What ever happened to Miami Subs? (Why restaurants fail.), Gerard Blazon

We put the rest of our cash back into our restaurant. This investment proved to be as fatal as it was naïve. Within three months two stores were allowed to close. One franchisee was removed in default. Austin’s team chose as manager one of our terminated crew chiefs. Our landlord categorically rejected Lawrence’s abatement proposals for Riviera Beach. Food costs worsened. Lawrence’s DM stated that was due to employee theft. Our landscaper was asked to bid on repainting the building exterior. He told me that he did not know how to propose a bid that was to include a kickback and still get the job.

www.foodservice.com
July 28, 2014

What ever happened to Miami Subs? (Why restaurants fail.)
Gerard Blazon

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Whatever happened to Miami Subs? This is a frequently asked question in markets where the concept has disappeared. This is an insider’s personal experience of its demise. Observations were taken from 1991 until 2007 in the positions of Miami Subs Company Store Manager, Company Franchisee Trainer, Franchise Store Manager, Corporate Franchise Consultant/District Manager, and finally as a Miami Subs Franchisee.

In the spring of 1998, South Florida media reported about a rat infested restaurant in Pompano Beach – a Miami Subs franchisee operated store. The franchisor’s reaction to this damaging embarrassment goes a long way to answering the question. I was charged with implementing the re-launch.

Two months earlier I was managing a Miami Subs unit in Virginia Beach. The unit was not successful, but the credibility I had gained being recruited by its large C-Store operators facilitated my being named as a Franchise Area Consultant/District Manager for the Miami Subs Corporation. I had originally been hired by Miami Subs in the summer of 1991. In Tampa I had managed three different company owned units. Among my duties had been the training of prospective franchisees and new product implementation for the area’s Miami Subs locations. As a result of a later assignment to support the opening of the Virginia Beach restaurant, I had been hired by the Jiffy Mart Company to help test the viability of developing Miami Subs co-branding within their upcoming new units.

Prior to those years I had had fourteen year’s middle management experience with other restaurant companies – Wendy’s, Hardee’s, Popeye’s among them. I had reported to company presidents, franchise owners, directors’ of operations, and area managers. I had started with Wendy’s after eight years in Chinese restaurants. Over time I had written more than 300 store QSC reports or evaluations. With the Wendy’s franchisee, I had developed a New England style seafood full service concept. By the time of my arrival in Ft. Lauderdale I had directed the opening or transfer of seventeen restaurants.

I had some misgivings about accepting the position. Christmas Day of 1991 was the single worst day of my restaurant career. All Miami Subs units were required to be in full operation to take advantage of the closing, at that time, of most competitors, even Denny’s in Tampa. Expect to be very busy, we were told. No one realized that sales would be almost 350% above normal. Staffing was woefully inadequate. Extremely long wait times created hostile customers. Their insults as to our incompetence lead to tears and employee walkouts. It was a debacle which was a decidedly negative experience for the first time trial customers that opening on Christmas Day was intended to attract. One year later my unit was prepared for the onslaught and the memory of my humiliation faded.

Two other curious events stuck with me. The most recent one was an article in a Miami Subs Corporate newsletter which I received in Virginia Beach. It detailed how the Tampa/Columbus store had set an all-time hourly sales record, $1862, in a traditional store. I was the store manager at that time, superbly directed by District Manager Mike Villmer who had previously experienced the demand created by rock concerts at nearby Tampa Stadium. My irritation was not only that I was not given some credit, but it was also the reporting that parking lot and patio sales of pre-made cold subs were primarily responsible for the success. In fact, I had removed all the merchandising material which discounted prices and encouraged cashiers to suggest items that could be easily or already be prepared. Villmer said “good call.” The same could not be said about an earlier corporate merchandising program. Tampa area stores were sent point of purchase materials to promote the Miami Dolphins. Included was a life size cutout of a Dolphin’s cheerleader which we were instructed to display in the dining room. Now the Buccaneers were terrible, but posting Dolphin materials within eye shot of Tampa Stadium…..

I did not experience this kind of inattention in Virginia Beach. I had taken the Tampa Miami Subs position in anticipation of returning to district management. So I had reached my goal and I was returning to Florida.

I began my first day .attending a District Manager meeting conducted by Director of Operations, Frank Baran. Don Perlyn, the Miami Subs President, was also in attendance. After an awkward first few minutes realizing that I was the only one in the uniform I had been told to wear, the meeting began. The first item on the agenda was the news about a rat infestation at the Pompano Beach store. A senior DM was tasked with the initial clean-up. The store was assigned to my district. I had inherited a similar problem previously, so I did not think of it as insurmountable. Also on the agenda was a discussion of franchisees that had an “attitude problem.” Antagonistic relationships between franchisors and their franchisees are not uncommon. I did not think too highly of most Tampa franchisee operations and standards. It soon became clear that the DO was enumerating the operators who were delinquent on their financial obligations to the parent company. I thought that odd. No disclaimers for good operations were made. Another agenda item was the directive to visit all our assigned locations ASAP. We were to report any store with pest control or sanitation problems.

The rest of that day and most of the next, I was given an introductory tour of my new stores. The DM who had been in charge of the area accompanied me. I hesitantly suggested we begin checking for rodents. He suggested that our time was too limited. We walked into store dining rooms and I was introduced to the owners or managers. The tour itself was cut short when a corporate insider informed him that he was going to be terminated. It was not surprising. Pompano Beach had been under his supervision.

The next day I was summoned to Pompano. The DM in charge of the initial clean-up had been sent there because of his familiarity with local resources and his access to personnel. After two days he had enough. He wanted to return to his own area. What I found was appalling. The media reported that police responding to a burglar alarm had seen a number of rats running on dining room tables. The reality, fortunately never publicized, was far worse.

