Quiznos Franchise Lawsuits Just Keep On Coming
April 20, 2007 by Sean Kelly
Filed under Business
Illinois Franchisees File Class Action Suit Against Quiznos Sub
This press release was just issued by Marks & Klein LLP, litigating attorneys.
Also read Janet Sparks interview with Chris Bray, President of the Toasted Subs Franchisee Association, Inc. published on BlueMauMau.org
Illinois Franchisees File Class Action Suit Against Quiznos Sub
2007-04-19 20:23:17 -
CHICAGO, April 19 /PRNewswire/ — A class-action lawsuit was filed against Quiznos Sub today in the U.S. District Court for the Northern District of Illinois, alleging that the company has systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.
Among other things, the lawsuit contends that the company forces franchisees to buy food, supplies, and services from Quiznos or its affiliates at inflated prices while concurrently setting artificially low retail prices for its products — in many instances,
making the stores unprofitable for the franchisees. In addition, the plaintiffs allege that Quiznos unlawfully participates in a scheme to sell the franchises by omitting or otherwise misrepresenting key facts about Quiznos’ business operations in an effort to induce potential franchisees to buy into the system. In seeking damages for lost investments as well as injunctive relief, the suit alleges, among other things, statutory and common law fraud, violations of federal and state antitrust laws, violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, breach of contract, and violations of Illinois franchise and consumer protection laws.
The suit in Illinois is the third class-action brought on behalf of Quiznos franchisees in less than a year, according to Justin M. Klein, Esq., a partner in the Red Bank, N.J. law firm of Marks & Klein, LLP. Klein also represents the plaintiffs in similar actions filed on behalf of Wisconsin and Michigan franchisees, joined by Mark M. Leitner and Joseph S. Goode of the Milwaukee-based law firm of Kravit, Hovel & Krawczyk S.C.
“Quiznos has been taking advantage of its franchisees for years through practices that we contend are illegal and in violation of the franchise agreement,” said Chris Bray, president of the Toasted Subs Franchisees Association, Inc. (TSFA), a trade group representing Quiznos franchisees that helped organize the class-action suit. Bray, who owns two locations in Texas and has been a franchisee for nine years, said Quiznos “has slowly, methodically and deliberatively modified the business model, year over year, to inflate corporate profits at the expense of franchisees system wide. This has led to a lack of franchisee profitability and excessive store closures. It is time to put a stop to this.”
Added Klein: “There are Quiznos franchisees around the country that have been and continue to be injured and we will continue to fight to protect their interests.”
Defendants in the Illinois lawsuit include, among others, The Quiznos Franchise Company, LLC, and Quiznos Franchising LLC, both of Denver, Colo.; various affiliates of the company; Richard E. Schaden of Lafayette, Colo., and Richard F. Schaden, of Westminster, Colo., the father-son owners of Quiznos; and Cervantes Capital, LLC, of Denver, which is alleged to run the Quiznos operations. The plaintiffs in the class action are all operators of Quiznos franchises in Illinois.
In April 2006, Quiznos announced that J.P. Morgan Partners, the private- equity division of J.P. Morgan Chase & Co (JPM) would acquire a significant share of Quiznos pursuant to undisclosed terms. Since the acquisition, the company has replaced its CEO with former Burger King CEO Greg Brenneman. Almost one year later, in a February 24, 2007 article published in the New York Times, Brenneman acknowledged historical problems with the franchise and vowed to work to correct those problems. In that article, Brenneman is quoted as saying, “it was clear [when he got involved with the company] that food costs, as a percent of revenue were, quite honestly, out of line …”
“Management changes are a step in the right direction, but there is still a lot of work that needs to be done before there can truly be a synergy between Quiznos and its franchisees, and even that won’t help all of those that have already been damaged,” concluded Klein.
Source: Marks & Klein, LLP
ARE YOU FAMILIAR WITH THE QUIZNOS FRANCHISE CONTROVERSIES? HAVE AN OPINION? YOUR COMMENTS WELCOMED.
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It is all true. Currently,it is hard to break even. Quiznos is a den of theives.
