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Q Lied To A Journalist. Now They've Gone Too Far

Ha Ha Ha. Grandpa Lewis isn't happy because Ronald McDonald lied to him. Of course Grandpa took everything told to him at face value, made no calls, did no homework, and ran exactly what Q wanted him to run. Marketwatch isn't the only "business news" organization to do that but at least a rag like Entrepreneur Magazine was smart enough to get some advertising dollars in exchange for selling its soul.

Edward Ryan's picture

Greg MacDonald Interview

Al Lewis, a journalist for Marketwatch, recently published his June 2011 interview with Quiznos CEO Greg MacDonald. Quiznos PR counsel was present during the interview. MacDonald's responses contradict the current story unfolding at Quiznos Cube.

When asked about the string of layoffs at Quiznos during early 2011 MacDonald responded:

“To be honest with you, we were probably a little fat at headquarters, so it wasn’t that hard of a move to make,” he said. “We took that savings...and essentially gave it to our franchise owners.

“That’s a huge reason why we’ve had such a successful year here this year,” he said.

When asked about year-to-date perfomance MacDonald responded:

“Were going to have a great year this year,” he reiterated. “When it comes to sales volumes of our stores, we’re going to beat budget. On our development numbers, we are going to beat budget. On our average unit volume, we are going to beat budget.

“We are privately held. I can’t predict the future, but our two partners that own the company are very happy. The performance of the company has been strong this year.

Al Lewis calls out Greg MacDonald:

Not long after meeting MacDonald, I started seeing reports that Quiznos was having trouble restructuring its $875 million in debts. By July, Quiznos reportedly had to inform its lenders that its results would come in below expectations, and that it was in violation of its loan terms.

On Friday, Quiznos announced that its major creditors have agreed to a restructuring deal, but warned it might have to file Chapter 11 bankruptcy.

The restructuring calls for Avenue Capital Group, a hedge fund controlled by billionaire Marc Lasry, to take 70% ownership. Quiznos’s current owners — CCMP Capital Advisors LLC and Consumer Capital Partners, an investment firm owned by restaurateur Rick Schaden — are not likely to recover any of their investments, The Wall Street Journal has reported.

These are the guys MacDonald — with his outside public relations counsel at his side — characterized as “very happy.” But I suppose if you are happy eating fast-food at a gas station, you can be happy eating anything.

RichardSolomon's picture

I was only joking, but I appreciate your follow on making the

point about what Quiznos would do to it if the car wash was part of their deal.

The point is that there are more people than one would think who don't care at all about the quality of reputation or relationship management.

Unfortunately, franchise investors go into deals believing that their franchisor does care a lot about his reputation - mainly because his documents all make a big deal about the franchisee having a lot of responsibility for reputation protection - and also because it is hard to accept that there are so many people out there to whom money is their god and nothing else matters.

While franchisiing isn't unique in that respect, it does seem to have a huge rat population.

Ghetto Car Wash

If Quiznos could install a meter after the city water meter and charge a franchise fee for the water your buying from the city and say its a golden goose egg water after they install some high performance water filter that you could only buy from them... Then yes they would do it, and you would again be stuck making no profits.

My Car Wash is a great investment. Sure I spend money, time and effort in it. After taxes I take home 4k-6k a month in net after maintenance and repair and onsite attendant part time Sun-Mon, and I do Saturdays. way more money and my initial investment was only 110k including the land.

RichardSolomon's picture

Do you mean that if they sold a combined frachise deal of a

Quiznos coupled with a ghetto car wash, the  thing would make some money and be a good investment?

Its over....

Most owners that I know and I talk to and still own a Q Store are just working in their stores and making minimum wage or a little more per hour and just keeping that. Many owners currently also have other business' that they thrive in, so they just let there Q store make what it makes and just let it be.... Basically break even no questions asked. As far as under reporting and buying elsewhere. Not worth the time and effort. The Q Corp is in and out of stores all the time. Recently I had a visit from a secret customer, he ordered and then after receiving the receipt he then approached me with his business card and complimented us on our hard work and thanking us.
Not worth buying local or elsewhere because plain and simple its hard to haul all that food every week without spoiling it and just plain and simple looks tacky in front of customers unloading food from a regular car.

What we all need to do as Q store owners is throw the towel in all together and call it quits. Its over. The investors are going to churn more coupons now, more free items out the door, and all at the expense of what store owners are left. It sucks, its a slap in the face, but yeah its over.

My store, is number one in town. Gross Sales that is. Heck its number 4 in the state in gross sales. Reality is I make more in my urban graffiti-ed car wash in the ghetto than I do in my first class amazing looking Q Store.

Quiznos' run is over

I just do not think even with the best of everything that Quiznos has any place in the industry any more.

