Quiznos Franchisees Walloped by Recession

Quiznos franchisees claim to have been disproportionately affected by higher-than-average commodity costs, lackluster marketing efforts, a bruising promotional war and a cost structure hard hit by a soft economy. And if that weren't enough, Ad Age magazine adds, "It's also embroiled in three separate class-action lawsuits in which franchisees allege, among other things, that the chain overcharges franchisees for food and other supplies."

Problem #1. The chain was designed with an operational cost structure geared to premium sandwiches. It is especially hard-hit during economic down-turns.

"We can't make money," said Quiznos franchisee Marty Tate, who said his Erie, Pa., store leads the region in sales. Mr. Tate, who is not part of the lawsuit, said 40% of his sales go directly into advertising, royalties and food for the next week. He added that three of seven locations in his county have closed in the past year. Mr. Tate said that when his contract expires next spring, he will open his own independent store.

Problem #2. Quiznos and other chains are in a bruising war over low-priced sandwiches. That plays against Quiznos strengths.

The move toward value is clearly hurting the 4,450-store chain in its sandwich war with much-larger rival Subway, which has more than 22,000 locations. Subway's $5-foot-long-sandwich promotion has resulted in double-digit sales gains in many parts of the country, forcing Quiznos to fire back with its own $5 promotion in May.

Problem #3.  One unnamed industry observer says Quiznos lacks enough variety in its menu offerings.

"Where [Quiznos] is getting its ass kicked is Subway has more products," said one executive familiar with the situation. "When the consumer wants ... variety, there just isn't much in the way of options."

Problem #4. Then there is the problem of how a 4,450 restaurant chain competes with 30,000 unit Subway in advertising.

Quiznos' agency is Cliff Freeman & Partners. According to TNS Media Intelligence, the chain spent $83 million in measured media in 2007 and $55 million in the first half of 2008. Despite the increase, many franchisees said that they rarely see their own ads, and most say the work isn't memorable. (By comparison, Subway spent $361 million in during 2007, according to TNS.

"The last good Quiznos commercial was Baby Bob, and that was 2004," said Mr. Tate, who said he's complained to executives about the creative. "I would challenge anyone to remember the last Quiznos ad they saw."

Considering the challenging times, some franchisees feel confident with the direction the chain is moving.

"Brian Wise, a six-unit franchisee in Kansas, said it was "imperative" the chain respond to Subway. "We can get to the point where we want to have this very select niche of customer that absolutely will pay whatever we charge for a Quiznos sandwich, but that's not true for the larger customer base." He said a couple of his locations are having problems, but most are up over last year."

Read the full story at AdAge.com