Quiznos Claims Not That Many Franchisees Are Suing Them

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Fri, Apr 20 - 5:16 pm EDT | 7 years ago by
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Sub sandwich franchisor Quiznos fired off a quick response to the press announcements issued in the Illinois class action suit against them (See Quiznos Franchise Lawsuits Just Keep On Coming).  This latest lawsuit alleges that Quiznos has “systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.”

The lawsuit contends that the company forces franchisees to buy food, supplies, and services from Quiznos or its affiliates at inflated prices while setting artificially low retail prices for its products — in many instances,
making the stores unprofitable for the franchisees. In addition, the plaintiffs also allege that Quiznos continues to sell franchises by “omitting or otherwise misrepresenting key facts about Quiznos’ business operations…”

Quiznos response, posted in its entirety below, was to point out that that this lawsuit represents only five of more than two hundred Illinois Quiznos owners.  While not responding to the specific allegations, Quiznos attorney added that they are “wholly without merit.”

Quiznos Responds to Allegations Made by Marks & Klein and Christopher Bray

Illinois Class Action Lawsuit Represents Five, Less Than 2.5%, of the More Than Two Hundred Quiznos Franchise Owners Statewide

DENVER, Colo.–(BUSINESS WIRE)–Quiznos, one of the nation’s fastest-growing quick service restaurant chains, today responded to allegations made Thursday, April 19, 2007, with regard to Illinois’ class action lawsuit filed by plaintiffs’ bar law firm, Marks & Klein, against Quiznos.

“Through their repeated grandstanding with the press, Justin Klein and Christopher Bray have repeatedly demonstrated that they have little knowledge of the Quiznos business, or appreciation for its many successes,” said Fredric A. Cohen, Member of Cheng Cohen LLC, Quiznos counsel. “Additionally, their comments are misleading, making it appear as if Justin Klein represents a large number of Quiznos Illinois franchisees. In reality, only five of the more than 200 Illinois Quiznos franchise owners are involved.”

He continued, “These claims are false, misleading, and wholly without merit and, therefore, the company must vigorously defend itself, its brand, and its goodwill on behalf its franchise owners throughout the nation.”

About Quiznos

Celebrating its 25th anniversary in 2006, Denver-based Quiznos is a national chain designed for today’s busy consumers who are looking for a tasty, fresher alternative to traditional fast food restaurants. Using only premium quality real ingredients, Quiznos restaurants offer creative, chef-inspired recipes for sandwiches, soups and salads. With more than 5,000 franchise restaurants, Quiznos is one of the fastest-growing quick service restaurant chains.

In June 2006, Nation’s Restaurant News ranked Quiznos in its Top 100 Restaurant Chains as the #1 restaurant chain in growth in number of units – five years in a row. Entrepreneur magazine in January, 2006 ranked Quiznos in its annual Top Franchise 500 as the #2 Best Overall Franchise and QSR magazine ranked the chain in its Top 50 Chains in August, 2005 as #3 by change in system wide sales.

For more information, visit www.quiznos.com.

ARE YOU FAMILIAR WITH THE QUIZNOS FRANCHISE CONTROVERSIES?  HAVE AN OPINION?  YOUR COMMENTS WELCOMED.

Looking for some new ideas in franchising?  Check out TopNewFranchises.Com

 

 

 

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  • Sal

    Quiznos had their sales rep.,J.J.Moran
    in Largo,Florida two years ago.He promised great locations for a store,all within five miles of my residence.
    He also allowed my wife to take half of the “required” apptitude test before accepting my franchise fee of twenty five thousand dollars.
    The store locations offered to me were not in my town and would have required me to travel forty minutes to get there besides being in lower income area.
    When they finally approached me with a store in Treasure Island it was 800 sq.ft. more than the average Quiznos’ store.
    This would have made it less profitable due to the rent but they also insisted I agree to use the extra space for dry storage only.
    I refused to sign with such a stipulation.

    Months followed with them refusing sites I found with reasonable rents and good locations.
    I called and wrote to their legal rep. and asked for a refund.More months flew by as she claimed my circumstances should get my fee returned.
    Anyway on and on till she got me to agree to sell my “store” to them.
    This meant I had to find a buyer while they were still selling franchises in my area.