When Waste Management is not paid they will eventually stop emptying their dumpsters. The Pompano dumpster corral, about eighty square feet and eight feet high, was so full that trashed peaked over the top. Rats were in everywhere, boldly feasting on the refuse. Their pathway into the building was clearly marked by the frequency of their trips to the kitchen. I counted twelve of them outside and over forty in the building. There was an access hole in the back door. There was a gaping hole in the prep area wall. The stench was overwhelming. I was later to learn that the employees had nicknames for the ones they thought looked familiar.

Perlyn quickly publicized that the franchisee’s contract and the DM had been terminated. He wondered how things could have gotten so bad. Pompano’s sale from one franchisee to another had never been approved. The seller and buyer were on the bad attitude list. No one seemed to have thought that financially strapped operators might have other serious issues. The store was within minutes of the home office. The validity or accuracy or even existence of store inspections was anyone’s guess.

The eventual solution for Pompano was a complete makeover. A complete interior remodel was completed. This was to be complemented by Miami Sub’s restructuring into a multi-branding concept that would include the Nathan’s, Arthur Treacher’s, Kenny Roger’s, and Baskin-Robbins brands. Progress was halting, but as the new Nathan’s ownership became involved the plan was thoroughly expedited.

A franchisee was given the store. He, I was told, was a “neat freak”, ideal for the store’s new image. I had my doubts. I was familiar with Jimmy. He had been involved in a disastrous Miami Subs opening and failure. Although the location was situated at a major I-4 exit ramp, the store never recovered from its poor operations during extraordinarily high opening sales volume. Tampa stores provided Lakeland with baked products because they did not anticipate their own needs. Mike Villmer specifically blamed Jimmy when we learned that Lakeland had closed. Jimmy, however, was Miami Sub’s founder and Pompano Beach landlord, Gus Boulis’, drinking buddy.

Despite his merely occasional presence, I directed preparations to reopen the store. Of the main duties, hiring, training, scheduling, station assignments, equipment set-up, ordering, stocking, and final clean-up, Jimmy only participated in the last two. Miami Subs, unlike the other chains with which I was familiar, had nurtured franchisees to expect corporate to do much of the work. Jimmy received the turn-key operation he anticipated.

What I did not envision was his obstructionism as opening day approached. Formulas suggested that twenty employees should be hired. He altered my schedule so that only nine were given hours. He derided my company store background. Most of the Greek franchisees, the original backbone of the chain’s early growth believed that company stores spent too much on labor. They considered the newsletter story of that $1862 hour in Tampa a fabrication or laughed that it took twenty employees to execute. He ridiculed my assertion that I was there. He did not believe that Pompano would be very busy. He was more concerned about meeting payroll. He was not in the financial position to afford staff sufficient for a high volume opening. There was, after all, a corporate staff that would come to his rescue.

He did not attend the orientation meeting for his new employees. He missed the first two training sessions. He received Arthur Treacher’s training only because I went to his apartment to bring him there. He had little experience with Baskin-Robbins recipes but he failed to show for their representative’s session. He promptly left the store when he learned that the Nathan’s President was to make a pre-opening visit. He told me that what he had missed in training he would teach himself. I gave him the training handouts. He pushed them away. Don’t use those things, he said. What he meant was that he was going to things his own way which, unfortunately, were not even up to standard with Miami Subs procedures. He clearly did not comprehend the importance of a successful re-opening to the re-polishing of the Miami Subs brand.

I continually reported these behaviors to DO Frank Baran and to Director of Training Tom Salerno. I also had the opportunity to ask co-founder Gus Bartsocas for help convincing Jimmy to use the correct recipes. He made that happen. Frank and Tom’s reaction was astounding. Jimmy is Jimmy was their attitude. They were more interested about a graffiti incident at Pompano. An employee of the HVAC company doing repairs there bragged that he had defaced the dining room windows with white painted “Rat Specials” e.g. 2 Piece Rat & Fries for $ 2.99, 8 Piece Family Rodent Meal for $8.99 and so on. Frank & Tom found this event very amusing. I had previously been told to “cool it” when providing daily rat counts, but I could not tell them enough about the “Specials.” The HVAC company was allowed to finish the repairs. My sense of humor did not include appreciating any continuing damage to Pompano’s reputation and to the Miami Subs brand.

Jimmy did not show up for opening day! I later learned that the timing conflicted with a weekly get-together with the company founder, Gus Boulis, and his Greek franchisees at Boulis’ night club. Frank and Tom divined that I would just deal with it. The next morning I went to his apartment to bring him to work. On the way in, he told me to fire the best trained cook on his staff. One of his drinking buddies told Jimmy that he was a thief. Jimmy had a surprise for me. He was going to replace him with his daughter. She had no training in the co-branded menu items. Within an hour it was obvious that her Miami Subs standards were no better than his. The opening was a flop. There were not enough customers to cause major disasters. Sales were dismal. As I left the store to return to my other duties, Jimmy reminded me that I had hired too many people.

Overcoming the damage caused to the Miami Subs image was not the immediate priority I thought it should have been. The DO told me to start the hiring process. The CFO, Jerry Woda saw the “now hiring” signs on his commute to work. He asked who had initiated this. I indicate that it was the DO. Woda directed me to stop notwithstanding being well into an interview schedule. There would be no interior upgrade, and then there was. A menu board without all the co-branding information was shipped. The Equipment Specialist expected me to be at the Pompano store whenever she decided to call. On the Friday prior to an often rescheduled opening day, approval for a last minute repair was delayed because of her early departure for an extended weekend. The DO expected me to be visiting my other stores but he twice did not inform me that someone was in Pompano waiting for me to unlock the door. Directives came from staff members who clearly did not effectively speak to each other about what was happening t Pompano Beach.

Within three weeks of arriving at Pompano, I was able to visit the other stores in my district. I inspected the units for rodent and sanitation issues as had been directed at my first staff meeting. Those reviews and the reaction to them affected me for the rest of my short-lived Miami Subs Corporate career.

