Saving Quiznos

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Quiznos, Legal, Operations, Sandwiches, Fast Casual

For the first time in years, Quiznos franchisee Kevin Tackett and dozens of his fellow franchisees with the toasted-sub chain have reason to smile.

After three gloomy years of falling sales, shuttered stores, and mounting company debt, Quiznos finally appears positioned to reinvigorate the brand, build franchisee profitability, and unlock a more promising, sustainable future.

“The optimism is robust,” says Tackett, who owns seven Quiznos stores in Florida and one in Virginia.

On January 24, Quiznos dodged an almost-certain bankruptcy when the private equity firm Avenue Capital Group assumed more than 70 percent ownership of the Denver-based sandwich company. The New York hedge fund will inject $150 million into the sandwich chain.

“Now the question marks and uncertainty are gone and we recognize there’s a clear path moving forward,” says Shultz Hartgrove, senior vice president for convenience and nontraditional at Quiznos.

At its peak in 2008, Quiznos captured more than $2 billion in sales at 5,000 outlets, according to Technomic estimates. But by the time news broke last fall that Quiznos was struggling to pay its debt, few saw it as a surprise. The privately owned company was estimated to have dropped 600 net stores and 14 percent in sales in 2010 alone, a spiral that continued into 2011.

John Gordon, founder of San Diego–based Pacific Management Consulting Group, has followed Quiznos for the last six years. He says Quiznos embraced an expansion culture that spurred its rapid growth but ultimately created its troubles.

“With weak store-level economics and so many units closing, it was only a matter of time that the debt service would become an issue,” Gordon says. “There simply wasn’t enough focus on operations.”

With Avenue swooping in, Quiznos not only avoided costly legal proceedings, but, more importantly, received a much-needed opportunity to refocus on its core business.

That’s precisely where Quiznos executives are turning their attention.

Senior vice president of franchise development Sean Fitzgerald, a newcomer to Quiznos’ corporate management team, says the sandwich chain will focus on “thoughtful and meticulous growth with the right people and the right locations.”

In the next year, Fitzgerald says, Quiznos hopes to open about 100 traditional units and as many as 150 nontraditional outlets, led by units inside HESS, Meijer, and Champlain Farms grocery stores. Some of the new outlets will feature a revised store design, with stainless steel, woodwork, and softer colors producing a more modern look.

“These growth plans aren’t overreaching and they’re centered on the long-term,” Fitzgerald says. “We’re going to scrutinize every site … and make sure we’re aligning with partners who understand our system and can execute.”

The $150 million cash infusion also allows Quiznos to launch a consumer marketing campaign. The effort will begin this quarter and, Fitzgerald says, “will bring [Quiznos] back to a pre-2008 advertising level.”

“The campaign will be significant in establishing that the Quiznos brand is better than ever, with an emphasis on quality ingredients and customer experience,” he says.

As Quiznos attempts to grow the brand hand-in-hand with franchisees, Hartgrove says, the company will invest heavily in analytics and devote increased attention to operational standards and communication with franchisees.

“Our goal coming out of this repositioning is to be the best franchised system in development,” Hartgrove says.

That’s certainly the hope of franchisees. Moving forward, Tackett says, many want to see Quiznos employ marketing professionals with experience in directing a turnaround effort, as well as operational leaders skilled at running a successful system.

Gordon says Quiznos must also address its company-owned supply chain, a long-contentious issue with franchisees. “The supply chain is something that must be restructured and reoriented so that lower costs are realized at the store level,” Gordon says. “Communication will certainly help make that better.”

Tackett, one of many franchisees critical of the brand during its slide, hopes that new ownership listens to operators and tries harder to unite the entire system.

“We want them and us to be the same thing,” Tackett says. “We want our profitability and market share to be the metric that measures their success.”

Tackett says that based on what he’s witnessed so far, he’s encouraged and excited for the future of the brand.

“I think this new ownership gets it. They understand that there are standards in the industry that have to be in place, such as field operations, marketing support, and a focus on franchisee profitability,” he says.

“There’s still a lot of work to do, but we’re excited because commitments are in place, checks have been written and cashed, and there’s a media plan more robust than anything done in 2011.”