They have run their course. Subway wins.

Move on to something else or open your own place is my advice

Too Bad For Q?

Yeah, I feel so bad for the swinging richards and q corp. tasting some of the medicine they were so willing to force on thousands of franchisees. So do I feel bad for the Wall Street fat cats and investors who are getting ready to take a major haircut? Nope. They all knew how q made its money - bleeding its franchisees dry and then churning the restaurant to another unsuspecting franchisee - and fell all over themselves to get a piece of the action. It'll be fun to listen to them cry about how unfair the settlement terms are as they sign on the dotted line. I hope you lost a lot of money too. Of course they could man up, tell the hedge fund billionaire to take a hike, and go after the Schadens, Brannanman, and the rest of the qtards. But they won't because one day the shoe could be on the other foot.

Ray Borradale's picture

I was thinking ....

"Consumers stopped buying their subs because of the recession."

.... maybe Q screwing thousands of franchisees and great difficulty in selling any franchises may have contributed. For years Quiznos financial downfall has been predicted at BMM.

Quiznos

It’s too bad that while Quiznos is trying to work out debt restructuring with their creditors, Quiznos may have to seek Chapter 11 protection. Consumers stopped buying their subs because of the recession. Apparently, they are ready to seek bankruptcy protection if it cannot work out the debt.

Joseph S. Pearl, LL.M. – A Professional Law Corporation
1400 Chester Ave., Suite C
Bakersfield, CA 93301
661-281-0253

Granville_Bean's picture

Not Multis

My gosh Soloman, you are reinforcing the stereotype that lawyers are just people who like to argue.  You either failed to comprehend (which I doubt), or you are intentionally changing the subject.  I specifically mentioned that the scenario was for situations where the OWNER WAS BEHIND THE COUNTER, and noted that many Q owners are indeed Single Store Operators.  Indeed one of the red flags about the Q system is that there are few multis since the stores won't support them; it's just the Franchise Owner buying himself a job. And from the Q FOs posting here, it isn't a well paying job either, and yes some of them are behind there own counter for the most part of most days.

So yes, in the scenario that I described, the gambit is quite realistic and indeed happens. So go set up some other straw man to denigrate.  In the meantime, I personally know of several restaurants that do a substantial amount of their business under the table.  While a disgruntled EE is always a risk, the way they reduce this incentive is to also pay the EEs all or some of their pay under the table as well, thus making them complicit. And yes, I know places that do this as well.

Ray Borradale's picture

Guts and smarts

Timidity makes you less of a person on every level. Would you rather fight together and possibly die bravely or just slowly sink into the mire of passive abused fodder?  Guts make you refuse to be abused.

I don't recommend screwed franchisees go off half cocked ..  some research here will better protect a franchisee from mistakes that would see him or her chewed up and spat out. But there is a lot franchisees can do rather than laying down and copping it.

john a. gordon's picture

UFOC/FDD was read

Scott says: I did read the whole FDD.

Unfortunately, the US FDD is very poor disclosure. For starters, it is voluntary and not checked by the FTC (or anyone else).

The item 19 "earnings" disclosure is not earnings. Generally it is sales and we all know sales isn't profit. 

More investigation, more due diligence is required.

RichardSolomon's picture

The multi unit owner can't be behind all his counters and he

will have disgruntled employees who will rat him out on the under counter cash registers. So that gambit isn't realistic, is it?

At hte quality level of food in the Q system, you could buy your food infredients from scavangers and be just as nutritious.

Really bad franchisors reduce their franchisees to the levels of integrity they claim to hate. Timidity makes you less of a person on every level. Would you rather fight together and possibly die bravely or just slowly sink into the mire of passive abused fodder?  Guts make you refuse to be abused.

Ray Borradale's picture

Granville I agree almost

I've seen some big efforts put into non-reporting of sales and in a number of sectors.  Not to insult any of the fine mangers out there but in my experience managers are more likely to pocket takings having in comparison to a franchisee very little at risk and often underestimating a franchisor's infatuation with royalty.

Granville_Bean's picture

$ Under the table

Webster Esq observes: "Richard, there hasn't been a cash registar system that cannot be gamed."

Since most Q stores are owned by single store operators who stand behind the counter themselves, the easiest way to game the POS is to not use it.  I have heard of cases (not Q) where another cash register is brought in and put on the counter; sales look like they are being rung up but that register isn't connected to anything.

Of course doing this on a large scale will throw off your ratios (food cost, etc.) But do it only a little and you'll just look like sloppy oprerator who doesn't control costs well.  Or, if you wanna be a "meat eater" rather than just a "grass eater", you go out and buy unauthorized supplies....

When the owner, personally, is behind the counter, all kinds of shenanigans can happen.

Boys, Qtards, can't we all just get along?

