Subway franchisee faces bankruptcy

Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000. Almost from day one sales dropped and it was not long before the profit from her Kaiapoi store was paying the wages and other costs at Northlands.

http://www.stuff.co.nz/
June 28, 2008

Subway franchisee faces bankruptcy

Tina Law

A Christchurch Subway store owner is accusing the multi-national sandwich chain of flooding the city with too many stores, bringing her to the brink of bankruptcy.

Keely Clements also says her repeated pleas for support from Subway management were ignored, despite telling them her Northlands Mall store was losing money.

That franchise was closed on Monday, after mall management terminated the lease, because it was owed $164,000 in unpaid rent.

Clements also stands to lose her second store, in Kaiapoi, after Subway served her with papers to terminate her lease on July 1, meaning there was no way for her to on-sell the store and recoup capital.

Clements has been protesting outside Subway stores in Christchurch this week to highlight her situation. Christchurch has 23 stores, one for every 16,000 residents.

Clements worked at Subway before buying a franchise in Kaiapoi in 2005 for $480,000. After the success of that store, a year later she bought a second franchise at Northlands Mall for $410,000.

Almost from day one sales dropped and it was not long before the profit from her Kaiapoi store was paying the wages and other costs at Northlands.

She sold one of her two investment properties and put $295,000 into the business, but it kept losing money.

She went to Subway South Island development agent Stan Greene to see if the store could be moved elsewhere because the site was not working.

Clements said Greene was unsympathetic, saying she was not capable of running two stores.

"I wanted some kind of help. I was told they were there to help us with that type of thing," she said.

Subway's website said it provided a "helpful, competent, and successful network of support".

It says from step one throughout the entire franchise process Subway provided "training and guidance that aids in the operation of each restaurant".

But Clements said she has beaten her head against a brick wall and bankruptcy was now inevitable.

Her second investment property is for sale and she has remortgaged her home.

She tried to sell the Northlands franchise and had an offer for $200,000, but it fell through when Subway would not let her sell until she had paid her debts to them, something she could not afford to do until she sold it.

Clements stopped paying Subway royalties and advertising fees for both stores about eight months ago because she decided it was better to pay wages and now owed Subway $132,000.

Greene refused to comment to BusinessDay, saying it was a legal issue and forwarded all inquiries to the company's lawyer, Kelly Foley, at law firm Buddle Findlay.

Foley said Subway had attempted on numerous occasions to recover the substantial money owed by Clements but has experienced unsatisfactory results.

"The Subway chain follows standard New Zealand business practices," Foley said.

Subway refused to answer questions about whether it provided Clements with appropriate support and about whether there were too many stores in Christchurch.

Franchise Association of New Zealand acting manager Kevin Connell said the North Island branch of Subway withdrew its membership last year and he was not aware of the South Island branch being a member.


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