Growth | February 2013 | By Sam Oches

The World Traveler (Full Transcript)

Ken Cutshaw has covered the globe throughout his impressive career. Now he’s tasked with translating that experience into success at Quiznos International.

Ken Cutshaw is growing Quiznos International globally a few months into the job.
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You’ve been on the job two months now. Where was Quiznos’ International when you joined, and what’s the direction you’re trying to set? When I joined, there was a significant presence of Quiznos in the world. We aspire to increase that presence significantly over the next few years. But I also have been able to build a team pretty much internally to support international, because there may not have been a proper focus on the operational aspects of the international franchisee. And that’s my goal, to support the international master franchisees and provide them the skills and proven techniques to run great restaurants. We have some very successful masters, and we have some master franchisees in countries that could certainly do better. My objective is to build a support structure that will allow these franchisees to grow faster than they are.

How long do you think that takes? I feel like, within the last two months, we’ve built a pretty good team. We’ve had a real opportunity to identify good talent in Denver, but we also have a very large operation in Toronto that supports more than 400 restaurants in Canada. So we’re using talent in Toronto and Denver and building a core team that will support our masters.

These are people with previous global franchise experience? Oh yeah. It’s amazing when you really look at the talent you have and then try to identify the needs of how it all meshes together. We had a grand opening in Brazil just a few weeks ago, and one of our franchise consultants in Canada, who’s worked in Brazil for years and won awards doing support work and speaking Portuguese, helped us in that opening. We have an excellent chef in Denver, but also one of our franchise consultants in Canada trained under Jamie Oliver, who’s one of the well-known chefs in the U.K. He’s going to pitch in and help us from an international perspective on quality of product and menu and those types of skills. I’m feel very blessed coming into an organization that has talent, but just kind of redirecting some of that talent to support the international focus.

When you came in, how significant was the international strategy for Quiznos, and where do you hope to see it go in the future? I think any U.S. brand at this stage has to have a very significant international strategy. This new ownership of Quiznos and the new management team, including myself, are very focused on not only building the U.S. domestic system, but also giving the tools and the assets to International to grow it. We have 100 percent support from ownership and management to do whatever we need to do to support our masters and grow the brand.

We’re in 30 countries now, and we’re hopeful that we can add three to four countries per year over the next several years.

You mentioned that every U.S. brand should have an international strategy. In your mind, for a quick-service brand, what should the balance be between domestic and international? What’s that balance at Quiznos? We obviously have more stores in the U.S. than we do internationally. But the potential for growth is much greater internationally. The runway may be a little bit longer because opening a new country, you do it in a structured manner and you do it in a way that will set the foundation for accelerated growth after you build the supply chain; you build the support system and the personnel assets to allow the system to grow. I think the strategies can compliment each other, both international and domestic.

At the same time, international has to have its own strategy for growth, and often times, as I’ve read in your magazine many times, the global brands coming out of the U.S. will also permit their franchisees in international markets to localize. As long as you stick to the core value of the brand and the delivery system and the consumer experience for the brand, as long as you hold very close to that, it’s appropriate to allow the franchisee to localize and support his local consumer with local-store marketing and also unique products.

We’re very much supportive of keeping certain core products on each menu, but then to see the local franchisee create a Mesquite Chicken or in India, a Spicy Tikka Sandwich. We support it and we encourage it.

Who develops those menu items? Does the franchisee have people on staff to do that, or does the Denver office help develop them? We certainly provide support in developing unique products for the market. Our chef was just in India two weeks ago looking at that menu offering and seeing how we could enhance it or provide not only what we sell in the U.S. and around the world, but also what can be added to the menu to satisfy the local palate. But as the master franchisees see growth, they can develop their own products.

Obviously, it’s all approved by the franchisor before it’s delivered to the market. But some of the large masters, particularly the one that covers most of Latin America, he’s got very sophisticated R&D department, and they work on Latin American offerings that will appeal to the consumer throughout a number of countries in Latin America.