Of the fifteen units I inspected, three had rat infestations. Many of the others had critical sanitation violations. Two of the three with rodent activity were owned by one franchisee. Since he was current with is corporate financial obligations, he was considered a good operator with a good attitude. He, Joe Marouf, responded to my reviews immediately. Lunch at TGIFridays, a tour of his rental properties, and a direct personal line call to Perlyn, the President, was his strategy. Both of his store managers indicated that he did not have scheduled pest control services. However, his access to Perlyn trumped my efforts. Before the DO could have read my review, tenured DM John Fitzgerald was dispatched to tell me to take it easy on Joe.

The third store with rat problems was owned by Perlyn himself. I informed his secretary that her boss’ store had rats. She told me I needed to talk to him about the problem. Within ten minutes he was telling me that it was inappropriate for him to discuss his Boca Raton store in his office. I should, he said, detail my findings to his secretary. He had no clue as to the Pompano infestation within a few miles of his office and he had no desire to learn about the same problem at his own store within a few miles of his residence!

On the same tour, I encountered two units with severe food safety problems. One reeked of sewage. It was a beautiful unit from the outside and had an attractive dining room package. The stench was caused by backed up floor drains, a sure sign that regular grease trap services were not being performed. Cook line employees were walking in two inches of water. The walk-in cooler temperature was at 60 degrees vs. the then required 45. The other store was being operated by an unlisted, unapproved pseudo-franchisee. Operations there were fairly tolerable due to the unit’s tenured employees. However, not one single refrigeration unit was to standard. The entire restaurant was very dirty.

My original visit was on a Friday. I demanded significant resolution of problems by Sunday. The response, except for refrigeration repairs, was adequate. On Monday afternoon CFO Woda contacted me. Who had authorized me to perform a “Unit Upgrade Checklist” on those two units? My boss, DO Baran, I responded. Those inspections are for stores about to be sold, he said, and that unit is about to close. Get off that franchisee’s back; he’s a good guy doing his best. Ironically, after I informed him that the other store had an unapproved operator, Woda had no reaction. He knew what I did not. The good guy he wanted me to indemnify had previously owned the shop now operated by the pseudo-franchisee. Not once did the CFO relate my findings to the crisis created by the Pompano infestation.

In the end, Don Perlyn and Nathan’ CEO Wayne Norbitz did indeed have a plan. It would revitalize Pompano and refresh the Miami Subs image. Perlyn had long been an advocate of the financial advantages of co-branding. In fact he had lectured about it at national restaurant gatherings. Norbitz, a Nathan’s Corporate DM told me, wanted to sell hot dogs and he was excited to have a large and immediate presence in Florida. They believed they had a win-win plan: Introduce Miami Subs Plus, as it was later called, at Pompano and use that success as a basis to reinvigorate the rest of the chain.

There was evidence out there that co-branding did not guarantee success. Rotisserie Chicken had come and gone. I participated in the introduction of Baskin-Robbins to company owned stores. The high volume Tampa/Columbus store did fairly well. The lower volume Largo store did not and was discontinued even before the Perlyn/Norbitz solution was tried there. Royal Palm Beach, one of my units, had co-branded with Baskin-Robbins and Dunkin Donuts, but the store was financially distressed. I had managed the co-branded store in Virginia Beach. It had failed. Perlyn opined that the Virginia Beach owners should have been pleased with their sales. The problems at Royal Palm were dismissed as those of an owner with a bad attitude. Some locations were not suitable for ice cream, he concluded. However, Arthur Treacher’s was meeting with some success.

Although Pompano was not rescued, even after a near giveaway promotion, the strategy proceeded. Customer surveys were taken at various locations. The positive view of the proposed changes propelled the roll-out. Miami Subs Plus was introduced at a convention-worthy national meeting. There were spectacles, awards, special recognitions, and Power Point presentations. The thrust of the consolidated surveys was that co-branding would increase current user frequency and attract new customers’ trial of well-known brands. Norbitz had ordered the Miami Subs staff to reduce food costs which he claimed they had. No harm to the brand name was discussed because, as the presenter mentioned, the question had never been asked, notwithstanding the well-known collapse of the “New Coke.” Soon franchisees were cajoled and compelled to make the change.

By this time I had become a franchisee. I initially directed a buyer to Riviera Beach because it had surprisingly good sales as measured against it operations. It had been part of my district. In my tenure as DM, I had observed a pattern of above average sales of Miami Subs’ located in primarily minority neighborhoods. This demographic best described the highest volume locations in Tampa, St. Pete, Orlando, and Tallahassee. During my evaluations at Riviera Beach, I realized what a good opportunity it presented. Landscaping was non-existent. The store was clean, but the furniture was worn and shabby. There were serious roof leaks. The owner, a boyhood friend of founder Gus Boulis was overworked and hostile. The strain boiled over into racially charged arguments with his customers. He was current with his financials and, so, regarded as having a good attitude. After a robbery during which he was seriously wounded he asked me to find him a buyer. I invested funds to complete the purchase. The new owner, a friend, quickly became disillusioned. He asked me to take over the store in lieu of repaying my loan. I had recently been terminated as DM, so I decided to take the challenge. A year later, I found a partner to complete the purchase of the store.

I whole-heartedly endorsed the idea of Miami Subs Plus. My experience with co-branding success was mixed and I was concerned that the survey company had not considered the “New Coke” issues. The prospect of introducing Arthur Treacher’s fried fish and Kenny Roger’s chicken in a primarily African-American neighborhood trumped my doubts. Pompano Beach had been a lost cause from the outset. I did not need to be pressured.

The introduction of Miami Subs Plus to Riviera Beach was initially a huge success. Weekly and monthly sales records were set. Food costs dropped 2.5%. Within two months, however, sales began a steady downward spiral. I made some very bad personnel decisions in reaction to this trend. I also began to realize that I had allowed myself to be duped.

