I’ve had the discussion before with someone thinking about opening a restaurant of their own and then they will at some point say something along the lines of “maybe I’ll just open a franchise instead that way I don’t have to worry about failing.”
If it were that easy no one would bother open their own place. The fact is franchises are businesses too and they can and do run into problems. Apparently Quiznos is in that boat. It’s not hard to see why some of these things are problems. If your main point of differentiation is having a toaster you can’t expect that advantage to last forever.
A much bigger problem in my opinion is when I heard, long before this article, that Quiznos franchisees are forced to buy things, including food and accounting services, from corporate mandated suppliers at higher than market prices. If you do that you can’t expect your franchisees to be as competitive or loyal to your brand.
Before you start a restaurant you need to do your research and make sure it is a viable business. No one gets a pass on this just because they are part of a franchise system. And even if the system works other places it may not work where you want to put it. Not checking in with other owners is a huge oversight and that is one of the main reasons you get the UFOC documents from the franchise in the first place- so you can investigate what you are investing in and not just blindly trust the system will work.
For my money, if I was going into the sandwich shop business, I would definitely skip the chains- not just Quiznos but Subway and all the rest. While some of the brands are strong the operations of a sandwich shop are so simple and the margins already low enough that dding the burden of paying a royalty out the gross just doesn’t seem justified to me. Plus, as an independent you can make sure your restaurant stands out and remain flexible in a way that is simply impossible as a franchise owner. You can also do all kinds of restaurant marketing that wouldn’t fly with a national brand.
Be smart, make a plan and watch your numbers and you will succeed. If you assume you success is guaranteed by a franchise you are in for a rude surprise.
Quiznos restaurants are having hard times. The news highlights and hypes up the stress and potential disaster on a daily basis. Here is a sort list of what the articles talk about:
- 2005 Quiznos was no longer the exclusive toasted sub.
- In 2008 the $5 footlong became a standard and the $4 torpedo from Quiznos did
not compete.- Lost 600 locations in 2010. (estimated)
- Sales are down.
- Can’t pay it’s debt.
- Downturn in the number of stores- Estimate 5,000 in 2006 to less than 3,000 this year.
- Less revenue per store.- Sales dropped 14% in 2010. (estimated)
- Privately held Quiznos had highly leveraged investment in 2006.
- Franchisees buy food at allegedly above-market prices from a Quiznos-mandated supplier
network which squeezes profit margins.- Franchisees filed lawsuit against Quiznos- 2009 Quiznos settled a franchisee class-action lawsuit by agreeing to pay up to $95 million.
“Just three years ago, it topped $2 billion in sales. Now, industry observers say the
Quiznos sandwich chain led by Denver investors Rick, below, and Richard Schaden — is
$875 million in debt, with sales down 14 percent and 600 stores closed last year. “It’s one
of the biggest restaurant collapses in American history,” says restaurant analyst – John
Gordon.The fact that restaurants are closing their doors will make the competitors across the street
smile. The restaurant business is tough enough and those who avoid a similar fate will have an
influx of new applications and new guests.There are four things Quiznos needs to do:
1. Fix the franchisee problem
2. Find a new (or renewed) focus
3. Invest in the franchise.
4. Stick to your plan.
Quoted Article Source Link: Inside Hospitality
As a rule, a franchise business offers investors greater assurance of their profitability, as opposed to other start-up businesses, and many of those that involve selling goods and services come with instant name recognition. In addition, their risk is reduced because they are automatically associated with an established company and profits are usually generated more quickly than in other situations.
The common misconception, as I pointed out in the article, is that being part of a franchise offers a sure path to profits. While it is true that there are advantages to being part of an established system, there is no guarantee and each individual needs to weigh their own skills, ability and local market carefully before deciding which route to take. Although franchises are marketed as a safe bet, the reality is, like everything else, there is no one-size-fits-all solution.