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New Quiznos Lawsuits

Quiznos is facing more class-action lawsuits over delays in getting locations approved for its franchisees, and keeping their $25,000 franchise fee. More from the Denver Post article: The case alleges “deceptive business practices” in the company’s franchise sales method and demands that the company stop selling franchises in New Jersey until all existing franchisees get locations or are refunded their franchise fees. In a separate case filed in December in the Ontario Superior Court of Justice, the plaintiffs allege that the company is violating Canadian franchise law by not disclosing to potential franchisees full details and processes for securing locations. Quiznos, of course, denies violating any law. Hat tip: Paul Steinberg Franchisors usually carefully craft the franchise agreements to enable wiggle room in stalling or denying approval of locations. Warning flags include evidence of high franchisee turnover or higher proportion of revenue from non-royalty revenue which can sometimes be gathered and deduced from the UFOC Items 19-21. I know of a major dating franchise where one location in a big city has been sold 3 times over in the past few years, with the most recent franchisee begging the previous franchisee who sold it to him to take it back for FREE because it was draining money. If he closed the business, he would have breached the franchise agreement and would be obliged to pay tens of thousands in fees, charges and damages. Update: March 1, 2006 You can track the Ontario case on Goldman Sloan Nash & Haber’s web site, the Canadian law firm representing the plaintiff. The firm posted the detailed statement of claim (complaint) against Quiznos. Hat tip: Michael Webster

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Quiznos Sales & Profitablity – Summary Report

Quiznos Sales and Profitability.pdf “former owner”, a commenter on this site, left a tip on a document posted at the Toasted Subs Franchisee Association. The document purports to be a summary on Quiznos store profitability. Is it legitimate and accurate? I have no idea, but it’s probably in the ballpark. It’s apparently based on estimates gathered by franchisee sources reporting. Here’s snippet: Quiznos Sales and Profitability – below is a list of sales statistics compiled year-to-date for Quiznos stores as of August 2005. In the Quinzos chain, an average new store (opened in the last 12 months) can break even around $7,000 to $8000, depending on fixed costs. This charts shows the number of stores breaking even or even losing money inthis chain. These sales figures are accurate. The profitabily estimates, are just that…estimates based on franchisee sources reporting. Thanks “former owner”!

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Quiznos comments

There are some good Quiznos comments and debate about what are appropriate expenses. CLICK HERE to see it. read more Franchise Pundit posts on Quiznos…

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Quiznos gets toasted with lawsuit

It looks like the Quiznos franchisees are not standing by in the face of apparent fraud: The primary allegations of the complaint are that the franchisees were harmed by the company’s "deceptive recruitment practices" and "failure to deal in good faith" when it took franchise fees from the plaintiffs, but refused to approve locations to open Quizno’s stores. In addition, the complaint charged, Quizno’s has refused to return any portion of the franchise fees, even though the plaintiffs paid more than 18 months ago and are now being threatened with termination. and more general comments… Commenting on the lawsuit, Susan P. Kezios, President of the American Franchisee Association, said, "This lawsuit is a classic example of a popular franchise chain using its brand name recognition to deceive hard-working Americans into investing their dollars to grow a franchise. Bob-the talking baby in Quizno’s current media campaign-is definitely talking out of both sides of his mouth in this case." Added Klein: "It is unfortunate that not enough people are aware of the abuse that franchisees often endure at the hand of their franchisors. Too many entrepreneurs automatically assume that buying a franchise is a safe investment. We are confident that we will prevail in our lawsuit, and are eager to finally bring justice to the franchisees who were victimized while also alerting people who are interested in purchasing a Quizno’s franchise to make an educated decision. I don’t have a comment from Quiznos, but I’d assume they deny the allegations. Still, Quiznos claims to open a new franchise every 16 hours. Have those franchisees all done enough due diligence to uncover these allegations of fraud? I fear they are too eager to hand over the $25,000 franchise fee. Even if this lawsuit turns out to represents a relatively small percentage of ...

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Unintended Franchise Killer – Street and Rail Construction Projects

Imagine you have the perfect location for your franchise near a stadium with lots of pedestrian traffic. You spend $450,000 to get your first franchise built and ready. Opening week was wonderful with sales of $12,000 and subsequents weeks continue on with profits. Then, a major light rail construction project starts out front and blocks your sidewalk. After a few weeks of jack hammers and tarps blocking views, nobody is venturing down your way because they don’t want to deal with the noise and nuisance. The construction project lasts for 8 months. A similar story has happened in Minneapolis, MN in an area called “Stadium Village” near Target Field. Quiznos couldn’t afford to stay open. Independent fast food places such as Hot Diggity Dog and Leo’s Burritos also shut down with no word whether they will reopen. This is a really unfortunate and sad situation. These projects are often years in the making so perhaps the franchisee should have anticipated this development. Nevertheless, with strict operating rules in a franchise agreement there is not much the franchisee can do to adjust operations.

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Where’s the Beef? You’re Terminated!

