Quiznos Is In A Vicious Downward Spiral
In 2012, the company restructured its debt in order to avoid bankruptcy and fund a turnaround, but the plan hasn't worked. Now it has missed a loan payment, is attempting to restructure its debt again, and has franchisees worried and angry, according to The Wall Street Journal.
In this time, Quiznos has gone from nearly 5,000 stores to around 2,100, and hundreds more US stores are underperforming and may close, according to the Journal.
Meanwhile similar chains have done just fine. Chicago-based Potbelly is rapidly expanding and recently had a very successful initial public offering. Jimmy John's is expanding too, and Subway continues to be a growing and highly profitable behemoth.
Here's what went wrong with Quiznos:
- There's a high franchise failure rate, as Quiznos forces franchisees to buy products and equipment at allegedly inflated prices.
- Franchisees often didn't know about low sales, a high number of franchisees in default on loans, and underperforming, unprofitable stores when they bought in.
- Its sandwiches were priced well above Subway's, making them less appealing during a tough economy.
- It stopped being unique after everybody else started toasting sandwiches, and when it began chasing Subway on the value front.
- Massive debt levels (exacerbated by a leveraged buyout) hurt the ability to invest in the menu, individual restaurants, and the brand.
- When they did try to switch things up with expensive remodels and menu shifts, sales didn't perk up.
- Many franchisees didn't have sufficient savings to invest or even survive, as the chain had low barriers to entry.
The company's creditors already took a large hit last year, writing down over a third of the company's debt. They may not be so forgiving this time.