To achieve lower product costs, recipes, ingredients, and portion sizes had been altered. The award winning burger was downsized and toppings altered. Cold sub recipes eliminated the signature Miami Subs secret dressing and replaced it with oregano and mayo. The cheese steak meat portion, originally a shaved beef round portion, became a colorless chopped beef product. The very low Nathan’s food cost products was undermined by a new, at least to Coney Island devotees, cooking process. We prepared the dogs on a convenience store roller broiler, a procedure unacceptable to the traditional New York customer. The Kenny Roger’s product was frozen and was admittedly being introduced without adequate testing. The new menu board minimized the merchandising of the unique Miami Subs signature products, i.e., gyros and wings.

In Virginia Beach the menu altogether excluded gyros and wings. Over time as I visited and analyzed the more successful stores, I concluded that higher than average sales of either or both of the two correlated with higher than average sales. Tampa/Columbus often sold two Gyro cones, about 90 servings, during a three hour lunch period. Perlyn often bemoaned that he had never executed a major gyro promotion. Frank in his various ventures demonstrated little knowledge of what made Miami Subs unique. The Virginia Beach menu presented no products that were of better value or significantly different than the locally established competition, notably Zero’s, a local multi-unit operation. I regret that I did not then understand these weaknesses.

What I did appreciate was the significance for a chain that was steadily becoming driven primarily by drive thru sales. At Riviera Beach, window sales were at 70% of total. Perlyn was visibly astounded to learn this at a district manager “town meeting.” Royal Palm Beach reported only 40%, while the other stores were above 60. When he asked why Royal Palm was so low the manager did not have an answer. Having been the inspector there within the last year, I offered my opinion. Baskin-Robbins and Dunkin Donuts customers commingled in the drive thru queue, I said. Imagine the occasions when the drive-thru cashier was required to enumerate every type of donut and/or every flavor of ice cream. The Miami Subs customer accustomed to three or four minute service times did not long or often again suffer the twenty minute line times I recorded during my reviews there.

The co-branding strategy did include a redefinition of Miami Subs as a fast food restaurant. Food holding equipment and expedited processing were part of the conversion strategy. The previous “fast casual” self-description was quickly reinstated when it was decided that chain wide sales declines were being exacerbated by the new holding equipment. The food warmers were to be eliminated. Good operators were bunched with the poor to remove equipment that was still being financed.

Our regular traditional Miami Subs customers were the first to comment. They did not like our new gaudy yellow Miami Subs Plus prime sign. Others called to verify that we still sold wings. One caller wondered if we were still Miami subs. Others could not find “Wings” on the menu board and asked if we had discontinued their favorite menu item. It became slowly but surely evident that we had lost our identity.

Although the Arthur Treacher’s line was successful, it had its own problems. That brand’s devotees longed for the chicken “planks” they remembered. Others insisted we cook their food to order, a six or seven minute process that made holding equipment irrelevant. Although the seafood was a significant percent of our overall sales mix. it was very difficult to balance demand and quality. This balance was impossible in the very poorly performing Kenny Roger’s line. The emergency cooking from frozen procedure quickly became the only way to maximize quality. Both product lines were drive-thru service speed killers. It was clear that co-branding had not adequately been tested.

As the DM’s were evaluating their stores, they noted that the four minute service time standard was not or could not be met. The solution was easy: increase the goal to five minutes per car. The early 1990’s standard had been three minutes. This change was oblivious of the fast food industries thirty second goal. As if to verify the ignorance of their own industry, Corporate’s next roll out was a reintroduction of ice cream with the Edy’s brand. At that presentation I reminded the attendees that ice cream was a service time nightmare. A five milk shake or three banana split order would take fifteen minute to prepare. At our new five minute standard, this could mean the loss of three cars. Drive Thru customers will not wait very long if they can’t reach the menu board suggesting that the drive-aways could be even higher. The attendees thought ice cream was a neat idea. They thought I was a lunatic outsider.

We did not offer Edy’s in Riviera Beach. I had experienced the five shake or three banana split at Tampa/Columbus with the consequent loss of drive thru and, when short staffed, dining room service efficiency. Within a few years Riviera Beach grew to become the highest volume store in Palm Beach County surpassing the once flagship Okeechobee store. It wasn’t about Edy’s; it was about creating systems that minimized service breakdowns based on our experience at other national chains.

What may seem tangential or gloating actually illustrates a core problem in the Miami Subs system. A drive thru service time goal of thirty seconds may only yield forty. A five minute standard may be improved to four. At forty seconds capacity is ninety cars per hour. At four minutes it is fifteen. Six times the sales volume is possible. The thirty second goal is a fast food mantra. Miami Subs’ redefinition of itself as “fast food,” was contradicted by a roll out of product lines that could not be served quickly.

As the debacle worsened, especially after 9/11/2001, we garnered damning information about the pre roll out process. Special promotions for Arthur Treacher’s had been promised when an initiation fee had been paid. The marketing department did not have that on their agenda. Franchisees were rumbling about downgraded quality products. DM’s were whispering that it was all a big mistake rushed into by Perlyn and Norbitz. Franchisee Joe Marouf, the owner with rats and a good attitude, attempted a palace coup. The DO and Training Director were being blamed for not effectively expressing their doubts to Perlyn. I remembered Training Director Tom Salerno’s doubts about Arthur Treacher’s a full year before the Miami Subs Plus roll-out. Treacher’s had been put into some stores before the final menu was implemented. He advised me not to oversell Treacher’s to a West Palm owner. We learned that many franchisees had not been required to pay the initiation fee to join the disaster. Rumors and accusations were rampant.

