The new Quiznos Franchisee Association, or QZFA, was officially founded this week with the goal of giving operators of the sandwich chain a voice, as Quiznos looks to a pending change in ownership, restructured finances and a rebranding effort.
Quiznos officials confirmed Wednesday that the chain will likely see new ownership soon, but did not give details on its future. Through a spokesman, the chain said it has been seeking a debt-for-equity swap. Franchisees that spoke with Nation’s Restaurant News see that as the most likely scenario, rather than an acquisition.
The chain is currently owned by Rick and Richard Schaden and affiliates, who reportedly hold a 51-percent stake.
Denver-based Quiznos officials also would not comment further on ongoing restructuring efforts, as the chain addresses a reported debt burden of about $875 million.
The Denver-based chain earlier this year hired law firm Paul Weiss Rifkind Wharton & Garrison LLP and investment bank Moelis & Co. to look at restructuring the beleaguered sandwich chain’s finances and operations.
New franchisee group organizes
As the company goes through that process, QZFA aims to give franchise operators a seat at the table, asking them to join forces in re-energizing the brand, said Kevin Tackett, president of the association and one of the chain’s largest traditional franchise operators, with nine units.
“The only asset Quiznos owns is these franchisee agreements,” Tackett said. “We need to align ourselves in order to make a positive change in the business model and reestablish the value of the Quiznos brand.”
In the company’s regularly scheduled conference calls to franchisees, Quiznos’ chief operating officer Michael Roper endorsed the association.
Roper also addressed franchisees’ fears of a possible bankruptcy by saying “it would make no sense to do it,” Tackett said.
Some reports earlier this year indicated that Rick Schaden and partners were considering a $50 million investment of new equity to help refinance debt to avoid default this year, but recent reports indicate that is no longer the plan.
Meanwhile, the company is working to re-invigorate the brand.
The association hopes to play a key role in a rebranding effort officials plan to launch early next year. The company has hired a market research firm, which officials declined to name, that has begun talking to franchisees about what they think will turn around declining sales.
The research will also consider consumer impressions of the brand, and how franchisor-franchisee relations can improve, Tackett said.
The information will also be crucial to any new owners that may be in the picture by next year, he noted.
“The new owners will need to know what the heck they need to do to fix it,” he said.
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Building the new franchise group
Though operating as an independent organization on behalf of franchisees, about $85,000 of the association’s $300,000 budget for the first year comes from the franchisor, as required under a settlement agreement in 2009, which resolved a class-action lawsuit filed by thousands of former and current franchisees.
The litigation included allegations of racketeering and corruption, complaints about supply and food costs, the use of marketing and advertising funds, and royalties owed by franchisees who bought but never opened stores.
Quiznos denied all claims and agreed to the $206 million settlement without admission of liability.
For the new association, Tackett said the first step is to build membership.
He estimates that there are between 1,700 and 1,800 franchise operators within the chain.
There were 3,440 estimated domestic locations at the end of 2010, accounting for nearly 1,200 shuttered locations since 2007, according to NRN's Top 100 Report data.
That same data estimated the sandwich chain’s 2010 sales were about $1.24 billion, compared with an estimated $1.66 billion in 2008.
Tackett said the association’s goal is to sign up at least 1,000 operators by year’s end.
“We haven’t gotten much accomplished yet,” Tackett said, “but we’ve made great progress on building the road that we’re not yet driving on, but we’re about to start.”
Steve Bawden, QZFA’s executive director, said the group will also take part in five regional meetings scheduled by Quiznos in October, at which market research on the brand will be presented.
The goal is to ensure full disclosure as the chain goes through the rebranding process, Bawden said.
“The owners aren’t going to re-introduce the brand if the operators won’t support it,” he said.
Bawden said the QZFA has also pledged to “take the high road” in dealing with management.
“The days of the nasty blog postings are over,” he said. “I don’t want to sound Pollyanna, but everyone knows we have got to succeed as one.”
QZFA is the first effort to organize franchisees since the now-defunct Toasted Sub Association, which the franchisor refused to recognize.
Beyond representing franchisee interests, QZFA will also share best practices and support franchisees by using collective buying power for vendors or services not offered by the franchisor, such as health insurance brokers or energy-saving efforts, Tackett said.