It is true that not that many franchisees are suing Quiznos. I am a franchisee who decided not to sue because they can single you out and give you a lots of problems.
interested in any efforts to file a class action lawsuit against quiznos in missouri
interested in any class action lawsuits that will be filed in missouri against quizno’s
All the info in the lawsuit is true. Corporate Quiznos is stealing money from every franchise owner.
I too have been taken advantage of by Quiznos. After forking over my 45k it took me months to get the real estate people to get back to me, then went through three changes of personnel, without telling me. two years, no stores!
Answer me this…
Franchisor systematically robs franchisees and makes lots of money. Franchisees cry out for justice, a handful organize and sue. Franchisor settles with suing franchisees for pennies on the dollar before criminal trials take place. Franchisor continues business as usual with non-suing franchisees.
So who is more rightous? The franchisor or the suing franchisees who settled?
mt:
Are the franchisees righteous? Anyone who has been in this situation can tell you that “righteous” was left by the roadside several legal retainers ago. The franchisees are fighting for financial survival, not solely to be the champions of a moral cause. They can’t afford that.
Are bad franchisors righteous? They would get a good laugh out of that. They are in it to make money. Reread your comment and you’ll see they’ve devised a perfect system. Add to it that they have a continuous supply of franchisee royalties to pay the legal bills against the complaining franchisees. Talk about getting your buns toasted by your own oven.
Keep in mind this is not typical franchising. I’ve worked with good franchisors for 20 years. Most of them WERE concerned with being righteous and using the franchise growth strategy as it should be used: as a cooperative win-win-win strategy for the franchisees-franchisors and the vendors/service providers who help them.
What is best for souther california
Quiznos or Pizza Fusion??
Help
New to This:
Hmm… You are posting a comment on a story about the numerous lawsuits against Quiznos. I think you should go with Quiznos.
No, I think you should go with iSold It.
No, Snappy Auctions.
Better yet… The UPS Store.
Click here to learn more about Pizza Fusion franchise, but i don’t think it would be a good fit.
If you were actually serious, please accept my apology for the sarcasm then go back and read the post. Then bury your money in the backyard and stake a pit bull over it.
Want to Make $75 Million with no effort? Click here.
I bought two quiznos franchise agreements about 2 years ago and I am interested in selling both of them for half the price. I am interested in finding people that were in similar situations in the past and how were able to get rid of their franchise agreements.Someone told me that I need transfer addendum. Is this true? Also interested in joing a class action lawsuit in Texas. Any help will be appreciated.
i want to join the class action how and who do i have to contact it’s very important to us to join .please let me know
Perhaps it’s time for Quiznos to break out the secret weapon: the Green Prosperity Prayer Hankie
how can i get involved in the lawsuit. I tired to purchase a quiznos and lost a lot of money. If anyone knows who I can speak to get involved in the case please reply.
Please contact me if you have any info on a class action against Quixnos in Texas. We lost everything because the stores were not profitable and Quiznos resale policy worked against us.
I am thinking of starting Quiznos franchise store until I read all these replies. Could anyone give me a good idea about what is exactly the problem with the Quiznos franchise?
All what is said here is about the Quiznos franchise losing money,
Please tell me what’s wrong with the Quiznos franchise you could save me some money, and i would appreciate it.
Thanks to all
A costly lesson:
Submitted by Guest on Fri, 2008/03/14 – 17:52.
Elizabeth
Mar 14, 2008 at 5:38 pm
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 page two 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 well, 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 locations that can be 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. Our lives, my children’s sense of security and future has been devastated by this experience. We are struggling just to survive at this point. I hope that you can learn from our mistake.
We closed our Quiznos operation in Grand Island, NE back in August of 2007. At that time, we were three months behind on the rent. The franchise helped another operator in a neighboring community purchase equipment from another defunct Quiznos in another town, and we were out two building signs and some equipment and a $12500 build-out, including millwork, bathrooms, paint, ceiling and plumbing. We were approached by the TFSA and by Marks & Klein to join the class action suit against the franchisor, but our margins were so slim, that we could not muster the $1000 buy-in for the class action suit. For the past twenty months, I went without a paycheck, in a desperate attempt to breathe life into a dying operation. We just could never , at our location, muster the traffic or generate it through discounting to offset the outrageous food costs imposed by the franchsise. Now we have a triple car garage clear full of Quiznos furniture, fixtures and equipment to sell.
