It’s no secret QUIZNOS has had some problems. Multiple Lawsuits, flawed business model, SBA loan defaults, massive number of store closures. With so many other options available it is strange that people still ask us about buying a QUIZNOS franchise, but they do. QUIZNOS will tell you all the good stuff lets take a look at some reasons you might not want to invest.
According to their 2017 Franchise Disclosure Document The cost to invest in a Traditional QUIZNOS Restaurant will range between $233,910 – $292,784. Your royalty will be 5%, or lower if you operate restaurants under the incentive or multi unit plan. Marketing will be 2% of Gross which is also subject to a reduction under certain circumstances. You will also invest in your local marketing co-op which will be determined by your group.
QUIZNOS has recently dropped their franchise fee down to $10,000 in an effort to sweeten the pot and help recruit new franchisees and in their defense they have tried to make positive changes to turn the ship around – but was it a case of too little too late?
#1 No Earnings Disclosure: QUIZNOS 1tem 19 in their FDD, which is industry speak for earnings disclosure, is blank so we don’t have any indication of how individual stores are doing financially. That’s not necessarily a bad thing, and franchise companies are allowed to choose whether to list financials or not. But it is a bit of a red flag when we see this and generally if a company has strong financials they will of course list those numbers in their FDD. Now in the absence of an item 19 another way to find an approximation of earnings is to speak with existing owners, whose names will be listed within the FDD. Not all will provide you with that information but many will give you an idea.
#2 Lawsuits: Pages 8 through 37 in Quizons FDD, 29 pages is nothing but lawsuits. Breach of contract, fraud, misrepresentation, fraudulent inducement, 90 actions in total are listed in the FDD. QUIZNOS has more lawsuits than most, if not all larger franchise chains. Many of the lawsuits allude to the fact QUIZNOS had thousands of stores failing and did not reveal this fact to buyers. But buyers, and we see this all the time, thought because so many people were buying QUIZNOS franchises and their growth was so fast, it must be a great investment. That sheep mentality can cost you hundreds of thousands of dollars so make sure you do more research beyond just seeing a franchise opening a lot of stores. In QUIZNOS defense they seem to have greatly reduced the number of lawsuits as of late, Let’s hope the trend continues.
#3 Store closures. When we look at an FDD we like to see manageable growth. That’s an indication that the franchise is growing quickly, but not so quickly they are unable to support their existing franchisees. That’s why industry awards like “fastest growing franchise” may actually be a bad thing for the franchise buyer. QUIZNOS however has been hemorrhaging stores for many years. At their peak in early 2000’s QUIZNOS was up to 5000 stores. They closed 2000 stores during the recession, and Item 20 in their latest FDD indicates 442 franchised stores closing in 2014, 333 in 2015, and 172 closing in 2016. That’s almost 950 stores closed in 3 years. Now for those of you thinking “great I’ll buy a Subway” – well Subway closed almost 350 stores last year as well. Food franchises, ladies and gentlemen can be a very competitive and fickle market unless you are in a successful niche, and just because a franchise is visible on every corner does not mean it will be a good business for you.
#4 Bankruptcy. For what it is worth not that long ago in 2014 QUIZNOS filed for Chapter 11, restructured and came out of bankruptcy having reduced their debt by almost $400 million dollars.
#5 The Spongemonkeys. Yes this was a a long time ago but I couldn’t resist bringingh it up. who approved this? This QUIZNOS marketing campaign was shortly and rather discreetly shut down. The spot was allegedly supposed to create interest in the 18-24 year old segment. In our opinion most 18-24 year olds can’t afford QUIZNOS, and all they did was annoy a group of already annoyed franchiSe owners. In fact some franchisees are reported to have put signs on their doors stating they had nothing to do with the ads.
QUIZNOS does seem to be making inroads in other countries like Mexico, Europe and The Middle east so time will tell how that fares for them but so far so good. We are looking forward to seeing QUIZNOS new FDD when it comes out to see if things have stabilized since making changes.
So is QUIZNOS a good franchise to buy? Have they improved their business model and learned from past mistakes? That is a decision for you to make but before you do make sure you research and compare other franchises, and don’t be afraid to look at franchises outside the food industry.