Most distressing was what we learned about the surveys conducted to test the viability of the Norbitz/Perlyn plan. Two of the interviewers, a manager and a crew member were now employed at Riviera Beach. I had volunteered to test a Greek Food Special promotion that was to coincide with the Athens Olympics. The task involved procedure development, customer taste testing, and customer reaction surveys. When I assigned some of the interviews to the manager she laughed. Do you really want me to give these to customers, she asked. We can do them ourselves like we used to do at North Lake, she continued. In fact, she boasted, I had the entire crew do the ones for Miami Subs Plus. Tom came by the store to pick up the surveys my partner and I had personally conducted. We read most of them together. We agreed that enthusiasm for the new menu items was at best fair. No matter, said Tom, advertising materials are already printed. Any semblance of scientific method vanished. My suspicion that the survey to evaluate the Perlyn/Norbitz plan had been at best unprofessional and at worst fraudulent was confirmed.

The rushed roll-out had not allowed time for sufficient training. When Wendy’s was struggling in the late Seventies, it introduced salad bars. The training involved a three day session at Corporate Headquarters in Ohio. On implementation day, three trainers spent one and a half days at the store. When Miami Subs introduced three entire new product lines to overcome their difficulties, their training agenda paled by comparison. It was a six hour session at a company store conducted by the manager as he directed his shift. On the first day it was three trainers spending three to five hours in the unit. It was difficult for me. As a franchisee I had to make it work. Managers of franchised stores not operated by the owner were less likely to rise above the situation. Tom and his trainers were too busy to make follow up corrections before the deviations became entrenched. Corporate never updated the store inspection reports that could have been the tool to highlight standards’ problems. There became as many variant procedures as there were stores.

Within a year the Nathan’s President visited Riviera Beach and other Miami Subs Plus units. In a private meeting with my partner he admitted that the changes were a mistake. Promises about financial obligations abatements were made. Gradually the original steak, burger, and other recipes were restored. The prime sign was replaced with the original. DM’s could now speak their minds. When Tom and Frank became the fall guys, two of the DM’s stated that Frank, in particular, was to blame for not controlling Perlyn. My experience at Pompano had suggested they were merely passengers on that racing train.

They were not to blame for inheriting a concept with no real enforced operating system and insufficient upper management regard for the value of training. My first visit as a customer back in 1990 was an early indicator. The cashier was so busy punching out orders, she neglected to tell me that my receipt had my order number. I walked over to the “pickup” sign to get my food. The expediter was so busy yelling at the cooks, she did not notice that I grabbed somebody else’s tray. Sitting at a nearby table, I soon realized the chaos I had inadvertently created. I had taken another patron’s Gyro Platter. When that diner inquired where his order was pointing to his ticket number the expediter lost control. Instead of giving him mine, she berated the kitchen. Despite my previous restaurant experience, there was no obvious way for me to instantly understand the service system.0

The unique décor of the first Tampa area Miami Subs created much interest in the Tampa restaurant community. There were long chaotic lines whenever I visited. The food was great. I wanted to be part of this ingenious concept. I thought I could be of some help improving their service system. I had been taught that when you use a number system, verbal communications ought only to target problems. I never convinced a single Miami Subs staff member to listen to me. Perlyn, Baran, Salerno, and a number of DM’s considered me a heretic. Baran commented that I was trying to reinvent the wheel. They observed quieter, more efficient operations in Riviera Beach, but they did not see the benefits of my idea.

When I started with Miami Subs in Tampa, Mike Villmer was my Training Manager. Having been an area Director for Wendy’s, he was trying to implement Wendy’s operating system. Elements of this included manuals, rigid recipes, scheduling guidelines, station assignment sequences, daily prep flow charts, product rotation charts, labor guidelines, and a well-designed product delivery system for the drive thru and dining room. Soon after his promotion to District Manager and Area Consultant, he told me that franchise stores employed very few of these tools.

Mike could not have trained me effectively in the three weeks he was given had I not had previous Wendy’s experience. Teaching someone how to manage such a complicated concept as Miami Subs, in such little time, usually resulted in assistant managers who could not train new employees in some positions. I, for example, had to teach myself how to slice Gyro meat. I shied away from the flame broiler being fortunate enough to have assistants proficient at its maintenance. I had to teach myself how to program the POS system, and so on. At Wendy’s I had been trained for three months before being promoted to store manager. Part of this period was in Ohio area company stores. The emphasis was on development of positional skills. When I demonstrated reluctance for the drive-thru window, a corporate trainer stood next to me for the two hours it took for me to become acceptable. He had chosen a mall pad store with a non-stop Saturday flow of cars. The Miami Subs training did not allow more than one hour at the Gyro cone. Customer service was being slowed because of my inexperience.

A glaring Miami Subs inadequacy was the inconsistency and haphazardness of the training materials. Different training pamphlets had varied recipes for a number of items. Test answers were marked incorrect in contradiction of the study materials. Different positional trainers would have varied procedure for the same task. In the Ohio Wendy’s stores, employees and managers precisely followed recipes and procedures. I started with Wendy’s and later Miami Subs when they respectively had less than 100 stores. The almost military precision of the Wendy’s operations especially as contrasted to the Miami Subs glitches, was a fairly certain predictor of which chain would thrive and which one would not.

It was not only that standards were not precise at Miami Subs, it was that what there was of them were not enforced, especially in franchise stores. In fact some changes were sanctified by Co-Founder Gus Bartsocas during his tours. Unfortunately many of these changes were not put into the training materials. By contrast at Wendy’s ideas were considered as suggestions that would continue to be disapproved until Corporate staff reviewed the change. It would then, via Memo, be included in what was euphemistically called the “Wendy’s Bible.” Hardee’s had a similar system.

Villmer, a former Wendy’s Area Director, implemented most of Wendy’s systems in his Tampa area Company stores. Unfortunately, as he often discussed, his influence over the dozen franchise stores he supervised was limited. He once told me that even the Company store operations in Orlando did not match ours. Although Mike was highly regarded by his superiors and peers for his tightly run company locations, he was not influential within the Ft. Lauderdale leadership.

