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Quiznos CEO Steps Out, MacDonald In

DENVER — Quiznos officially announced today that Rick Schaden is stepping down as CEO to pursue new entrepreneurial and philanthropic endeavors. He will be replaced by 12-year veteran Greg MacDonald, who for the last year served as president of Quiznos worldwide. From 2005 to 2009, MacDonald was president of Quiznos Canada.

Schaden, who started with Quiznos in 1991, took the company from 18 restaurants to 5,000, according to the Quiznos website. In the past five years, the franchisor has been a revolving door for chief executive officers. Rick Schaden took over from Steve Shaffer early on, prior to Greg Brenneman coming on board in 2007. Dave Deno then took the reins for a short five-month period, exiting in February 2009. Following his departure, Schaden again took over as the company's CEO.

Jude Ryan has less than flattering thoughts about the change in management. "No matter who comes in, if Quiznos stops the practice of making money off of franchisees' losses, it will end up losing money," he thinks. The former franchisee who is embroiled in a lawsuit with Quiznos, states, "They put stores in useless locations. They offer coupons that franchisees cannot afford to honor. Quiznos doesn't care."

Chain restaurant analyst and management consultant John A. Gordon has a different take on events. He considers Schaden stepping away from his operational position as symbolic of a new beginning for the chain. "It may signal new plans and a new stage for Quiznos," the analyst declares.

The firm touts that new CEO MacDonald has refocused the company to develop new stores with leaders who had proven operating experience. He also pushed for 600 company stores by the end of 2010. At the beginning of this year, there were only three company stores. 70 are now being developed.

"Greg brings unparalleled brand and industry knowledge to this role as well as a targeted focus on company success through exemplary operations," said Schaden about MacDonald. "Greg has the support of Quiznos' board, shareholders and franchise owners. We are confident in his ability to execute a sound strategy for even greater company success."

But Chris Bray, consultant to the Toasted Subs Franchisee Association and a former Quiznos franchisee himself, wonders if MacDonald will make much of a difference. "Canada experienced the same basic problems that Quiznos in the United States has," says Bray. "That speaks for itself."

Is Quiznos Shopping for Buyers?

Gordon, principal of Pacific Management Consulting Group, contemplates the pressures on this subway chain and what its future might be. Gordon says he has received numerous calls from investors who buy distressed debt who want to know about Quiznos. "There are pieces of the company that are getting shopped," he says in reference to Quiznos stakeholders looking for buyers. Some of the firm's shareholders in the company are Rick Schaden and private equity firm CCMP. "These types of buyers wouldn't be expressing interest in Quiznos unless there was some sort of roadshow that went out," he adds.

Quiznos is purported to have lost a thousand U.S. stores in the last year alone.

Gordon reasons that with a hundred or so unit closings a month, lower royalties received from lower average store revenues and lower sales of new franchised restaurants, Quiznos must be finding it more difficult to service its sizable loan covenants and high debt ratios. "Its just math," explains Gordon. "The buyout of Quiznos in 2005 was the second highest acquisition in restaurant history." He thinks there must be high debt levels to finance. "Uncollected royalties and uncollected marketing funds are the greatest risk to franchisor Quiznos right now," Gordon states.

The analyst thinks Quiznos' current economic model must be altered to be more profit friendly to the restaurants. In order for that to happen, the franchisor's high mark-up costs must come out of the company's supply chain to improve store economics. "In that way, new multi-unit franchisees will be attracted into the system," Gordon concludes. He thinks that the next stage of growth must be to develop strong, multi-unit franchisees who can better exert influence with the franchisor's management and can grow the chain again.

The company seems mindful of that criticism on profitability. It says under MacDonald’s leadership, Quiznos restaurants have experienced an uptrend in average unit volumes.

"Our senior management team is freshly dedicated to driving even greater company success through operations, an elevated guest experience and innovative new products," adds MacDonald. "In the coming weeks, we look forward to sharing 2011 plans to benefit Quiznos moving forward," he states, painting a vision of new things to come.

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