisees and the innocent prospects who will continue to buy into these networks.
These churning networks will continue to churn and sell new franchises because they can't discontinue the sale of new franchises because this might undermine their positions in franchisee actions against them in the courts.
Catch 22?

Growing Too Fast

Submitted by Bob Frankman on Fri, 2007/03/23 - 09:10.

 can they do this [fix Quizno's profitability problems] without some "contraction" of their operation and without some lowering of their profit margins? - Guest

I don't know. Traditionally, franchisors retrench when they bump into problems of growing faster than they can walk. However, the industry is in need of management genius ($$) that can teach networks to walk with grace as systems push growth.

Can companies raise profit margins and operational efficiencies without a contraction in unit growth? Certainly. But that takes tremendous know-how and the ability to align resources well. Those are the kinds of companies that I like to invest in the stock market. Anyone got any tips?

Growing faster than t hey can walk! Broken legs!

Submitted by Guest on Fri, 2007/03/23 - 10:16.

And, Franchisors think nothing of breaking the legs of the individual franchisee who loses everything when franchisors are "growing faster than they can walk."
There appears to be no disclosure information that protects prospective franchisees from this state of affairs and the visibility of the churning networks enables them to continue to sell franchises to the unsuspecting public.

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