Billings Quiznos owners regret taking on franchise

…their struggles with the corporation since they opened their sandwich shop on Grand Avenue in 2001 may have cost them their retirement savings.

The Billings Gazette
August 7, 2005

Billings Quiznos owners regret taking on franchise
Brad Fjeldheim

Stacy Reiter and her husband knew they wanted to open a Quiznos the first time they ate at one, but their struggles with the corporation since they opened their sandwich shop on Grand Avenue in 2001 may have cost them their retirement savings.

"I think we have lost all our money we've ever made getting into this Quiznos damn corporation," Reiter said. "We've lost almost $600,000 of our savings. It has been a nightmare."

Reiter's husband was a family partner in Empire Sand and Gravel Co., and after the family sold it in 2000, the couple thought Quiznos would be a good business with a good product that would be fun to operate with their kids, Reiter said. But four years later, they have closed two stores in Billings and lost almost everything, she said.

Quiznos, a Denver-based company, was founded in 1981 and is the fastest-growing restaurant chain in the country. The company has restaurants on four continents and, excluding hamburgers, is the No. 2 sandwich shop, trailing Subway. But the company has also faced lawsuits during the past year from disgruntled franchisees.

Franchisees organized a Quiznos-bashing Web site at www.quiznossucks.com, which displays complaints from franchisees around the country. The site highlights franchisee horror stories and lawsuits against the company.

The most recent lawsuit on the Web site was filed in May by a group of 17 franchisees in New Jersey. The franchisees are claiming they were harmed by the company when it took franchise fees from the plaintiffs but refused to approve locations to open Quiznos stores.

Reiter said she and her husband had to close their store on Main Street in the Heights on July 10 because waiting for Quiznos cost too much money.

"We lost all of the working capital dealing with delays and the ongoing difficulty dealing with the franchisor," she said. The couple spent all of their money on nine months of rent and built up $240,000 worth of debt while they waited for Quiznos to approve the property lease that she said was approved before they built the store.

The Reiters opened a downtown store in December 2002, after the former store owner, an area director contracted by the Quiznos corporation, told them if they decided they didn't want the store within three months, they could use the equipment for a different store location, Reiter said. Low evening traffic and theft hindered the store's success, and the Reiters had a new store location in the Heights approved before they closed the downtown store, she said.

But when the couple began to move the equipment to the Heights location, Quiznos officials told them they couldn't use the equipment and that the company needed to approve the lease agreement. Quiznos canceled the area director's contract during the process.

"The best way to describe it is a huge mess," Reiter said.

Quiznos is confident the class action suit from New Jersey will go the way of all of the other suits filed by franchisees that courts have ruled on, said Stacie Lange, the vice president of Quiznos public relations.

A lawsuit filed last year by five Phoenix-area franchisees, who alleged fraud and deceptive trade practices because the company was putting stores too close together, was dismissed. A lawsuit from an Arizona franchisee was dismissed that claimed the royalties taken by the Quiznos corporation are too high, Lange said.

Reiter recently returned from a trip to California, where she met other franchisees and said many are unhappy, one reason being that Quiznos charges more for its product than most restaurant chains.

According to the Quiznos White Paper, a corporate newsletter sent to all franchisees addressing pending lawsuits and allegations laid out on www.quiznossucks.com, their product prices are lower than at McDonald's and slightly above those at Wendy's, Pizza Hut and Taco Bell.

But Reiter says it would be impossible for a franchisee of any restaurant to make it if that were true because in 2004 the Reiters' store on Grand Avenue grossed about $427,000 and the couple made $11,000.

The Quiznos corporation takes 11 percent off of the top of all the store's earnings, 7 percent for royalties on gross sales, and 4 percent for an advertising fund.

According to the White Paper, Quiznos' 7 percent royalty charge is less than Subway's 8 percent and just more than Blimpie's 6 percent. The 4 percent for advertising is the same as at McDonald's and less than the 4.5 percent that Subway and Taco Bell take out. But Billings owners say the corporation is difficult to work with.

"It's really tough to make a living with Quiznos," said Rick Newkirk, who has owned the Quiznos on King Avenue since 1998. "It all started when the company went private."

Quiznos was a publicly owned company until it was taken off of the Nasdaq in 2001 and the information made available to franchisees was cut dramatically, Newkirk said.

"You just have to take their word for it where the advertising money is going," he said. But Lange said Quiznos supplies the franchisees with a yearly report of all allocations of advertising fees charged to the franchisees.

Newkirk is in the process of selling the Quiznos he owns in Bozeman because he loses money in the summer, when college students are gone, but he plans to hang on to his King Avenue store.

"I'm just kind of figuring it's gonna turn around," he said. "It's only a matter of time."

Entrepreneur magazine ranked Quiznos the third-best franchise in its 2004 and 2005 ranking of the country's top 500 franchises. Newkirk said he attributes the company's success to a good product.

"The product is awesome," he said. "The stores all should be making a lot more money. I'd just like to see corporate be less gestapo and talk more to the franchisees and recognize us as an association."

Some Quiznos franchisees have been promoting the Toasted Subs Franchisee Association to combat corporate bullying, which sounds like the step that has solved this problem in the past, Newkirk said.

"From what I understand, other franchises had similar growing pains," he said. Franchisees who were involved in the early stages of other mainstream franchises told Newkirk that after the corporation recognizes the concerns of their franchisees as a collective group, the problems should decrease.

But Quiznos has a franchisee association built into the corporate infrastructure, Lange said, and she doesn't see recognition of the association in the near future.

Reiter, the secretary of the Toasted Subs Franchisee Association, would not disclose the number of franchisees in the association because the group doesn't want Quiznos to know how many members have joined, but she said it has been growing considerably.

Reiter did say that the number of hits a day on www.quiznossucks.com is more than 30,000, and when she first found it a year ago the site was getting three or four hits a week. The increased interest is great information for potential franchisees, she said.

Quiznos receives an application from a prospective franchise owner, on average, every 40 minutes, according to the company's Web site. In 2002, Quiznos had 1,765 stores; by 2004 it hit 3,339, and that number is increasing as the company works to open more stores.

But Reiter and the association are fighting to stop people from buying Quiznos stores, she said.

"The only way to get Quiznos to start taking us seriously is to stop people from buying franchises," Reiter said. "I know it's not just me, and it's gonna come out pretty soon. Talk to 50 other owners, and I guarantee that out of those 50 there will be at most 10 that are happy."

Copyright © The Billings Gazette, a division of Lee Enterprises.


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