That hierarchy surprisingly decided to locate a new franchise store on Dale Mabry, within two miles of the Tampa/Columbus Company store. The proximity would only help, it was said, with the overflow. This was pure speculation without benefit of survey as Wendy’s would require. Despite Mike’s constant presence and the assistance of Tampa/Columbus staff, the new store did not succeed. The franchisee could not maintain employees and his operations were weak. This franchisee had been the original owner of three Tampa area stores and had been unable to control them. Still he ignored procedures and Mike’s advice. He was, however, one of Gus Boulis’ drinking buddies. This pal quickly gained the distinction of owning the first Miami Subs to close in the Tampa market.

By this time Mike had given me the title of Training Manager for prospective franchisees. This was a good program. It required the certification of each new franchisee and three managers. It involved direct hands on training and testing over a four week period. The Dale Mabry franchisee, I was told, had experience and enough managers not to need to be certified, qualifications soon to be contradicted. I was involved with four groups of prospective new franchisees. One prospect quit when he realized that he would be working positions and how difficult a system Miami Subs was to operate. Only one set of the franchisees and staff I trained failed to be certified. The mother in this family team refused to touch raw meat with or without tongs. The son, who was to take over the store in which he was being certified, spent much of his time evaluating its physical structure and deciding which employees he would not keep. When the four weeks was done, I would not certify either of them. They both miserably failed the written test. I announced my decision to Mike on a Friday. They took control of the store on the following Monday. The Training Director from Ft. Lauderdale had given them the test over the phone. My evaluations were ignored. They probably read the corrected answers from the test I had administered. No matter, the mother and son were sister and nephew to Founder Gus Boulis

Within a week the son had terminated most of the crew. Those who were retained were told that this was now a franchise store and to ignore me, I was told to stay with him until he had adequate staffing, a difficult task since he did not have a clue as to what that might be. I had spent most of my Miami Subs career at this Fowler store. It was humiliating to see my customers in a now pathetically understaffed situation. I complained that the son expected me to run the store for him instead of overseeing the transition. It was decided that I could not be objective in my “pet” store, so the Orlando DM replaced me. I was assigned to follow-up duty at the newly opened store in Virginia Beach.

My two week effort there eventually resulted in a permanent assignment. I thought it good decision to have streamlined the menu by eliminating some items, Gyros and Wings among them. Sales volume was over $10,000 a week at that time. When I returned three months later, sales had slipped to $7,000. The manager I replaced was not hands-on. He had relegated operations to two crew chiefs. I was accustomed to this scenario and anxiously accepted the challenge. My major weakness became my downfall. My previous Profit & Loss responsibilities had been Profit from Operations. This did not include Occupation Costs. I did not think to ask what these were before I accepted the position. Don Perlyn once asked me why Virginia Beach closed. I cited the sales and the rent. About the sales, he said, well that’s pretty good for a C-Store. About the $9,500 monthly rent, he questioned what were they thinking about? You know they had a big problem with flies, he concluded. Pests seemed to trump break-evens in his mind.

The high rents at many locations were a common source of store failure. Many of the terms had been assumed during the initial glory days when it was believed that Miami Subs was destined for greatness. Miami Subs was essentially a glorified sandwich shop. The omnipresence of Subways is a consequence of understanding the importance of low break-evens. Frank Baran understood this, but by the time his ventures to address it were attempted, it was too late.

Regular closings of older stores were weakening the brand. Financial difficulties were compounded by high Repair & Maintenance costs. Jerry Woda, while visiting Riviera Beach, told me that we were now paying for Gus Boulis’ strategies. Stores such as closed BoJangle’s were purchased and then remodeled using the guideline that structural expenses be kept at a minimum. Within a few years many of these stores were suffering air conditioning problems, leaky roofs, and structural cracks. The remodels did not address the requirements of the Americans with Disabilities Act. Judicious landlords included responsibility for any suits to their tenants. Riviera Beach was on such a lease and was sued. Neither our lawyer nor Jerry Woda, who asked to review the document, pointed that out to us. Our settlement and compliance eventually cost us over $30,000. We were not alone to suffer these problems.

The funds that Boulis and Perlyn directed toward the glitzy exterior appearance of the remodeled units actually sowed the seeds of Miami Subs decline. White paint, back-lit teal awnings, thin neon accents, and interior neon signs required constant attention, especially as exposed to Florida weather. It took only slight fading of the paint and a few broken neons to move from glitz to sleaze. Perlyn did incentivize franchisee exterior upgrades. Baran required DM directed improvements as a condition of unit transfers to new franchisees. The continuing deterioration of unit appearance, however, belies the effectiveness of these efforts.

As a franchisee I vowed not to replicate the nonchalant attitudes about location appearance that I had observed as a DM. Many of the original franchisees had very profitable early years. The lifestyles many had created as a result became difficult to maintain. I inspected many stores where the owners’ $60,000 car was parked in a grey unstriped parking lot with minimal landscaping. Many of these owners would make no repairs, not even replacing a ceiling tile or repairing a chair! I kept my 10 year old Civic and budgeted the savings to upgrade the landscape, paint the building, improve the lighting, change the awnings, and immediately repair broken equipment. The exterior upgrades each led to measureable sales increases.

The year before my venture in Virginia Beach, 1996, Tampa area Company Store managers were told that stores with sales below $1,000,000 were being sold to franchisees. This provided cash for corporate, but it accelerated the failure of the Tampa market. The first one was given to the mother/son team that I had never certified. The second was transferred to an owner who I did not observe to have any training at all. By late 1998, even the high volume Tampa/Columbus and the Orlando Buena Vista units were franchised. My curiosity compelled me to visit these two shortly after the change. It became crystal clear that the only qualification to become a franchisee was deep pockets. It became an observable fact that there were as many differently operated Miami Subs stores as there were stores

A major player in the divestment of Company controlled unit, at this time, was Joe Marouf. My negative opinion of him and his ties to Perlyn were confirmed when I was assigned to implement Arthur Treacher’s in one of his Ft. Lauderdale stores. Tom Salerno told me not to start until Joe completed the dining room remodel Corporate had required. Joe told me that he would not. Tom asked me how bad it was. This restaurant is in chaos, I said. The so-called manager is always on the phone and there are two dry goods deliveries scattered on the floor in the back room, I added. The next morning I was told to start the introduction. Joe eventually was attempting to manage at least 7 Miami Subs locations. During his reign, the once highest sales 17th St. Ft. Lauderdale and Okeechobee, Palm Beach store fell into rapid decline.