There’s obviously a big trust factor here with the franchisees who you’re joining with, because you have to trust them to do some of that localization in an appropriate manner, and trust them to pull it off. So how do you go about looking for those partners knowing that you’re going to have to have that trust factor? That’s a good question. I don’t think there’s an absolute formula for finding the right partner. I think there’s a certain number of factors you look for and identify in a partner. You look first for passion, that the person is passionate toward the restaurant industry and to build the business. In many cases you’d like to find someone who has experience in the restaurant industry, and even multiunit restaurant experience in the industry. It’s not an absolute prerequisite, but it’s certainly preferred. And you look for someone who has the financial capabilities and assets to grow the brand.

In the case of the master franchising process we do at Quiznos, you look for someone who has business leadership skills because they will not only build a few corporate stores to start with, but they’ll also have to build a leadership team that will become a franchisor in their country, or multiple countries if they have more than one country. They will be replacing us to some degree as the franchisor, although they still will be a part of our global system, and Quiznos remains the franchisor. But the master franchisee will be subfranchising and will have to transfer the same skills that we try to transfer to them on down the path to the individual franchisee.

What’s too big of a market? What’s the most appropriate size of a region you should give master franchisees? That’s a good question. I think when the brand was just beginning to go global, there were larger territories sold. I think at this stage of this brand, it’s become a mature brand—we’re 30 years old now. We would very likely limit a territory to a country, or maybe a couple countries if they’re geographically appropriate to do so.

We’re a brand, like any brand, that intends to develop a China strategy. We’ve not yet decided how we would approach China. Would it be the entire country? Or would we divide China into the three obvious regions of North, Central, and South? But we have a good runway in Asia now; we have a very strong franchisee in the Philippines, we have a good franchisee in Singapore that’s looking at expansion into some other countries, so we may permit that, because he’s already proven himself. We also have a good relationship with HMSHost, which has us in one airport in Singapore, but we’re also looking at other airports throughout the Asian region. So that’s a cross-country type of relationship. But typically we would look at one country and the exclusive rights to that one country at this stage in a mature global footprint.

So you don’t have any stores in China right now? No.

And you haven’t ever? No.

What does that strategy look like? I imagine that has to be intimidating. Everyone gets excited about it, because everyone sees the success of KFC and McDonald’s. Then you look at Auntie Anne’s and you see that it’s not an easy market to tackle. I believe our new ownership and management would like to go into China, but the strategy is unclear right now. In our follow-up interview, I’ll give you a clearer definition of that (laughs).

In my two months at Quiznos, my focus has been to identify the team to support the franchisees and to allow them to grow in an accelerated fashion. We have two countries that we’re in negotiations with—I can’t name the countries, because you never know until you sign an agreement—we’re just negotiating the final terms of the master franchise agreement. But there are three countries that we have initiated fairly extensive discussions with. So if we close those five countries alone, that will keep us very busy in 2013.

They’re all new markets for you? Those are all new markets.

The China question brings up another issue with international growth, which is interesting from a domestic perspective. What are the barriers and challenges that you face internationally? Some things we might take for granted here: governments, real estate, supply chain. What are the biggest challenges you face in international markets, and how do you get over those challenges? I think China is probably the best example of the most challenging market to enter. Even though I coauthored a book on doing business in China, I can’t pretend to say that I have the magic formula to enter China from a legal perspective. You certainly have to have excellent local council to guide you through the permitting process and everything that’s required in China, and government mandates.

Then also, I think you really have to do your consumer testing, or consumer preference. I think the typical Chinese consumer would like the Quiznos brand. Subway certainly has done well there. I think in China, you have a very short fuse to be successful and have to really hit that consumer preference that will carry into long-term expansion. So that’s why I think every brand should be very careful and not just see China based on the numbers of consumers or the success of the other brands. The fact that several of the large global chains have been successful is no recipe for another large brand to go into China and be successful.

We’ll do it very cautiously. I think when we do enter China, we’ll still have to enter under the master franchise model that we have in other countries. It will just depend upon the selection of the right master franchisee, and the breadth of the territory.