I had to close my store on July 6 2008. after only 8 months we never broke even once. I never received on penney from the store. I have had to file bankruptcy and I will still owe $250,000.00 on my line of credit I used to set up our store. This site should have never been approved. there is not a large enough populations to support a Quiznos. I am researching law suite information now and I plan to contact a lawyer soon!
You should have bought a Silver Mine Subs. We are working on a 3rd location. Areas are protected, so no worries about someone building right on top of you. My family has worked hard to create the new store model and this has been a very prosperous venture for us. I highly recommend this franchise. Contact Keith Dudek at the franchise headquarters in Fort Collins, CO..
I’ve heard of Silver Mine Subs. If they are as great as you say there are, why did i hear they are selling off all of their corporate stores and closed two corporate stores in the last three years? Their UFOC shows multiple transfers with only a small pool of stores in the system. Those stores only work next to college campuses.
The corporate stores were sold off to the partner of the co-founders, because they wanted to focus on growing the franchise. I only know of one corporate store closing, but it was the second in the city it was located in and there was not enough volume for two stores. One other store that shut down is because a franchisee up and walked away from it and no one has heard from him, but he run a poor operation and that probably sunk him. My two stores are not next to college campuses and do very well. Yes the franchise is still small, but everyone starts out that way.
They closed a corporate store in Boulder, CO and a corporate store in Champain, IL. The store in Boulder was one of two in Boulder, a city of 91,000 people with an undergraduate body of 28,000+ students. The store that closed was on the west side of town across the street from campus. The store remaining open is on the east side of town across the street from the campus. Sorry, but to close a store directly across the street from a large undergraduate university for lack of business seems counterintuitive, and it certainly seems hypocritical given that they see no problem with placing franchise stores close to one another in the city of Denver. These stores can work well when placed next to a large undergraduate campus, but otherwise do not work except for the most seasoned and experienced restauranteurs — which they don’t advertise as a requirement to owning a franchise unit — and in which case they are better off just rolling their own store as the brand has little to no presence. They have no key differentiators that can’t be replicated easily by the competition (example: quiznos offering delivery service) as none of their differentiators are proprietary. Bottom line: anyone considering a Silver Mine Subs is better off working in one of their stores for three months and then opening their own sub shop rather than going the franchising route. SMS is another example of a no-brand franchise that wants others to invest in their product but when you boil down their product/system there is nothing special about it – their ‘key differentiators’ are a delivery and extended hours of operation — easily replicated by others if they thought it would provide a competitive advantage. You’re best off opening your own sub shop with your own concept. I know of which i speak having provided franchise legal counsel to an individual who considered purchasing a Silver Mine.
Every business makes mistake in the beginning, but do they learn from them. What sets them apart is their support system and level of commitment to quality service and products. Yes anyone can replicate the concept of SMS, but will it succeed. Having a franchise provides certain advantages to starting your own indepent conceptual restuarant and that is part of what you buy into. Plus someone has worked to put a system into place that you do not have to try and set up yourself. You cannot work at a SMS and then open your own independent store, this would violate the non-competition and non-disclosure agreement, that you have to sign to work at one.
“Every business makes mistake [sic] in the beginning,”
And who pays for those mistake [sic]? Not the franchisor.
I performed due diligence for my client at his request. What i found regarding SMS was this:
1) There were, as of March 2008, seventeen franchise stores have opened as franchised units. Of those:
– 1 has gone out of business.
– 4 have been sold at a loss to second generation owners.
2) of the nine corporate stores that have been opened:
– 2 have gone out of business.
– 1 has been sold off as a franchise unit.
Look at the franchise experience: 5 out of 17 units have failed: almost 30%.
Do you consider that to be a proven system? I sure hope not. And i would hope prospective franchisees do not either.