The gross lack of consistency from unit to unit compounded fixed cost problems. The great benefit of predicable product which is a keystone of McDonald’s success, for example, was seriously diluted by the year 2000. Franchisees that cared about standards were negatively affected by nearby operators who did not. I was a neighbor of Joe’s North Lake store in North Palm Beach. Many of my acquaintances told me that they no longer frequented Miami Subs because of their experiences there. As consistency issues increased, the number of stores diminished. Fewer stores meant less Corporate purchasing power. Soon it was cheaper to find substitute product at Sam’s or Restaurant Depot, further lessening Corporate’s volume buying. Yet, I know of no instance when a Miami Subs franchisee was removed for procedures violations.

It was perhaps Don Perlyn’s greatest weakness that he did not differentiate between the quality of the food ingredients provided for his franchisees and the final product delivered to his customers. He frequently referred to compliments he received about the quality of Miami Subs food. The units might be shabby and hospitality not always ideal, he would say, but it was almost impossible to screw up the food. Attesting to this was similar praise, he claimed, was once offered him by Dave Thomas, the Wendy’s founder.

The consequences of Perlyn’s false belief can best be exemplified by bread baking procedure. In the early 1990’s, in store bread baking was introduced. Neon signs bragged that Miami Subs was now baking all day. It was a great product but it took a lot of attention. To minimize glitches, staff would arrive at 8:00 A.M. By opening time, 10:30, enough fresh sub and Kaiser Rolls were available for lunch. No sooner had we mastered the timing, a corporate directive mandated a 9:00 A.M. opening. This was absurd for the high volume stores and did not allow for mistakes at lower sales. Within a year, the signs were down. By the late nineties, in an effort to reduce labor costs, most franchisees were baking most of their rolls at 2:00 P.M. The result was that a sub chain was selling day old bread at lunch, by far the highest sales period in the vast majority of stores. Perlyn might have argued that most of the bread was toasted, but he could not have denied that his chain’s very low sales percentage of cold subs was a direct result of stale bread. “Subs” was on the sign, but fresh bread was not a priority in their sales!

The bread produced at 2P.M. was of good quality and consistency, but the same could not be said about Gyros Pita and Cheesesteak Subs. Both had very specific preparation guidelines. I rarely observed consistency in my DM evaluations or later in my visits to other franchisees. The problems were as varied as the ingredients. The meat was often overcooked and greasy. Vegetables were not cut to spec. Overuse of oil led to very greasy cheesesteaks made worse by chopping the meat into smithereens as opposed to the recipe’s 25cent size guideline. Gyros build was as random as the permutations of its five ingredients. A Miami Subs in the Carolinas went so far as to precook steak through the flame broiler and hold it in an unrefrigerated bus tub, a far cry from grilling to order. Customers who developed a taste for the improperly made sandwiches were now requesting to have it prepared that way.

I would bristle when Perlyn referred to Dave Thomas. I also had a brief acquaintance with Wendy’s dad. One time it was at a Los Angeles convention where I sat at his table for dinner. On another occasion, I chauffeured and accompanied him on a tour of the Wendy’s which I then supervised. Unlike Perlyn, Thomas understood operations. He would always check the chili and occasionally take the grill position. He would point out procedure problems and praise good performance. He introduced himself to every employee and manager, rewarding them with lapel pins as a memento of his visit—a testament to his humble beginnings and to the corporate culture he was creating

Perlyn’s knowledge of operations and procedures was poor at best. He once complained that the hush puppies I was serving him and Wayne Norbitz were too small. I handed him the specified scoop and pointed to the recipe card. He promised to change that but never did. On another occasion he asked me why I was still putting cheese on the bottom of steak subs instead of on top. I reminded him that the original procedure was to keep the bun from getting soggy and that since 80% of my business was take out or drive-thru the quality would be better. He asked me why I did not have Ice Cream. To speed up drive-thru service, I said, reiterating my earlier arguments. When he insisted that we sell 25cent wings on Super Bowl Sunday, I asked him why that would be different from discounting Christmas Trees on the Friday after Thanksgiving. His Judgment: “I guess you can’t teach an old dog new tricks.”

Perlyn’s basic merchandising strategies, whether it was rotisserie chicken, combos, ice cream, Arthur Treacher’s, or the full Miami Subs Plus, repeatedly demonstrated his poor knowledge of his own operations. He would acknowledge that his menu was complex to execute. Yet he regularly fell back to a strategy that made it more difficult. Adequate training was often an issue. Although he later agreed with franchisees that the introduction of combos had contributed to a one year drop in sales, he still believed in the viability of high cost ice cream. He took credit for the return to the original cheesesteak and burgers, but he never addressed the consequent return to higher food costs,

There were occasions when we wondered if he even understood the implications of his and his staff’s words and actions. In one notorious Christmas week set of Corporate memos, he clearly exposed his priorities. The first one stated that in order to assure a Merry Christmas for office staff, all payroll data was to be faxed by the 22d. This would ensure that store level personnel would be paid before the Holiday. A proviso warned that tardiness or incomplete paperwork would result in some or all of the payroll not being distributed on time. This Scroogish threat was followed by another. All company stores were to operate for the normal sixteen hours. To minimize the insult, it was promised that operations staff would be available to help. This did not happen in Tampa.