Is there any way you can test a market, or when you go into a new market, do you feel like you have to go all in? I think it’s a risky proposition to go in and put up one store and then expect one or two stores to be a proper test. I think to go into a country has to be an all-in commitment, with the right franchise partner. And not only do they have the responsibility of the investment and following the rubric of building the supply chain and building the things necessary to support a brand, but we as the franchisor have to have that same passion to support them—the training, the grand-opening support, and the people.

We definitely believe we need to send people into the market to help every franchisor, not only when they open, but also before they open and then after they open. Opening day is only one day in the life of a restaurant. It could be a big success, but three months later, it could turn around.

You’ve mentioned the love of Western products in China and the demand for Quiznos’ product. Why do you think Quiznos’ menu resonates with international consumers? I think when an international consumer looks at a U.S. product, they want to feel a uniqueness of that product. Quiznos, from its very beginning, has been known as a flavorful, spicy, zesty [product] with a lot of flavor, and known for its gourmet sauces. So I think a consumer gets that it’s not a typical sandwich that you pick up from the local grocery store or even a local deli, and that Quiznos has this very unique, flavorful sandwich with a lot of unique sauces. If we do it right in a market—and we’ve done so in a number of markets—then we resonate with those customers based on the flavorful sandwiches, but also the choices. We also have some very unique soups that are designed for our menu, and salads too, but that’s a lesser item. We really want to focus on our core product, and that’s our premium sandwiches.

Let’s talk a little about some of the shifts Quiznos domestic has made, and how it might affect international. Quiznos has been through a lot the last couple of years. There have been a lot of store closures in the U.S., they just overhauled the menu. How much do you think some of the struggles domestically might have played into more of a commitment internationally? Did it affect the strategy at all? I’m new to the brand, so what I know about domestic is history, and this new management team is really focused on supporting the core values of Quiznos and bringing it back to its day where it was a premium product and consumers loved the product—and I think they still do globally. We’ve seen a true passion for the brand in many of the countries that we’re in now, like Brazil, which we just opened up.

What’s occurred in the U.S. has had no impact on the rapid growth in Brazil. Saudi Arabia is just a tremendous success; we’ve opened close to 40 stores in approximately 18 months. They developed a consumer following in their market. Each country is different, and our approach is to work closely with the people we have identified and selected to be our franchisees and to be totally supportive of how they build the Quiznos brand in their market, to give them core products, but also the localization and local-store marketing and everything. I think you have to look at each market differently. I think only the good parts of the domestic system are what we’re transferring to our international partners.

The overhaul that did happen here, that went to menus in international stores as well? Not completely. Portions of it. Often times, although we work closely with each of our master franchisees to build the menu—and we do what we try to do best, and that is the chicken and the steak sandwiches—some of what’s been popular here, we try to transfer them to the international franchisee. But we work closely with them to build their own menu. Some of our franchisees have a lot of restaurant experience, so they have their own ideas. As long as our chef signs off on it; he’s a culinary expert and he’s been with the brand for many, many years, so we trust what he’s going to do and work with the local franchisee to build their menu.

When we spoke earlier, did you say it’s an 80/20 balance between local and Quiznos corporate menus? Yes. That’s generally the percentage that I’ve picked up. That may vary from country to country, but I’ve been told now that India, because it’s a unique market and obviously one of the most spicy markets in the world for food, their menu is really … around 60/40. So it can be blended from a 60/40 to an 80/20.

You’ll see in our Latin America markets that, while most of our stores around the world will have sandwiches and chips as a compliment to the sandwich, our Latin America franchisee has really pushed the french fries. So a large percentage of sandwiches sold throughout Latin America are complimented by French fries.

Which are not available anywhere in the U.S., right? No.