Imagine if you were a franchisee and a mystery shopper from the franchisor anonymously visited your store and ordered a sandwich.  The meat in the sandwich you served happened to be 1/2 an ounce smaller that the standard 4.5 ounces.  Would it be fair to lose your franchise because of default?  You did break the rules, eh?  But what if was really a charade to encourage compliance?This was the situation a Denver court had to deal with.    The final judgment was that Quiznos had in fact breached the contract by wrongfully terminating the defendants, and awarded them $349,797.http://blogs.westword.com/cafesociety/2009/01/quiznos_gets_grilled_in_a_new.php

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Dream Dinners Hammered by Forbes

Dream Dinners is an example of good idea but profit challenged business model.   It’s just too expensive to attract and retain customers. A Forbes article looked through the Dream Dinners FDD from the state of Washington, and focused on the required audited financial statements. As of Dec. 31, the company boasted $2.9 million in assets, against which it carried $3.4 million in liabilities. (Such negative book value implies that if Dream Dinners were unwound today, shareholders wouldn’t get much.) That’s a snapshot, but here’s a trend: Last year, the company lost $628,000 on $7.5 million in sales; compare that to 2005, when it earned $928,000 on sales of $4.5 million. …. Typically, new business concepts need up to five years to season before they can be franchised successfully. Dream Dinners–along with its next largest competitor Super Suppers, now with 165 stores–both began franchising in less than two years. Franchisees accused the franchisor of false promises and unsubstantiated financial projections. A major point of contention has to do with rosy promises Dream Dinners seemed to have made to its franchisees. Under the Federal Trade Commission’s franchise law, franchisers are not permitted to make “predictions” about franchisees’ financial success–unless they do it in the Uniform Franchise Offering Document, which typically contains a host of disclaimers. Dream Dinners “totally disregarded these regulations,” says Garner. It not only posted financial projections on its company Web site, he says, it also put them in a Power Point presentation given to potential franchisees. Jennifer Hemann, a former Dream Dinners franchisee in Maryland and one of the plaintiffs in the suit, alleges that she was shown that Power Point presentation–which included estimated profit margins for a given volume of customers–when interviewing with the founders. “They told us, ‘Our lawyers said not to show this to ...

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Domino’s Subs

As if the sub sandwich category wasn’t crowded enough, Domino’s Pizza is adding sub sandwiches to its menu and delivery service.  The $4.99 oven-baked sub sandwiches will include classic favorites like Philly Cheese Steak and Chicken Bacon Ranch. The move comes five months after Pizza Hut began delivering baked pasta dishes as well as pizzas. And it will be a wake-up call for sub shops Subway and Quiznos, which find themselves competing with pizza chains. For the pizza giants, the message is clear: If pizza sales aren’t growing in a sour economy, maybe something else will. Besides the hot subs and baked pasta, some pizza chains also deliver chicken wings. “It’s an attempt by the pizza players to try to get back into being a growth industry,” says Ron Paul, president of Technomic, a restaurant research firm. “They’ve all lost their mojo.” They also are further conflating a fast-food world that’s grown jumbled. McDonald’s (MCD), Burger King (BKC) and Wendy’s sell salads and chicken. Subway and Dunkin’ Donuts have tried pizza. Arby’s, once roast-beef-only, now makes a killing on Market Fresh deli sandwiches and sells toasted subs. Domino’s U.S. same-store sales fell 5.4% in the second quarter after a 5.2% decline in the first quarter. Brandon says the move should boost Domino’s lunch business and expects lots of calls from groups of office workers. (The minimum delivery order is $8 to $10, depending on location, and delivery fees are $1 to $2.) Rivals are unimpressed. Pizza Hut delivers hot sandwiches regionally but is focused on growing its national pasta delivery sales, says Brian Niccol, marketing chief. Tony Pace, marketing chief of the Subway Franchisee Advertising Fund Trust, says, “Domino’s is watching our success and wondering how to get a piece of the action.” Half of Quiznos’ locations deliver, and ...

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Journey of a Franchisee

A Pizza Pizza franchisee in Ontario recounts his decision to buy into the system, the training, paying the franchise fee, and steps along the way to opening. Atlanta Bread Co. and Sbarro bail from the Macon, Georgia mall. “40 percent of Quiznos units are not breaking even”

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Independent Franchisee Associations

BusinessWeek documented Bhupinder “Bob” Baber founding of the Quiznos Subs Franchise Assn and its litigation soap opera.  The independent franchisee associations of Diary Queen, Subway, and few others are also mentioned along with their individual legal battles with the franchisors.  For example, Dairy Queen franchisees litigated over the new DQ Grill ‘n’ Chill concept, and Subway franchisees litigated over a potential loss of influence over an advertising fund.   Toasted Subs Franchisee Assn members pay $50 per store per year for membership – well worth it in my opinion.