    They contacted me six weeks ago informing me the new CEO wanted to make things right. I asked for half of my monies–have heard from them.

  • Brad

    Sal and I have a related story. I bought my franchises from J.J. Moran as well and he did a similar thing to me. Before I formally agreed to buy my franchises, I asked and asked him about what stores I wanted. Well, he gave me the OK on both locations and I signed up. A few months pass and I get a call from Alex Karas (at different times) to tell me that both locations were already sold previously to other people. So, I was told to look for other spots. Since there was no room for more 2 stores in my town, I went north a town where there is no Quizno’s and picked 2 other spots. A few more months pass and we finally found a site and I was told it should be open by summer. Well, summer came and went. Phone call after phone and no one knows what’s going on. 6 months later I get a call from Alex again to tell me that we lost our location because someone out bid Quizno’s. I said, How can that happen? He said that the developer and he had made a verbal agreement assuring that Quizno’s got the site but no formal agreement was ever signed. Well, I signed a lease commitment but apparently it was never delivered to the developer which I had and was told to give to Phil De Mena. At that point I was done and 1 1/2 years had past. Since then everyone that I was working with has been fired, quit or moved to different areas two times or more over. It appears that Quizno’s only keeps there people in any one area for so long and then moves them. So you can never keep up with them. In speaking with the latest area rep for Quizno’s, he says that Quizno’s is not planning to open many new stores in the near future in Florida. He says because Florida is dead and it’s a bad market right now for real estate. It’s been 2 years, I’ve tried to get my franchise fees twice and twice I got the same options. In fact it was the same letter. My options are sell them, open them or forfeit them. Here’s the deal, you can’t sue them in Florida because the contract is based on Colorado law. Quizno’s is standing firmly behind the agreement and will not give the money back. It seems to me that they know you can’t touch them unless you go to them and most of us can’t afford to fly to Colorado to hire a lawyer to fight them. They know this! There’s got to be a way!

  • Michael Fortanasce

    i bought 2 franchises in california. I was show financial records of high profits from other franchisees that had stores operating. I was then asked to sign statements that I had not seen these documents. Later the location I was suppose to be getting were taken so they wanted to switch my locations.

  • Pingback: Toasted Subs Organizer Settles Lawsuit With Quiznos

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  • RON

    hey all you unhappy quiznos guys or gals in florida we need to talk

  • http://www.b5media.com/sean-kelly/ sean

    Who are you, Ron? What do you want to talk about?
    Feel free to share your involvement & current situation.

  • RON

    sean i owned two stores in florida and had three unopen agreements that corp. defaulted need direction.

  • http://Franchisepundit Elizabeth

    A costly lesson
    on Mar 14th, 2008 at 2:08 pm

    Prospective Quiznos buyers please read this carefully. I have always prided myself in that fact that I try to make good decisions. Yet, the decision of my husband and myself to purchase a Quizno’s restaurant is one decision that has been anything but positive. Please take your time reading my story because it may help you to avoid making a terrible mistake. I am hoping that by sharing my experience the information may save your family, finances, sanity and future.

    We transfered our Quiznos over 23 months ago. Our weekly labor ranges between 22% to 25% – the goal is 20%. Average food costs range between 30% to 33% the goal is 30%. Not only have we not made money, but we have lost over $45,000 in the last twelve months in addition to $34,000 during the first 11 months. Additionally, another Quiznos near my location is also showing similar dollar losses based upon information that the owner has shared. I realize that there are poor stores in the system. It is unrealistic to assume that every owner runs a great operation. However, our store has one of the highest customer approval ratings in the area. In addition, our location regularly appears on the top half of the weekly blast fax. The blast fax is an intra-company sales reporting tool utilized by owners in order to compare their store statistics to a large grouping within a certain geographic region. It is of great concern that our business is making more than 2/3 of our geographic region and yet we are not even breaking even. One wonders how the stores that are producing less volume than ours manage to survive? The fact is that most do not for long. The owners eventually become disappointed with this company and are either forced to sell or walk away because they can not find a buyer. Despite working as an unpaid “volunteer” at our location for the past 22 months I have never sacrificed quality or service. We have never skimped on labor in order to squeeze more money out of the bottom line. Our store is meticulously clean and the employees are well trained. Yet, despite all of our efforts, we have lost a lot of money. Yes, we conduct local marketing weekly in addition to other strategies that the company suggests to increase revenue – but to no avail. There are a fortunate few that are doing, however, this is a rare exception. I too have a friend that is profitable. Her location is in a busy commercial district with plenty of daytime professional traffic in addition to evening residents as well. She is one of the fortunate stores that appear regularly on the top of the first page of the blast fax. Yet, despite the fact that her store is one of the more frequented locations, she has remarked that because her business is one of the highest grossing stores in the region, she is frankly surprised that she is not making a greater profit. She, like I, works her business diligently both in front and behind the scenes. She is also one of the fortunate few.