As for how they stack up against the competition with respect to quick service franchise restaurants, they are probably about average in this area as franchise restaurants are a poor investment in the QSR arena.
Good luck with your store and i hope it works out for you. I’d suggest you think twice before promoting your franchise, lest you find yourself not being able to sleep at night.
As for the ‘non-compete’ — good luck enforcing that in a court of law.
Steve wrote: Bottom line: anyone considering a Silver Mine Subs is better off working in one of their stores for three months and then opening their own sub shop …
Steve:
As you are advocating skepticism – which is wise – let me say that I have a hard time believing that you are an attorney who performed due diligence for a prospective franchisee.
No attorney would say that a particular franchise concept has no value, then advise people to take a job there and start a new business that violates their non-compete and non-disclosure agreements. A decent attorney would know that it wouldn’t really matter if SMS could win in court, it would be enough to tie up the new owner in legal proceedings and divert his money and attention from his new business, which would likely fail. And for what? Non-proprietary information from a flawed concept.
If you’re going to pose as an attorney, read the comments they leave so you might be a little more credible. It’s highly unlikely that an attorney would warn of someone “not being able to sleep at night.” Attorneys deal with matters of law, of actionable or non-actionable, not matters of conscience. In fact, the organ responsible for conscience is surgically removed within 8 days of passing the bar exam in a procedure resembling the Jewish bris.
Your emotional tone, in-depth knowledge angry attacks on Jeff’s spelling (FYI, Champain [sic] is spelled Champaign) suggest that this is personal.
My guess is you are either 1) an angry ex-employee with an axe to grind, 2) an angry ex-franchisee who did more due diligence after failing than before buying, or 3) an independent competitor.
(My money’s on Door Number 2)
Of course, I could be wrong. Share the name of your law firm and I’ll stand corrected. I have never had to eat crow before, but am told it tastes just like chicken.
Quiznos Franchisee Blasts HQ’s Coupons and Discounts
Franchise Owner Claims It’s “Impossible to Make Money” With Quiznos
The legal mentality at Quiznos corporate is one of the big problems. As usual the lawyers feel they can scheme and steal from the little guy. In this case they hide behind the “Agreement” knowing that the little guy cannot afford to fight a lawsuit in Colorado. In all of these articles and comments it seems that the only concern is about people who opened stores, but what about the people, like me, who were taken advantage of before we could even open a store? I paid for two franchise licences and Quiznos offered no support whatsoever, none, which I have documented. After two years I requested my franchise fee be returned. One of their lawyers, called a VP, essentially told me roll over and play dead. If ever there was a Ponzi scheme this is it. Selling and reselling franchises as a way of business.
The legal mentality at Quiznos corporate is one of the big problems. As usual the lawyers feel they can scheme and steal from the little guy. In this case they hide behind the “Agreement” knowing that the little guy cannot afford to fight a lawsuit in Colorado…
Think that’s why the Schadens & Quiznos donated $5,000,000 to the University of Colorado Law School? An investment in their future?
http://www.bizjournals.com/denver/stories/2008/12/01/daily58.html
Yes! Quiznos seems to be the “model” for how to use/misuse contract law to defraud that portion of the public who, in good faith, buy franchises from them. But, of course, they understand that they have been given a blank check from the FTC and the State FDD in the form of the FTC Rule that was, in my opinion, intended to protect franchisors in the courts when their franchisees yellled “fraud.”
Apparently, Robert Purvin, author of “Franchise Fraud” and Susan Kezios of The American Franchisee Association are of the opinion that franchising was “especially” regulated by the FTC and taken out from under the common law fraud statutes of the states for the purpose of protecting franchisors from charges of common law fraud in the state and federal courts.
Contract law protects the franchisors as long as they get a signature to the non-negotiable contract, and prospects cannot buy the franchise unless they sign the non-negotiable contract. The packaging of the non-negotiable contract with the government disclosure document that is supposed to protect new buyers really acts as a constructive fraud against new buyers of franchises, in my opinion (that is protected under the First Amendment).
