Sandwich chain Quiznos made its name selling hot subs at premium prices, but a leveraged buyout at the top of the market and the recession helped turn that strategy to toast.
Now the company finds itself
on the brink of default, also
thanks to sour relations with
franchise owners, costly rents
and stepped-up competition
from rivals like Subway. The
chain now has about 3,500
stores, down from nearly
5,000 before the recession.
With sales sliding, Denverbased
Quiznos told lenders
July 8 that it would soon
violate loan terms, which
would put the chain in
default and could trigger
demands for immediate
repayment of its debt.
The chain has hired Wall Street restructuring advisers to negotiate with its lenders, and said it has taken steps, such as cutting food costs, which it hopes will improve cash flow. But it continues to face business setbacks. "Having a great deal of debt hampers your ability to grow because you're paying back interest, rather than investing in the brand," said Darren Tristano, executive vice president at restaurant consulting
"Before the recession, most of us believed the restaurant industry could continue to grow by leaps and bounds, so when you combine the recession with having a lot of debt, it creates two enormous barriers to success," he said. Quiznos, formally QIP Holder LLC, was on a growth tear for much of the past decade, rapidly attracting franchisees as its hot sandwiches carved out a niche in the fast-food market.
Franchisees have complained for years about Quiznosʼs
prices for ingredients. Above, employees at a Seattle
Quiznos in 2005.
The company required franchise owners, who paid it royalties on their sales, to buy their supplies from a Quiznos subsidiary, which became a sore point early on. Franchisees have complained for years that the Quiznos unit charges substantially more than independent distributors for ingredients and other supplies.
Those claims were the basis for five class-action lawsuits they...
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