    In our case, the fact that the company put not one – but three – new Quiznos extremely close to our existing store has been but one of several factors for our lack of profit. Even our customers remark that they are surprised that the company places stores in such close proximity. Our restaurant, once grossed between $9,000 to $11,000 average per week before we bought it. The addition of the other stores dramatically cut into our customer base. Currently, a $9,000 week is the rare exception. After paying over $320,000 for this store, we expected to at least net $70,000 per year. We would settle for breaking even at this point. We still have customers that make the extra trip to patronize our store because we offer the best service and most pleasant environment of the other Quiznos in the immediate vicinity. Yet, that is not enough to help our bottom line.

    We realized that we were not going to make money two months into our venture. We put our store on the market right away. Today, almost two years later, we have been forced due to financial constraints to give it away. Another owner has offered us $90,000 and we are finally getting out. He knows that he will make a profit because at $90,000 it is a positive net sum gain for him. A store can not even be constructed for $90,000. He has said that based upon our P&L and the price that he is paying, he will probably make about $30,000 – perhaps $35,000 per year at our location. The key to profitability according to our buyer, is owning several that are purchased for very little and planning to make about $30 – $50K per location based upon the traffic flow of each individual store. The key is to pay as low as possible for a store in order to squeeze out a small profit from each location.

    One might ask why do so many franchisees fail to make a profit and so few do?

    The answers are:
    1) The profitable stores are located in areas with significant traffic flow to offset the high costs associated with operating one of these stores.

    2) Non profitable stores (poor operations excluded) have been canabalized by our very own franchisor. It is apparent that none of the company’s decision makers understand the franchisor’s own required reading of “Behind the Golden Arches, The Ray Croc Story”. If they understood the symbiotic relationship that exists between corporate and its franchisees, then they would realize that the franchisee is the life blood of the company and it is not in anyone’s best interest to undermine the very people that make the system operate.

    3) A store’s location is not sufficient to produce the high traffic necessary to cover its numerous expenses.

    4) In regard to expenses, the franchisor has a monopoly upon most services, food and equipment necessary for us to operate. There are simply too many hands in the till for profit to filter down to the bottom line – the franchisee. There is something very wrong when a person can go to their local Restaurant Depot and find the same exact product made by the same manufacturer, same weight and ingredients but pay half the price of the same item sold by our required distributor. Many of my fellow owners have found this to be true regarding food and equipment time and time again. Other franchises that have a “franchisee consortium” responsible for monitoring and regulating costs of the goods and services utilized by franchisees have not only a higher satisfaction rate but are profitable as well. – (Source QSR magazine.) Of course there are always problems even in the best of systems, yet the bottom line is profitability. No one buys a business because they “like” the product. Investors purchase businesses in order to make money. In addition, there is no transparency within the company despite the fact that our franchisee’s pay extremely high royalties. Where there are royalties there should be total transparency. These restaurants are a long shot in the very best case. Yes, there are those who will sing the praises of the franchisor, but the extreme and vast majority will say that it is simply not worth the time or investment.

    5) The existing business model is fatally flawed and operates for the sole purpose of making money for corporate as well as their investors.

    6) Many of us have paid too much for our stores.

    7) The costs keep creeping back up from the reductions announced by last year’s new administration while the suggested retail prices have either fallen or remained the same.