A general franchisee meeting exacerbated this divide. It is difficult to maintain appropriate staffing levels in stores that operate into the wee hours of the morning. It was a constant topic of conversation among franchisees. Yet Perlyn chose this occasion to tout the tenure of his office staff. He had offered them a four day work week. Franchisees were counseled to find similarly motivating techniques. Shortly after he described the joy of his recent vacation overseas, he openly derided the absence of a franchisee who was on his yearly visit with family in Greece. Perlyn deemed his attack justified because this operator was constantly complaining about declining profits.

At the same session, he permanently alienated one of his most loyal franchisees. She had, for example, urged her partner to inform Perlyn about the takeover attempts of the largest franchisee. Her franchise fees at a previously owned store always had been current. She had been on the list of franchisees with a good attitude. When recognition was given for high sales increases, she was pointed out as having turned around a particularly difficult store having achieved the $! Million sales level with consecutive years of double digit sales growth. Then Perlyn added: “But you had to didn’t you?” She grew red with embarrassment. Those who understood the insult gasped. Some asked her for advice. Perlyn must have thought it was luck. Neither during her success nor after did he ask for her input. His contempt for the people who provided his salary was openly displayed.

Towards the end of his tenure, Perlyn adopted the “Undercover Boss” strategy. He did not work incognito in the restaurants, but he did announce that line employees were the people who really knew what was happening in the stores. After years of ignoring franchisee opinions, he decided to seek the advice of their employees.

A number of franchisees, often family operators, were successful despite Perlyn. They survived despite his fractious management style, his poor knowledge of operation, his disregard for the importance of training, his continuing misjudgments about co-branding, his poor choice of franchisees, his partiality to weak operators, his inability to override Boulis, his poor supervision and use of DMs, his reliance on outdated demographics, his role in allowing franchisees to accept exorbitant rents, and his disregard for the authenticity or value of customer surveys.

We had very good years at Riviera Beach, especially 2003 and early 2004. We would have survived had it not been for a confluence of cash draining events, To renew our lease, our landlord required plumbing, electrical, HVAC, and structural repairs. We suffered damage and losses from three hurricanes and a tornado. We lost an ADA suit. CFO Jerry Woda would not release us from an accelerated EFT payment of past debt accumulated in 2002 and 2003, notwithstanding promises made by Norbitz during his January 2002 visit to Riviera Beach. By the end of spring 2007, after not receiving any interest in our offer to sell, we seriously considered leaving.

Our last hope was the Nathan’s decision to end its involvement with Miami Subs. An investment group, led at Miami Subs by Lawrence Austin, promised a new beginning, a re-imaging of Miami Subs. The professional presentation of the new management team and their analyses were everything Miami Subs veterans could have wanted,

At this meeting, in the late spring of 1997, we were encouraged by how many problems within the system were understood. Lawrence promised never to allow another Miami Subs to close. He detailed how food costs would be reduced by 5%, reinforced by key purveyor presentations. He planned to personally intervene with landlords to reduce rents. An insurance broker described a program to reduce store premiums by as much as 50%. An architect rendered a radically innovative exterior image package. Purveyor rebates would only be used to enhance the advertising fund, not for kickbacks. The early development of a web site was demonstrated. Pizza and Delivery would be among the first innovations. A popular, tenured DM was promoted to DO.

We put the rest of our cash back into our restaurant. This investment proved to be as fatal as it was naïve. Within three months two stores were allowed to close. One franchisee was removed in default. Austin’s team chose as manager one of our terminated crew chiefs. Our landlord categorically rejected Lawrence’s abatement proposals for Riviera Beach. Food costs worsened. Lawrence’s DM stated that was due to employee theft. Our landscaper was asked to bid on repainting the building exterior. He told me that he did not know how to propose a bid that was to include a kickback and still get the job. A week later, he was given the amount to propose. The web site, Pizza, and Delivery were endlessly delayed.

Lawrence’s eventual explanation for the delay was that he had bought into a company that had forty stores with separate agendas. He might have claimed that the survivors of the Perlyn regime were loath to undertake another radical change.

From May to December we implemented every program initiated by the new management team. We were among the few to introduce breakfast. We leased a new POS system they deemed necessary to implement Delivery. We did not contribute to the rumors about Lawrence’s supposedly shady past. Instead we were in constant communication with him, his son and his DO.

We knew that high season sales would keep us afloat until mid-May. We appraised Lawrence and his team that, without help, we would be shortly thereafter closing the store. As the time came and our fears deepened, Lawrence responded less frequently. We sent him an e-mail challenging his honesty about never letting another store close. His immediate, vitriolic response was that we were in no position to make such a judgment. He avoided and ignored us for the entire month of June

On the last Sunday in June he finally answered our call on his private line. I told him we were closing the store and that to establish continuity he ought to have his team there ASAP. Somehow, by the end of that day, I was asked to remain there for a transition period.

The DM who was assigned for the transfer was absolutely incompetent. He had no middle management experience of any kind. I expected him there for the breakfast shift. He arrived three hours later. He soon realized that credit card sales were still being deposited into our account. While he was totaling the misdirected credit card receipts, more were occurring. To solve his problem he taught the drive-thru cashier how to circumvent the POS’s accounting system. Soon thereafter he was posting warnings about immediate termination for thieves. His logic: “Lawrence will go ballistic if cash is short.”

My reporting of the painting contractor graft to this DM and his boss accelerated the termination of my arrangement to help in the transition. The DO firing me showed me a Blackberry message. He said that it was from the Sunday we returned the store. Its essence was that the Austin plan had worked and that their company had just put a $200,000 asset on the books.

This DO had wanted me as part of his team. As a twenty year veteran he recognized good operations. His parting words were “No one does that anymore.”

http://www.foodservice.com/blogs/restaurant-management/what-ever-happened-to-miami-subs-why-restaurants-fail/


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