We had also spoken about a lot of menu sensitivities you have to pay attention to. In India, you probably don’t have much steak on the menu. Does that come up very often in many of your markets? In the three Middle East countries we’re in, they’re all halal. Our franchisees are very aware of the local customs. And we see the Middle East as a tremendous market for us. We’re not in Dubai yet, we’re not in UAE and Dubai and Abu Dhabi. So I think that’s certainly a targeted market for us. Many of the U.S. brands are in Dubai Mall, Mall of Emirates, and other places. But we’re in Saudi [Arabia], Kuwait, and we’re in Qatar. I’m going there in a couple weeks, I’m going to see those three franchisees to talk to them about the new management team and the significant focus on international and how we see the great opportunities for them to grow their stores and maybe hold up Saudi as the great example of rapid growth. Forty stores in less than two years is a pretty significant undertaking.

Speaking of American brands in the Middle East, you’ve mentioned how much saturation there is there. What do you consider your competition internationally? Are you still competing with the likes of Subway and folks over here, or are there homegrown brands in other countries? When you get outside the U.S., you’re generally competing against most of the [U.S. quick serves] and fast casuals. We’re all bringing a unique Americano experience. Who can entertain the guest to allow them to have a great food experience, but also allow them to be part of a global chain. We naturally compete against the Subways and the Arby’s of the world because we’re sandwiches, but I also think we compete against the McDonald’s and the larger players, too, that have that presence there.

Again, we deliver an Americano experience, and we want people to come here for that; not only for the great sandwiches and the food, but also just having a tangent or some sort of connection to the American experience.

Do they have many domestic brands in other nations? Not a lot. I’m trying to think of the brand in the Philippines… Jolly Bee. Jolly Bee in the Philippines has a tremendous presence. They’ve now franchised into other parts of Asia. But I think they’re an exception. Nando’s out of Africa, which is a roasted rotisserie chicken, piri piri, I think has a very good concept, and it’s out of South Africa and it’s doing well in Canada, and I believe they’re opening up in Washington, D.C. So we’re seeing a few brands coming this way. But the dominant participation in international franchising in the food space would still be U.S. brands.

The demand is America. Yeah, I think so.

In the last few years, I’ve felt like we can’t talk about anything without talking about the recession, because everything was affected by the recession and everything in many ways was reset by the recession. How much do you think that impacted international growth? In some ways it seems, if you’re struggling domestically, maybe it makes more sense to go international. Did it change the game on international growth? I think it had an impact. “Changing the game” is probably too far to go. But I do think that it gave brands a moment to pause and look at their opportunities in the U.S. The consumer was being more selective with their dollars and there are emerging markets that weren’t impacted as much as the U.S. during that period of time. So I think it certainly allowed the thinking among the management of many U.S. brands to reset itself and to look at the opportunities.

I know I’ve read some of your stories about small brands with two or three stores, and all of a sudden they’re in Dubai. That I find hard to understand. But still, I think every U.S. brand of any size should develop an international strategy, but should not do it in a way that they take the first person that comes in the door that shows an interest in their brand. It takes strategic thinking, as well as getting excited and then pausing for a period of time to reflect on the excitement, and then launch into global expansion, whether it’s your first time or whether it’s going to more countries than you’re already in.

What kind rate do you hope to open international Quiznos stores? You’ve mentioned the word accelerate—do you hope you accelerate the growth of Quiznos’ international presence? Do you have any numbers in mind in terms of goals for how many stores you want to have? In my short two months, what I’ve learned is we’ve never opened more than 100 stores in one year outside the U.S. We will open more than 100 stores next year outside the U.S. I think that’s only going to grow year over year. We’re at a modest 700 stores internationally, but I think we will hit the 1,000 mark very soon. I won’t put on a date on it, but I think we’ll hit that mark in the near term, and then from there, I hope we’ll accelerate more.

Do you think there’s some kind of ceiling, some sort of limit at which you can’t sustain anymore? I don’t think there’s any ceiling based upon what one of our competitors has done, and reaches 38,000 stores. So I think there’s no ceiling, but we also have to have educated growth in the sense that we have to support the growth and make sure we’re maintaining the brand image and maintaining the customer experience. When they go to a Quiznos in New Delhi or Singapore or Manila, it all has to be the same. Or back this way, in London, or Ireland, or, we have stores in Iceland. I think we’ll grow in the Middle East in the next few years. We want to make sure there’s a consistent customer experience, which includes the tasty sandwiches.