    Our broker has decided not to sell any future Quiznos until the company changes its entire business model. Ours will be the last that he will handle until the tide truly turns.
    It has been predicted by the new administration that the future for Quiznos is “bright” and that eventually there will be more “positive” stories rather than negative ones such as ours. It is a known fact that there are at least 450 Quiznos for sale on a well known web based real estate site versus only 24 Subways. Why do you think that is the case? Stories just like ours have played out and are occurring every day. Of course, Subway has its share of difficulties as well, but one thing is undeniable, a Subway does not stay on the market very long before it sells, whereas it is almost impossible to sell a Quiznos – let alone give them away as lease assumption only. Someone must be making something worthwhile at our competitor’s stores otherwise they would not be in such high demand. It is widely viewed that the “happy” owners of the future will be the ones that are either the second or third generation franchisees. When those of us who have over paid and are not able to financially continue on at our Quizno’s “volunteer” jobs have either had enough and sold for pennies on the dollar or “gone dark” the next generation – the future “happy” ones – will take over what we have built with our blood, sweat, tears and cold hard cash.

    So yes, the company is accurate on one point: There will eventually be many more positive stories about which the company will boast. Those stories will come from the new owners who have purchased the deal of a lifetime and will ultimately profit from our failed investments. At the price that most of us are either walking away from or giving them away for in order to extricate ourselves from this financial nightmare called Quiznos, the next owners will actually be able to make a living from one of these stores. It is called “churning” and I firmly believe that this is an integral strategy to the corporation’s plan to make their restaurants a worthwhile investment in the future. It is simply a matter of time before we all cry “uncle” and corporate knows it.

    And yes, then the next generation will truly be “happy”. Please think carefully before you invest in ANY business. Perform due diligence, talk to other owners, read comments posted on the internet, read trade magazines – anything that will help you to make an informed and objective decision. I only wish that we had known about this web site as well as the many others that I have since found in our familie’s nightmare odessy. Perhaps things would be different and life would actually be “normal”. This was a very costly lesson I hope that you can learn from our mistake.

  • Mario

    Why are Florida, specically Broward County franchise owners so silent about their nightmare with Quiznos, can someone help us organize a class action against the common injustice we are going through as investors. Please help .

    Thank you

  • http://AAFDAward Carol Cross

    Always, the “nature” of franchising itself and the inherent power given the franchisor because of the boilerplate franchise agreement is hard to overcome. Only a small percentage of financially destroyed franchisees even survive to try to address the courts. Most destroyed franchisees just fade away into obscurity.

    If franchisors like Quiznos can “legally” encroach on their own franchisees to grow the gross sales of the system, franchisees just become resources for the franchisors when the franchisees’ assets continue to serve the franchisor. The SATURATION of markets becomes possible because there is no competition between franchisors of same and similar concepts to CAPTURE the cheap labor and the cheap venture capital of prospective franchisees.

    If there was competition among franchisors of same or similar concepts, this would clean up the FRAUD of churning that appears to be so prevalent today in the franchise industry.

    Elizabeth tells us the truth about “churning” and ONLY when the FTC decides that it will require franchisors to reveal CHURNING of startup units to new startup franchisees (new buyers) will there be any relief for franchisees. Franchisees are tricked into signing long-term contracts with no disclosure of the material facts concerning the performance of the units within the franchise system, and thus, have no idea of the risk and rewards of the investment.

    This subsidy given to the Franchise Industry cannot be justified as free market capitalism and is betrayal of franchisees who are not “protected” by federal regulatory policy from UNKNOWINGLY making very high-risk investments in franchises.

  • http://Joe,thePlumber carol cross

    Hopefully, the Obama Congress will do more than have hearings on the long-standing sacrifice of innocent franchise buyers to the franchisors because of ineffective regulation of the franchise industry and ineffective disclosure rules that feed bad fiscal policies.

    Apparently, in the ten years in which they were looking at the FTC Rule, the FTC/Congress never felt secure enough to do the right thing and mandate the disclosure BY THE FRANCHISOR of unit performance statistics of the system.

    Franchisors can use the FTC Rule and the state of the law surrounding franchising to lie, cheat, and steal as they are so inclined with apparent immunity under the law —as long as they have that binding, boilerplate signed contract in hand.

    Quiznos couldn’t sell new franchises, in my opinion, if they were required to REVEAL the REAL RISK of an investment in a Quiznos restaurant to new buyers of their franchises, as reflected by the unit performance statistics of their system.