Quiznos corporate owns the food supplier - the golden goose. Q makes its money selling low quality products at inflated prices to franchisees. They maximize those sales by issuing a blizzard of coupons with franchisee ad money so franchisees have to buy a lot more product whether they make money or not. That's Q's business model. It won't ever change. For franchisees Quiznos is a proven dog, a loser, a fast way to end up broke. Stay far, far away.

Not knowing your own Firehouse faults

"(Firehouse Subs has) territories so there aren't restaurants a half mile apart" - Guest3

Not correct. This is the reality as printed in Item 12 of Firehouse Subs Franchise Disclosure Document, April 2011:

"You will not receive an exclusive territory for our Unit Franchise Program or our Area Development Program. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control."

I know my flaws. They are many. Do you know yours?

Apparently not.

Firehouse Subs

Item 13 of the April 2011 Franchise Disclosure Document for Firehouse Subs tells a whopper:

"There are no agreements currently in effect which significantly limit our rights to use or license the use of our Marks in a manner material to the franchise. There are no currently effective material determinations of the PTO, the Trademark Trial and Appeal Board, the trademark administrator of any state or any court, nor are there any pending infringements, opposition or cancellation proceedings, or material litigation involving the principal trademarks."

The reality was that Firehouse Subs' trademark infringements were going through the courts hot and heavy then. The court was extremely terse in its ruling about Firehouse's dishonesty and coverup.

Re: For the past 5

"if and ONLY IF the new ownership gets THEIR "core" franchise owners that survived the culling and nightmare of the past 5 years BEHIND them" - Scott

Agreed. The system will start to look interesting again only when restaurant owners as a whole help lead, audit and correct the actions of the franchisor. We see that the top down command structure - the system supposedly hired some of the best turnaround specialists, but it didn't work - has hurt the health of its restaurant owner-operators, the franchisor itself and the long-term health of the brand.

The trust is gone. Franchisees need to fix the purchasing and operating problems of this chain. No one else will. The problem is that the franchise owners are in a state of shell-shock. The trick in getting franchisees behind the franchisor is to have franchisees in front of it.

Real meat between the ears

Firehouse Subs doesn't have restaurants half a mile apart because they are spread so thinly across the U.S. I've seen some "protected" territories that are already two miles apart though. If that's the case now, what will happen when you become a real brand?

When you meet your boss, you should know that he has no qualms telling whoppers in leading the chain. But even with court rulings confirming that, you are in your bubble that everything is fine. And you sell your expensive sandwiches at huge discount prices, you take pleasure in saying that all is fine with your system, while criticizing ours. Get real.

Real Meats, Real Cheeses

not some nasty mixture that q charges its franchisees premium prices for and then discounts on the back-end. Territories so there aren't restaurants a half mile apart. Also, I don't see how you're just now "bottoming out". The guy who wants to buy you is a hedge fund operator. They're in it to squeeze the remaining blood out of the turnip - not turn the Q into some nationwide powerhouse. When you meet your new boss you'll quickly discover that he's just a smarter version of Dick Schaden and things have gone from bad to worse.

If your considering buying a Firehouse Subs

Guest3, people in glass firehouse subs houses shouldn't throw stones. Talk about owners who should have their heads examined.

Your founder wasn't even honest enough to sell you something that he had the trademark rights to. He didn't. You don't even have a group to represent your needs. You don't have dibs to audit supply prices. A PE firm wouldn't even pee on you should your system want to be sold. When someone says credit, you think card.

We're bottoming out, while you're just starting your freefall.

Actually in February of 2004

Actually in February of 2004 they were heading to the top of the franchise world...the UFOC (now called the FDD) had ONLY ONE PAGE (both sides) of Litigation IN 12-POINT FONT - SIX TOTAL CASES!!!!! Three of them were termination of area rights by area directors the rest were those Shareholder Valuation disagreements that Schaden got himself into...AND YES I READ THE UFOC...THE WHOLE DAMN THING!!! LOL

By the time I finalized the deal in July of 2004 they were the best deal on the face of the planet the following year I was running 25% food cost, averaging $12,000 per week in sales with ONLY 7% in TOTAL discounts (coupons, % discounts, comp meals, manager & employee meals)...and then...

...well...you know the rest of the story.

As for "peddling" my store...I've got ethics and I'm a Christan...I'd sell my LOCATION and it's revenue stream right now...but not the Brand...not until they fix it.

For the past 5

For the past 5 years...absolutely...no argument...no doubt...but...

...moving forward with a $75 million marketing campaign - which I admit we haven't been given ANY details on - new leadership, no Shadens, an improving economy, a recognized brand (albeit Broken but fixable)...