We’ve talked before about some of the markets that you’re shooting for, some of the markets you think might be hot. What are the markets that you’re looking into now, and what do you think will be the hot markets of the future? I think most people will answer in a similar way. I think the emerging markets of Asia—Southeast Asia is certainly an excellent market for us. We’ve only touched that opportunity with Singapore, and now with India. We’ve opened up in Manila, in September; it was my first grand opening and I was just incredibly impressed by not only the franchisee that we have, but also his passion and his commitment to growing the brand rapidly in the Philippines. So we have the rest of the markets—we have Indonesia, and Malaysia, and the other emerging markets of Thailand and Vietnam. Obviously we’re going to develop a China strategy; not sure what that is yet after two months, but if we do a follow-up six months from now, hopefully we can make that a focus on the China strategy.

And then I think the Middle East. It’s proven that the consumer loves the American experience and American brands and we want to touch the surface with Saudi Arabia and Kuwait and Qatar; [our franchisees] only started their operations, so they have a lot of room to grow there. But again, we’re not in UAE, we’re not in the Maghreb countries, which still would be a challenging market: Algeria, Tunisia, Morocco. That market also has its challenges from certain political consequences that have been going on right now. That has to be factored in.

We’re not in Europe, other than what would be considered the U.K. and Russia, but we’re going to open up in St. Petersburg early in 2013. We’re very excited about that group and their real commitment to grow the brand rapidly in the two major cities, St. Petersburg and Moscow. So I think that will be a good market for us.

Mainland Europe is not the highest priority for us now, but obviously it will factor in to our strategy in the future. Most of Latin America is already committed to franchisees, so it’s just a matter of structured growth over the next few years. In Brazil, we have close to 500 commitments over the next 10 years. So we expect Brazil to be a tremendous market for us over the next decade.

In terms of Europe not being as much of a priority, is there less of a passion for American brands? Maybe they don’t care as much about American brands as someone in the Middle East might? It’s not to say that some of our competitors like Subway have not been successful; they’ve got thousands of stores in Europe. I think it’s a matter of resources for us at this point in time, and to focus on where we think the best opportunity for rapid growth would be: in the Middle East and Asia. We have commitments throughout most of Latin America. On our list eventually will be Africa, but again, it’s not a priority right now for me.

Back to your question, Europe’s taste: I think the consumer may not have the same attraction to an Americanized, global brand. Maybe it’s because Europeans and Americans have been so well traveled that they don’t see the uniqueness of the new brand coming in based in America. At the same time, we’re not discounting Europe. We have very structured and aggressive growth aspirations, so Europe is certainly on our plate. But you asked for priorities, and I think Asia and the Middle East are probably our two top priorities. Because Latin America is off the table pretty much. Our Latin American franchisee has been opening a couple countries a year, too. So we’re very excited about his growth.

What’s the message that your franchisees overseas try to communicate in their branding? Do you think they try to communicate that this is an American brand? What are they trying to sell to customers to stir up excitement for Quiznos? I do think they try to present it to the consumer that this is a global participant. You’ll often see in these restaurants a map of the world, and it will pinpoint all of the countries that this brand happens to be in, whether it’s a Quiznos or another competitor. You don’t have to do that with McDonald’s, because everyone knows that McDonald’s is in over 100 countries. But in the sense of a Quiznos, you do want to convey to them that this is a successful, global restaurant chain, so it’s a proven consumer experience and products that have been accepted not only here, but around the world.

Do you think there are lessons the domestic business can learn from international? I think there’s cross-training and cross-enhancement of skills, both from international incoming to domestic and domestic outgoing to international. It’s a good question. The one aspect of this industry that I think I’ve enjoyed as much as anything, switching from a practicing lawyer to executive leadership of a restaurant brand—because I was with a law firm before I switched over to Church’s [Chicken] back in 2005—is a practicing lawyer is always giving advice and explaining a very narrow practice area that this is how you do something. As a restaurant executive, we’re always seeking advice, we’re always asking questions, we’re always trying to find a better way to do something and also to make sure we enhance the best practices that we have within our restaurant brand. I’m not saying that practicing law is not a learning experience—it always is. But I like the transition over to being part of a global restaurant and being executive leadership of a restaurant.

