Quiznos' Chief Counsel Speaks Out on Issues

EXCLUSIVE: An Interview with Richard Emmett

Journalist's Note: Although Quiznos has recently responded with statements to reporting on Blue MauMau, it has shied away from interviews. But this week Richard Emmett, Executive Vice President and Chief Legal Officer, granted an exclusive interview.

All Litigation Is a Distraction

DENVER (Blue MauMau) - Richard Emmett is no stranger to the restaurant industry. Not only has he been practicing law for the past 25 years, much of it in franchising, he has also been involved in restaurants since he was 13 years old. He explains, "I've put myself through college and law school working in restaurants. I've managed them, waited on tables, washed dishes and cooked. And I was a franchisee." Even today, Emmett is a franchisee of the Papa John's pizza system, where he was in-house counsel for fourteen years prior to accepting a position with Quiznos three months ago.

First and foremost, Emmett responded on how Quiznos is dealing with all the lawsuits filed recently, and how distracting it is while trying to turn the company around with a new management team. He feels the number of lawsuits is not that unusual, given the size of the company. He said, "Obviously, any company would prefer to have no lawsuits, but in my experience from a number of perspectives, it's about average." He said what is different is the type of lawsuits that are being filed, referring to several class action suits. Emmett explained that people must keep in mind that the lawsuits are requesting class status, and so far none have been granted. "Anybody can file a lawsuit, but the question is whether it will warrant a class action certification." He couldn't say how long it would take for the courts to determine the status, but from his experience he thought the process could possibly take over a year.

As far as the litigation being a distraction, Emmett said, "To a degree every lawsuit is a distraction. But what we are doing is looking at every aspect of the business with the ultimate goal being to improve franchisee and system profitability." But he adds, "That includes litigation." Part of the litigation, he explains, is looking at the merits of each case and making an assessment as to whether they are cases that they determine are appropriate to litigate to the end based on the facts they know, not on the facts alleged. He said, "There's a big difference oftentimes."

Getting into the Canadian and Bray settlements, he said they looked at those just like they do all other cases. "If we can arrive at something that we believe is fair, then that's fine," he explained. "If we can't, then we are going to protect our interests rigorously."

In a national class action lawsuit file against Quiznos in August, it was alleged that Quiznos currently has 3,000 franchisees who have paid their franchise fee, approximately $25,000 each, but have not been able to find locations. As a result, many franchisees have lost their money due to no fault of their own. Emmett said that number was substantially wrong by a large margin. He acknowledged that they did have what's called stores Sold Not Opened (SNO), but he did not have the numbers in front of him. Sometimes, he said, there are a number of things that happen after prospects pay their franchise fee. Sometimes they back out for personal reasons. Another is that there may not be appropriate real estate. "There is a wide variety of reasons," he said.

No Plans to Recognize Independent Franchisee Association

With Chris Bray, President of the Toasted Subs Franchisee Association — Quiznos' only independent franchisee association — now out of the system after settling his lawsuit and selling his two restaurants, many are wondering if management will consider recognizing the TSFA. Emmett only had one reply, "We will recognize and deal with any franchisee who has an issue or wants to communicate with us on a one-to-one basis."

But what he did tout was that franchisees are telling them, "These (TSFA) guys do not represent our interests," and Emmett feels that shows substantial progress is being made.

"We are hearing it loud and clear," he said, "that franchisees want to work with us as anybody should in any system, to try to improve the system. They want to concentrate on our competition as opposed to internally on ourselves." Emmett hopes that people will start recognizing that that is what is happening in Quiznos since Greg Brenneman took over eight months ago.

Emmett did explain that Quiznos does have Franchisee Advisory Councils, which are know to be groups controlled by the franchisor, under such areas as Operations, Profitability, and Marketing.

Franchisee and System Profitability Key in Turnaround

Emmett has high hopes that CEO Greg Brenneman and the management team he has put together will be able to reach his goal of improving franchisee and system profitability. He said, "We have already taken food and paper costs down more than four percent, and in the restaurant business that is huge. That is all bottom line dollars in terms of cost."

He said they have also improved communications with franchisees, admitting that he didn't think anybody would say that didn't need to happen. Emmett said that includes weekly voice mails that Brenneman and the rest of the senior management staff have set up, informing franchisees of what's going on in the system. They are able to tell them what initiatives are underway, what tests are being done and what new operational elements of the system they are working on. Quiznos also has a policy internally, according to Emmett, that any franchisee communication, whether it be phone calls,voice mails or other means, must be answered within 24 hours. "That is an edict that Greg has handed down and it applies to all management and other staff. The level of compliance in that regard is very high."

Another area Quiznos is working on is marketing. He said they brought in Steve Provost from Yum Brands, and although Emmett didn't know him prior to joining the company, he knew his reputation was off the charts. He thinks there will be a substantial improvement in the level of marketing, as well as its efficiency. Marketing, according to Emmett, is going to take a new direction in the future. He said that was big. "We need to educate and remind the consumer who we are, what we offer and what our quality message is.

According to Emmett, consumers are telling them that Quiznos is the quality provider in the sandwich segment. He said, “They expect us to charge more for the higher quality products. But when you do, there is always that segment of consumers who scratch their heads and say, ‘Do I really want to pay that much, or do I want to go down the street to Subway and pay less?’ It's called value equation, consumers want to make sure they are getting value.”

Emmett said they are in the process of testing some products that deal with the value equation, yet maintain the quality position, and that in a lot of large systems they reach a point in their maturity where they need to reflect upon what system support and infrastructure they have in place, and assess whether that support and infrastructure are appropriate for the size of the company. Or, for that matter, for the size it will be in two or three years.

Emmett continues, "You wish it wouldn't happen, but the key to coming out of that is everybody getting on the same page and working together for the betterment of the system." He said that was key in improving franchisee and system profitability.

Managing Intentional Growth

Quiznos' biggest critics have accused the franchisor of growing the company unrealistically fast, but Emmett said the growth numbers this year are intentional, lower than they have been in years past. “The key word is ‘intentional,' and that goes back again to looking at the systems and making sure that we have what is appropriate for the systems to support what we have now and what we anticipate in the future.”

Working on franchisee consistent profitability is key. "If franchisees are doing well, the system is doing well. That is what we are working on now, by pulling the reins back substantially on development."

Emmett says they are working on a more robust development which they believe will help those who still want to open stores. That includes everything from sourcing franchisees, determining the appropriate list of franchisees, and determining the appropriate list of real estate properties.

He said Greg's mantra is, "Start Here Forward." Emmett doesn't know what went on in the past, so he will take it from Greg in starting forward. He said he knew some of the history of what took place in the company prior to the new management coming on board was very important to franchisees, but he said, "I just can't address it at this point." Emmett doesn't begrudge anyone their feelings and opinions, but he said, "The goal of senior management and the whole company is to improve things for the future. That is the key."