Since franchisors never promise franchisees anything in the contracts in a legal sense and the franchisees are in the position of having to acknowledge that they are buying the franchise with no reliance on anything except what is contained in the four corners of the NON-Negotiable Contract, if they want to buy the franchise, the franchisor attorneys win the game of “I gotcha!”
Just goes to show you that money and influence will get you everywhere you want to go in and out of court.
Their agreements (contracts) are malicious legal traps for good faith buyers of Quiznos franchises but pure gold for Quiznos and their attorneys. The courts who protect the contracts are made complicit in the constructive fraud because of the necessity to protect the validity of these contracts that are part of the paper portfolios that franchisors borrow money against, etc.. Didn’t Quiznos recently borrow millions of dollars in a securitization of their royalties, etc.?
Apparently public policy leaders and the Courts in Colorado are impressed with the good citizenship of the Schadens and Quiznos who donate to the UofC Law School and who are building or have built a homeless shelter in Denver.
And you are right, JT. Law, process and procedure that surrounds franchise litigation makes it almost impossible for franchisees to afford to fight the injustices and fraud that have permeated the franchise industry. This, of course, in my opinion, is by design.
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)
Regarding the first link in the above comment, can anybody explain to me why Quiznos corporate is so quick to revoke their franchisee’s licenses? I’ve never understood that. Every Quiznos owner I’ve known lives in holy terror of having their store shut down by corporate. Quiznos generates its revenue through its franchise outlets. Why are they so anxious to shut them down? Is it part of the scam? Are they seizing the stores and then selling them to other interested parties? In other words, the original owner ponies up all the start-up costs, and then Quiznos corporate takes the store away from them and sells it to the next unsuspecting sucker? Is that their game?
Understand that under the franchise agreement, the franchisor comletely controls the franchisees. If a franchisee is notified of defaults, that are interpreted solely by the franchisor, and can’t cure them to the franchisor’s satisfaction, the franchisor can then terminate the franchisee for cause —and the franchisee then loses almost everything if he has to make a distress sale of the hard assets to the franchisor or a third party approved by the franchisor.
The intangible asset, the good will and the gross sales of the “business” become the property of the franchisor upon termination. The individual franchisee rarely can fight back because they don’t have the financial resources to fight in arbitration or the courts.
Remember that those franchisees who put Bob Baber’s Suicide note on the Internet were sent termination notices for damaging The Quiznos Brand name, etc.. —but a judge wouldn’t let Quiznos do this because they stepped over the line. The courts, of late, have been recognizing unlawful terminations.
But, the Courts have let Quiznos encroach and churn and turn to their heart’s content in their effort to capture market share and compete with other fast-food franchises. The saturation of the fast food market has resulted in price wars that are fought by the franchisees whose profits are reduced even more.
This, in my opinion, appears to be in keeping with federal regulatory policy that treats franchisees as merely contractual resources for the franchisors to use to complete with each other.
Apparently, the poor survival statistics of small retail businesses is somewhat overcome when franchisors do not share in the failure of their franchisees and can churn these failures, who have provided the cheap labor and venture capirtal to build the physical units, to their advantage.
That appears to be the name of the game.
Quiznos, like all franchisors, would be delighted if their franchisees all made profits but the reality is that Quiznos CAN profit, even as many Quiznos units fail to thrive, because they take their profits off of the gross sales, NOT the profits of their franchisees. All of the time a franchisee is working to break even, Quiznos is getting THEIR profits off of that store’s gross sales.
As long as Quiznos can churn discounted stores and sell new franchises out the front door, they can produce their EBITDA upon which they have borrowed millions of dollars in a securitization to expand internationally??or what?
Only when they can no longer sell either discounted stores or NEW franchises will their PAPER empire disintegrate. Then, of course, they will blame it on the economy!
Eric:
The practice of a franchisor retaking franchise territories and/or franchise locations and reselling them for a profit is known as churning.