One of the most exciting aspects of my new position at Quiznos is we’re in 30 countries. We have so much of the world that we still have to approach. Then even some of the countries that we’re in, we have a lot of runway to grow the brand in a few countries we’ve just started in. My visit to the Philippines a few weeks ago, just to have this caliber of master franchisee, one of the largest real estate developers in the country, named many times one of the best Johnny Rockets franchisees in the world, to see him switch his passion (at least, when I was there [laughs]) to Quiznos. He signed up for 40 restaurants, and he told the entire press corps that he’s going to build 250 restaurants. To see that kind of commitment to the brand, well beyond what he agreed to legally, his whole attitude toward the brand has just got a lot of opportunity in his country. That’s the kind of franchisee you want to have. It makes you feel good about what you’re doing and also makes it a little easier to spend the money supporting him, sending people there.

We’ve had someone there almost since he’s opened, on different shifts. This is a guy who’s already done Johnny Rockets, so he already has a supply chain, he already has all of that. But every brand has uniqueness, so even though he can piggyback off some of that success from previous multiunit operations, you still have to put your own touches to it, not just with the products, but also with logistics and support of the restaurant development.

Is there a challenge to sustaining that franchisee excitement? It’s great to get that partner who’s passionate for the brand, but you obviously have to be able to sustain that. Part of that, I’m sure, is corporate support and knowing that you’ve got their back, but are there other ways to drum that up? I’m not trying to belittle your question, but as long as the sales stay up, their passion stays up (laughs). So I think whatever we can do to keep the sales up. We try to help them with a marketing calendar, with promotional items. We try to make recommendations on limited-time offerings. We send them recommendations because, as a franchisor talking to a master franchisee in his own country, we know our brand better than he does, but we don’t know the market better than he does. So we can suggest an LTO that may have done well in another market, may have done well in the Philippines, did well in Singapore, but there are different taste preferences, and we still have to rely upon the local franchisee, their decision. We can show how to do proper marketing, not only on a national level, but on a local-store level.

I think you keep their drive going in the right direction, and also explain to them the honeymoon of any restaurant—when they open initially, they’re not going to sustain those same sales levels. But as they level off, we try to build a pattern that they will maintain a consistent level of sales and see a little bit of growth, and see that positive comp year over year. That’s going to keep the passion.

One year from now, you and I sit down again to talk. What do you hope to share with me? What do you hope to have accomplished? I hope to have led this team that we’re now just putting together, and have seen maturity of this team to where they’re providing 100 percent support for our franchisees, from not only the grand opening, but also the consistent training. To have experts within my team that are trusted and that our franchises will call. They don’t have to call me, they can call our director for supply chain, because they might have an issue with their distributor. We can’t always correct the issue for them immediately, because we’re not in their country. But we can provide best practices we’ve seen not only in our system, but also all of our people have been with other brands. So they’ve learned from other brands as well.

I hope to tell you that we have built this team that supports our franchisee. I hope to tell you that we’ve added at least three to four new countries to the Quiznos global system. And I hope to tell you that we have resolved any differences we’ve had with masters that now are wanting to grow but are asking us questions like, “What are the next best steps?” And they’ll come back and say, “You gave me good advice, so now I’ve grown my store count by 20 percent,” or whatever. I hope to tell you that I’ve become the voice of the master franchisees, and at the same time, maintained the core values of Quiznos and made sure there’s a consistent brand image and a consistent customer experience around the world.

I hope to tell you that I’ve had a lot of fun over the last year, and that it’s just getting better as time goes on. And I also hope to tell you that I’ve visited every master franchisee, which I’ve pledged to do by the time we sit down next year.