Why Quiznos is Going Bankrupt and What You Can Learn From It

Franchising is set on a pedestal in the minds of business minded people and customers alike as a dream model – a goal to reach as it were.  For some people, to franchise your business means you are validated by the business world.  To open hundreds of stores means you are awesome.  To open thousands?  Now you’re a rock star, baby.  But wait!  While your business groupies marvelled at your copying-and-pasting skills, your lovely, innocent, country bumpkin girlfriend who was always there for you got neglected on the way to your stardom.  That’s quite sad.

Some people believe that franchises are started by directors with abusive and even predatory business goals but most believe they start out innocently but are then corrupted by the sudden infusion of cash in their banks created by their army of burger flipping, latte steaming, foot-long wrapping worker bees.

You choose what you believe.

The Franchisees of Quiznos in the USA may now have to figure out how to walk on their own two feet while proceedings for the funeral of their corporate franchise mother ship get underway.  Will their Landlords extend expiring lease renewals now that their never-failing rent guarantor has failed?  Will the owners be able to sell their stores and recuperate the hundreds of thousands they spent to buy the business name and systems?  Will this bankruptcy ultimately mean the doom of Quiznos in Canada?  What buyer would purchase a franchise that may no longer be a franchise?  How much goodwill value is left in the brand?

This article in the Business in Vancouver publication summarizes the situation at Quiznos best as ‘…struggling with high debt, angry Franchisees, and increasing competition.”  Many of the angry Franchisees apparently sued the head office for failing to support them and for overcharging them for supplies.  Quiznos settled out of court for $95 million.  And just a few years later – good bye, sugar pie.

But it makes sense.  When a lawsuit is filed against a Franchisor, its roots didn’t magically grow like Jack’s beanstalk, especially if the lawsuit involves more than one Franchisee as it did in this case.  The Franchisees had to have been angry enough to fight against their own ‘fear of the Franchisor’ and start meeting privately to come up with a plan – a sort of revolution.  Money was taken from them unfairly so they went to get it back.  They paid for support that they didn’t get so they went for a court imposed refund – and they got it.  It would be interesting to ask the Franchisees who chose not to fight how they feel about their decision now.

One of the most interesting quotes from the BIV article on the topic is the following:

All except seven of its nearly 2,100 restaurants are independently owned and operated by franchisees and will not be affected by the bankruptcy, the company said in a statement.

How they will not be affected by the bankruptcy is nothing short of a very large mystery.  To remove a stigma of this size from a brand is a formidable task – regardless of where the bankruptcy is filed.  Think about Jack in the Box.  Stigmas are sticky.

So what can we learn from the woes that are sweeping over Quiznos?  Here are a few points to consider:

  • If Quiznos was focused on helping the Franchisees make money instead of finding ways to take it from them, none of this would have happened.  They would have had Ambassadors of the Brand instead of Assassins of the Brand.  Win + win = win  (Note: this formula still works in 2014)
  • If there are a bunch of Franchisees going after the Franchisor, you should probably be concerned.  Deeply concerned.
  •  ‘Too big to fall’ Franchises don’t exist (although McDonald’s might admittedly be trickier to topple).  The bigger they are the harder they fall – eventually.

Quiznos Files for Bankruptcy

Most people reading this CBC article about Quiznos filing for bankruptcy will probably be thinking ‘where am I going to get my upscale sub?”  Franchisees, however, are probably asking “What will happen to the franchisees in this case?”

And what a great question that is.  There are lots of stakeholders in a franchise system, including, but not limited to:

  • the Franchisee
  • the vendors
  • the customers (better spend your gift card money asap!)
  • the landlord (who are you going to go after for late rent?)

One would hope that they have already formed an association that could immediately meet and start taking measures to protect their investments.  One would hope that the Franchisees are not relying on their head office to provide accurate, timely, or beneficial information at this point.  One would hope that they have their legal team lined up and ready to start work.

It will be most interesting to follow the results this event will have on the Franchisees and we hope that some of them will be able to write to us with their insight.

As always, send your comments and stories to info@vcsfa.ca.  We are here to help.