    They have case law that protects them in the courts and the courts KNOW that QUIZNOS has millions of dollars of debt under a securitization arrangement that they have used to expand Internationally, etc… Their franchisees are innocents and those investors who are involved in a securitization deal with Quiznos are also innocents.

    Now, with a deep recession, even the legalized “churning” and “encroachment” activities of the Quiznos organization may not save them in the long run. Did Mr. B ask –what would Jesus do?

    On November 27th, I believe, Bob Baber, who was destroyed by Quiznos, will be dead and gone two years. In his suicide note, available on Google, he indicated that he wanted his sacrifice to mean something and to push the public to an understanding of what is going on.

    I have tried to help him by posting what I believe to be the truth on the Internet. I have been banned from two franchise blog sites, Blue Mau Mau and Franchise Pundit, because, apparently, I fault the government for the constructive fraud of the “package” of the misleading and ineffective disclosure document and the unbargained boilerplate franchise agreements. Or, perhaps I was banned because I suggested that the ABA was part of the charade of litigating franchise disputes and the attorneys on these sites didn’t like my comments.

    I thank Sean Kelly of Franchise Pick, who is not an attorney, for not banning me from his website.

    Our new President has terrible problems to deal with but we will have to try to help him.

    Carol

  • http://www.franbest.com Sean Kelly
  • http://www.franbest.com Sean Kelly

    Quiznos franchisee Rich Piotrowski and his wife Ellen Blickman have just won a two-year battle with Quiznos.  Interesting story.  Check it out:
    QUIZNOS: Quiznos Franchisees Celebrate Legal Victory

    Judge Hoffman’s Ruling Against Quiznos Franchising II LLC (PDF)

  • Jose

    If you are a Quiznos owner or planning to buy one, then read this

    A meeting was held to discuss about the rights of the South Texas Quiznos franchise owners. The following were discussed and was approved by the members present. We are living in a country of freedom. We must be free from bondages.

    1. Weekend opening must be optional: – The franchise owners should be allowed to decide whether their shop should be open during weekends or not.
    a. Some of the meeting participants presented their past 8 week’s sales report. The analysis revealed that the franchise owner looses average $200.00 by opening in the weekend. This means he is suffering an annual loss of approximately $10,000.00 just by opening the store during weekends. Or in another words, closing these stores during the weekends is the same as increasing the weekly sale by 2000.00 (assuming a profit of 10% for sales above the break-even amount).
    b. In addition to the financial part, good percentage of the participants expressed personal reasons such as family gathering, religious obligations, etc for weekend closing.
    c. All agreed that Quiznos may suggest regulations for stores that are closed on weekends, to ensure that the food is fresh and hygienic but must leave it to the owner to chose.
    2. All of the members agreed that the Local and National advertisement fee collected form franchise owners are not utilized appropriately. One of the members suggested that the fund should be allocated for local advertisement by the franchise owners. This suggestion was approved by all members present. The opinions are listed below.
    a. Quiznos may continue taking the 4% (ad fee) from the franchise owners.
    b. Franchise owners should be allowed to do local advertisements as required
    c. Quiznos should pay half of the advertising expenses on a quarterly basis up to a maximum of the quarterly collected ad money to encourage the franchiser promote his business.
    d. Advertising expenses can be cost of printing materials and coupons, ad in local television channels, ad in local news papers, etc.
    3. All unanimously agreed that Quiznos is not helping the franchise owners to survive in this difficult economic situation. Instead, they are trying to squeeze money out of franchise owners by various programs. In order to change it to a win-win situation, the suggestions were:
    a. Quiznos being a whole sale agent, uniforms such as Quiznos shirt, hat, etc. must be supplied to franchise owners at a cost lower than price of similar items in the market.
    b. Cost of re-modeling or replacing furniture by the Quiznos-authorized agents should be less than the market price.
    c. Some of the daily consumable items supplied from Q Commerce cost additional shipping charges to the franchise owners. Instead, consumable items such as dissolvable cookie labels must be made available via Northstar.
    4. Quiznos must provide financial grant or interest free loan to those franchise owners who cannot afford the new suggested cosmetic upgrade expenses (affordability can be decided by the sales figures downloaded or reported in the green book).