I'm not sugar-coating it...there is a TREMENDOUS amount of work to do AND if and ONLY IF the new ownership gets THEIR "core" franchise owners that survived the culling and nightmare of the past 5 years BEHIND them AND ONLY IF they realize that if they don't want to loose THEIR $281,000,000 because they weren't smart enough to know that their success takes backstage-out-the-back-door-down-the-alley-around-the-corner-and-down-the-street to THEIR franchee's success FIRST...

Then maybe...JUST MAAAAYYYYBBBBEEEEE...they will succeed at pulling a rabbit out of their hats.

If You're Considering Buying A Quiznos.....

you really need to have your head examined because you're coo coo

Hiding Revenue A Red Herring

They had a warehouse full of the cheap, over priced adding machines that they bought when they thought Q was on its way to 10,000+ restaurants. And at 5 grand a pop they were making a killing on them. Always short-term focus. When they offered a "free" computer to franchisees that would give corporate Q the ability to poll those POS machines I nearly fell out of my chair laughing. As for hiding revenue - it's a red herring. If that was the magic pill for staying open and making money 3,000 franchisees would not have closed their restaurants in the past couple of years. Besides, how could so many "poor operators" be that smart?

michael webster's picture

POS and Undereporting

Richard, there hasn't been a cash registar system that cannot be gamed.

michael webster's picture

Quiznos Purchase

Scott, if you have a product for pre-sale investigation for Quiznos' purchases, you should discuss it with the Q Association and see how they can help you market your ideas.

michael webster's picture

The Strategy of Underreporting

Guest correctly notes:

"Let's say AUV's are higher, what is the franchisee's motivation to actually report higher sales? The Q franchisees are beaten down and are so accustomed in their culture that it is hard to see the light at the end of the tunnel for many of them."

It is in Kevin Tackett's interest as President of the Association to convince a) the franchisees that their truer sales are important confidential information, b) persuade the new owners that the Association can collect this information without recourse to the individuals, and c) construct a device which both reveals the value of that information in a) to the new owners and gets the Association paid for doing so.

Otherwise, I recommend that Mr. Tackett discuss with Mr. Coen and Mr. Steinberg the value of being Steve Horned -because that is the normal approach for new owners.

Scott, Scott

To bad you didn't have the foresight to stay away from Quiznos 7 years ago. They already had their share of bad press even back in those days. And what do you exactly bring to the table besides trying to peddle your store?

If you're considering purchasing (a) Quiznos...

If you're considering purchasing an existing Quiznos Franchise or have attended a Quiznos-sponsored Seminar in your city contact me at quiznos.newberlin@gmail.com

I'm a 7-year Quiznos franchisee veteran who owns the highest sales store in Greater Milwaukee, number two store in Southeastern Wisconsin, and a top 5 store in the state. Prior to owning this location I spent 22 years developing commercial real estate and had the foresight to get out prior to the bubble bursting.

Before you commit to any business venture you need to do your homework and know all the realities you're about to encounter.

Sincerely,

Scott Espeseth, Owner
Quiznos - New Berlin, Wisconsin

Under-reporting

Quiznos corporation was sure owners were under-reporting sales when they announced they were rolling out a plan to open up 600 new stores. Funny thing was that fiasco made Quiznos realize that sales were really that bad and ended up closing all the stores they opened up in a matter of months.

Yes sales are down and they are down because of the lack of advertising and leadership in Denver. Rick Shaden is now getting his taste of Karma. Think of the thousands of lives that this guy ruined by his greed.

RichardSolomon's picture

Do you mean to say that Q doesn't have POS systems that

make under reporting near impossible? How can Q have missed out on the opportunity ot make its franchisees buy expensive ganeff proof stuff?

Franchisee Underreporting

Michael,

Let's say AUV's are higher, what is the franchisee's motivation to actually report higher sales? The Q franchisees are beaten down and are so accustomed in their culture that it is hard to see the light at the end of the tunnel for many of them.

By bringing in Steve Horn, the new owner can ramp up refranchising revenues to help pay down the renogotiated debt and then focus on marketing to build AUVs under a new franchise culture.

Do you really think the new owners believe there is underreporting and that they can influence existing franchisees to accurately report sales? If so, it's a poor reason to get involved in the Q's deal.

michael webster's picture

Store AUV's

John notes that the reported stores AUV's are down around $325,000 or $350,000.

Almost nobody can believe that these are correct numbers - and this presents an opportunity for the franchisee association to assist and gain credibility.

The new owners are going to need real gross figures from the franchisees.  Part of the association's job should be to assist in obtaining this information.

It will be interesting to see how this negotiation works out; and no, Steve Horn need not apply for the job.

Fresh start

Oh no. Investors insist that Rick Schaden leave? Too bad. So sad.

This is actually the right thing to do. The network needs a fresh start.

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