Franchisor Quiznos goes bankrupt while a franchisee’s neon sign shines brightly in Chicago. Photo/ps
Quiznos filed for bankruptcy late last week. Interesting enough the Quiznos franchise chains troubles at a time when similar sandwich franchises like Subway and others seem to be thriving.
Serious flaws and seemingly fraudulent practices in the Quiznos’ business model led to the company’s demise.
Here are my basic three observations for the chains seemingly collapse and one hope of salvation for the franchise owners.
1. Broken Business Model. The chain’s franchise owners paid too much for ingredients, eating into margins, because Dick Schaden and Quiznos designed it that way by taking a share of the proceeds before the franchisees sold it. Taking money out of the supply chain is a despicable act toward franchisees. Subway does not take any proceeds from their supply chain and neither does Dunkin’ Donuts.
2. Quiznos Had No Data or Test that Franchisees Could Make Money: They made no earning claims in their FDD. There are a number of franchise systems that are 100% franchised owned but those brands have profitable units at the street level, and most of those systems make financial projections in their FDD. Quiznos never proved its business model. They had a story and it sounded good and they used tactics to put on an obviously effective dog & pony show.
3. Franchisee Loses. Quiznos has shrunk from 5,000 restaurants in 2008, to just over 2,000 today. They sold well over 6000 units, many never opened. Franchisees invested over 2 billion into Quiznos, in the State of Maine it is estimated that 26 franchisees in Maine lost over $6 million dollars. There are two units left, one at a refreshment are on the Maine Turnpike and one in Bangor.
There is a way to save Quiznos thru the Bankruptcy Court: It’s been done before.
- The biggest asset are the 2000 franchise agreements, and in Bankruptcy the franchise owners are also considered a creditor because of contractual obligations.
- Allow the franchise Owners to create a franchise owners owned co-op for the supply.
- Allow the franchise owners to form a buyers group to purchase the brand.
- Restructure the terms and the business model.
The Quiznos Franchise Owners need to act very quickly.