The franchisees here can better answer whether that seems to be a Quiznos strategy. They have had class-action lawsuits alleging that they sold the same territories over and over and kept the franchise fees when the franchisees couldn’t find a suitable location. See:
http://www.franchisepick.com/how-to-make-75-million-in-3-ez-steps/
You are right. It’s amazing how little easily they’ll terminate. The suit recently won by franchisee Rich Piotrowski showed that a single lawyer had the power to terminate simply because he was annoyed with a voice mail message. Other franchisors I’ve worked with would agonize over a termination, and it would be a decision with meetings, discussions, etc. Read:
http://www.franchisepick.com/quiznos-quiznos-franchisees-celebrate-legal-victory/
The most mind-boggling was their attempt to terminate of 10 TSFA board members, who owned about 17 stores, for posting the suicide note of their fellow franchise owner, Bob Baber. The franchisees prevailed, but it spoke volumes, as do these stories:
http://www.franchisepick.com/franchise-controversies/quiznos-sub/
So what’s the straight dope on who is paying for the million free snubs? Quiznos claims that they are reimbursing their franchisees to the tune of 90%. It this just pure unmitigated bullshit, or are they really paying for the sandwiches?
And what happened to the last comment I posted here, and the response (from Carol, I think) that appeared after it?
Eric Levonian wrote: So what’s the straight dope on who is paying for the million free snubs? Quiznos claims that they are reimbursing their franchisees to the tune of 90%. It this just pure unmitigated bullshit, or are they really paying for the sandwiches?
Two Quiznos franchisees answer that question in the comment section of this post on UnhappyFranchisee.com. I’m planning to repost here.
http://www.unhappyfranchisee.com/2009/03/quiznos-exec-explains-sub-giveaway-debacle-what-do-franchisees-say/
And what happened to the last comment I posted here, and the response (from Carol, I think) that appeared after it?
Your comment “can anybody explain to me why Quiznos corporate is so quick to revoke their franchisee’s licenses?” and Carol’s response still visible above. These are the only two comments I can find for you.
If you had another, please repost it. Thanks.
There was another one, but it really wasn’t that important. I basically made a sarcastic comment a few days ago to the effect that I just “loooved” the million snub giveaway and was wondering who would shoulder the costs. But that question has been amply asked and answered, so there’s little point in rehashing it.
Last night I was doing a little research, and found that Quiznos freely admits that the Zig Zag termination was not unusual, and that they have terminated over three hundred franchise agreements for offences just as insignificant. Is this actually true? I may be able to answer my own question, as I am going to try to read the entire 36-page decision tonight. This stymies me, as I can personally attest that I have seen Quiznos’ operators commit far more egregious violations of corporate policy, up to and including engaging in outright criminal activity, and have done so with corporate’s full knowledge. Why weren’t these franchisees sanctioned?
Stay away from Pirtek..its not fast food but it sure is fast bankruptcy, or maybe deep bankruptcy, or just plain Bankruptcy with cheese…not a good business..high failure rates and some pretty hefty litigation to boot. Don’t get hosed by Pirtek. Thanks, PP
I own a Quiznos. My recommendation is to take a cold shower and come to your senses if you’re thinking of opening a Q store. The odds of you being successful are slim, maybe zero. The VAST VAST VAST majority of Quiznos store are unsuccessful. My guess is that of all their stores (so many are closing now who knows the true number left) no more than 150 are actually worth owning. Put your money in a .85% money market and you will make much more money than with a Quiznos store.
I’m the UK, I’ve opened a Quizons in a very good location. I already have another business within 30 seconds walk in the same st but Quiznos don’t know that. I don’t trust this co at all,never did from the start. what I am doing here is let them open the business for me.once I know everything I need to know about the business, then will quit Quiznos,change the name,bye bye quiznos. I really feel sorry for what happened to you. but don’t worry I’ll pay them back for you. there’s another Quiznos within 20 minutes walk,not doing that well. going to buy that too and change the name from day one.
Great plan, duri.
Be sure to let us know how that works out for you. I’m sure there’s nothing in the 2-inch thick franchise agreement you signed that would prevent you from doing that.
Quiznos is a pathetic individual business to buy into. There are 11 in our area and not a single owner is happy with the return on investment. You get a chance to buy one of these stores, RUN AWAY.
Yes we are interested.
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