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Beef & Salads

Personally, I prefer the Pepperblue Steak Sandwich from Panera Bread. Several chains introduced new beef sandwiches: But it was the beef sandwiches that debuted in 2006 that seemed the most inventive. In February, Quiznos introduced its Prime Rib and Peppercorn Sub, followed by its Prime Rib Cheesesteak in September. Subway rolled out two premium steak sandwiches of its own, the Blackened Cajun Steak and the Steak and Cheese, in September. On a related note, here is an article discussing the strategy behind Quiznos’ new salad offerings.

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Common Areas of Dispute

Interesting article in the Dallas Morning News highlighting common “disagreement” points between franchisees/franchisors. This week, Pizza Inn Inc. said it is being sued by former franchisees who say the company, based in The Colony, “intentionally and negligently misrepresented development and operation costs.” Subway parent Doctor’s Associates Inc. faces two lawsuits filed this summer stemming in part from a fight for control of the brand’s advertising dollars…. Chris Bray, a franchisee of the Denver-based Quiznos brand, complained of what he views as a lack of communication between franchisees and headquarters…. Most [of Quiznos’ disclosed litigation in the UFOC] involve claims the franchisees say were made about exclusive territories or the inability to get their outlets open within the required time. Hat Tip: Paul Steinberg in the forum

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The Friday Franchise Five: I’d Wouldn’t Buy These

I came across a few franchsies that I would not want to own: Snack-In-The-Box: UK based firm that delivers candy to the workplace (difficult to work and sell) Nick-N-Willy (founded by former Quiznos exec)/Take-and-Bake: this take-and-bake pizza idea where cusotmer get the raw dough with toppings didn’t catch on 10 years ago, and won’t catch on despite some short-term success driven by PR and unique gourmet toppings. Gourmet pizza that is already baked is where I’d make my bet if I had to enter the pizza business. The Dinner Station/Meal Assembly (check out the nice store pics): The industry is already seeing a high number of closures; I’d do this perhaps without a franchise MRI/recruiting franchise: I knew several smart people that tried to make the MRI recruiting franchise work, but had a very tough time generating any placements, and placements from MRI corporate contracts were nil (operating profits and same store sales were down from last year) It’s Just Lunch: Some locations have been turning over several times each year, with franchisees literally giving them away to escape the cash drain.

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Who is looking out for your interests?

I was surprised to learn from this article that Quiznos pays commissions to its Florida outside real estate firm, Kotis Properties, to sign up franchisees. Possible conflict of interest? In addition to helping find sites, Kotis Properties will also be helping Quiznos sign up new franchisees. It seems this sales practice, along with high pressure seminars, is becoming more common in the franchise industry.

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Franchisor Mentions

VERY OUT OF DATE.  Do a search instead.  This was manually updated March 21, 2006 Companies Mentioned in Posts (likely incomplete):Automotive 1-800 RADIATORS Oil Butler Lube N’ Go On-Site-Lube Business & Home Services 1-800-WATER-DAMAGE Bartercard Garagetek Help-U-Sell Home Instead Homewatch Caregivers My Girl Friday PropertyGuys.com Sears Carpet & Upholstery Tax Centers of America Cleaning & Maintenance none Computer & Internet (some are listed in “Retail”) Screenz Food and Restaurant Arby’s Auntie Anne’s Blimpies Cheeburger Cheeburger Chipotle Dippin’ Dots Dream Dinners Doc Green’s Gourmet Salad Dominic’s of New York The Dugout Durango Grill Fazoli’s Fire of Brazil Fogo de Chao Goldstar Chili Jamba Juice Jerq’zine Krispy Kream Lenny’s Sub Shops Mauwi Wauwi Original Hamburger Stand Panaderia Taza Papa John’s Pizza Factory Pizza Patron Pretzel Time Quiznos Red Rock Chili San Francisco Soup Co Shane’s Rib Shack Skyline Chili Smoothie King Smotthie Planet Soup Nazi Steak-out Subway Submarina Sub Station II Super Suppers The Soup Box Supercuts Suzanne’s Kitchen We’re Rolling Pretzel Company Wetzel’s Pretzels Z Pizza Zoup! Fresh Soup Co (List all sub franchises) Health & Fitness Curves Liberty Fitness Home Building & Repair Services See “Business and Home Services” above Personnel & Staffing none Pet Retail and Services Camp Bow Wow Doody Calls The Pet Pantry Wag My Tail Interquest Detection Canines Pets Are Inn Retail Franchises Ace Hardware AuctionDrop Battery Plus Best Cuts GNC Educational Outfitters Fantastic Sams Fastframe Foot Solutions Friendly Computers Geeks on Call GNC Hair Cuttery Herman’s World of Sports Imagine This Sold Orbit Drop Play It Again Sports QuikDrop Roosters Men’s Grooming Centers Screenz Snips Its Sports Clips Stone Mountain Carpet Mill Tom’s Foods We the People Categories: eBay drop offs (generally) Hair Travel & Hotel none Industry Lists & Research 2004 Same Store Sales Growth of QSRs (quick service restaurants) Royalty and Advertising ...

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