What Happened to Quiznos? (A Franchisee Hellscape)

Through a unique combination of higher level ingredients, overall quality, toasting (a novelty at the time) and effective marketing, the fast-food submarine sandwich chain Quiznos started to take off in the late 90s.

Its franchise offering and IPO in 1994 would lead to the chains’ eventual expansion to over 5,000 locations worldwide at its peak.

But as of 2024, there are less than 400 locations opened globally and less than 200 locations in the United States.

So, what happened to Quiznos?

Ultimately, extractive franchisee systems and policies including price gouging and store cannibalization, put in place by then Quiznos owner and CEO Rick Schaden, led to unprofitable operators. Eventually, leveraged buyouts and class-action court settlements saddled the business with more debt than it could service, resulting in a chapter 11 bankruptcy filing in 2014.

Many consider Quiznos to be one of the worst collapses of a restaurant chain of all time…

Quiznos Company Timeline

What Happened To Quiznos?

As any franchise business will tell you, the long term economic success of the franchisor is dependent upon the success of its franchisees.

But it would appear previous Quiznos owner and CEO Rick Schaden never received that message.

After reading hundreds of pages of lawsuits and chapter 11 filings, it is my opinion that Quiznos failed due to the extractive franchisee systems and policies that Schaden helped put in place – systems and policies that persisted long after he stepped away from the day-to-day operations of the company in 2007.

The result was corporate rapidly expanding the company’s footprint in the late 1990s and early 2000s, enriching leadership primarily off the fees from franchisees along the way.

All the while, franchisees were handed the keys to businesses that were built on shaky financial foundations.

There were a handful of leading factors though, that when combined, left many franchisees in truly desperate situations…

Inflated Food and Supply Prices

One of Schaden’s more troublesome policies mandated that all franchisees purchase food and supplies directly from Quiznos Corporate.

Normally this would be no big deal right? In fact, streamlined supply chains are fairly commonplace in the franchise world.

There was just one problem – Quiznos was aggressively inflating their prices.

So while franchisees could have purchased these same goods for far cheaper from other suppliers, they were contractually forced to buy goods at above-market rates.

Historically, fast-food restaurants have extremely thin profit margins to begin with.

So when you artificially increase the cost of goods like this, it’s exceedingly difficult to run a successful operation.

Store Location Cannibalization

While they were being actively squeezed on their costs of goods, owners started also complaining about new store location decisions by corporate.

Specifically, they felt that Quiznos was opening store fronts far too close together.

In doing so, they were cannibalizing sales at existing locations and driving their profits down even further.

In 2005 for example, Bhupineer “Bob” Baber filed a lawsuit against Quiznos alleging that the company’s new stores were siphoning customers from his two Long Beach, California locations. 

And he had strong evidence that this was exactly what was happening.

Within just a few months of two new locations being opened less than two miles from Baber’s storefronts, revenue fell over 30%!

During this same time, Baber founded a not-for-profit to help organize other Quiznos franchisees across the country with similar complaints.

It didn’t take long for corporate to take notice.

A month later, they revoked his franchise on the grounds of health code violations. This revocation occurred despite the fact that the City of Long Beach indicated the chain had passed all health code inspections.

What happened next is nothing short of a tragedy.

On November 27th, 2006, Bob Baber fatally shot himself three times in the chest in a Quiznos bathroom.

A group of franchisee owners would later post his suicide note on their website. It reads in part:

“I have struggled hard and did the best I could to create a voice for the franchisees in the system and to create a ‘support system’ for the franchisees, which does not exist, and to fight the injustices of this franchise system. Not to bring the system down, but only to make it fair…”

– Lawrence, Benjamin, and Patrick J. Kaufmann. “Franchisee Associations: Strategic Focus or Response to Franchisor Opportunism.” Journal of Marketing Channels, vol. 17, no. 2, 9 Apr. 2010, pp. 137–155, https://doi.org/10.1080/10466691003635119. Accessed 31 Mar. 2021.

And oh yeah, the 8 operators who made Baber’s suicide note public? Quiznos would go on to terminate all of their contracts.

Promotions and Discounts

So, to recap…

We have Quiznos taking thin franchisee profit margins and making them razor thin by inflating the costs of good.

Simultaneously, they’re also negatively impacting net sales for some of their franchisees due to new stores being approved in very close proximity to existing stores.

Two highly restrictive, internal forces that store owners had to face from day 1.

Externally, competing sub shops were on the rise and one chain in particular, was about to make things a whole lot worse.

On March 2008, about a year and a half after the Quiznos class-action lawsuits started piling up, Subway’s $5 footlong made its national debut.

The promotion was immediately a smash hit and by the end of the year, Subway had surpassed a whopping 30,000 locations. The franchise was one a rocket ship and foot traffic was booming.

Meanwhile, Quiznos who had just surpassed 5,000 locations, attempted to fight back with discounts and promotions of their own.

One such promotion, launched in February 2009, was a coupon offering one free, small sub per customer. The giveaway resulted in over a million coupons being printed within the first three days alone.

But because corporate had initially refused to reimburse Quiznos store owners for the promotion, many locations simply refused to honor it.

Quiznos would quickly pledge to reimburse franchisees for 400 coupons, then 700 coupons and then eventually 100% of redeemed coupons.

But the damage had already been done. Customer trust was lost and the Quiznos brand took a major hit.

A month later in March 2009, corporate also launched their $4 Torpedo, a dollar cheaper and a foot longer than Subway.

If franchisees were treading water before, these forced corporate promos and discounts right in the middle of the U.S. recession, now had many operators drowning.

Leveraged Buyouts

In 2006, just as franchisees were piling in to sue them, Quiznos made one more fatal mistake.

They decided to sell a 49% share of the company to a private investment firm controlled by JP Morgan.

As is the case in nearly all leveraged buyouts, the deal left Quiznos drowning in debt – in this case, hundreds of millions in debt.

Later in 2009 and 2010, that debt pile would continue to grow as the company was forced to pay a total of over $300 million in lawsuit settlements to franchisees.

As a last ditch effort to stave off bankruptcy, in 2012 after nearly 40% of locations had already closed their doors, Quiznos sold majority control to Avenue Capital.

But it was too little, too late.

The business was unable to service its mounting debt and eventually in March of 2014, they were forced to file for chapter 11 bankruptcy protection.

Life Beyond Bankruptcy?

From the very beginning, Rick Schaden and Quiznos stacked the deck against their operators.

Plain and simple.

The fast-food restaurant business is hard enough without your own company strangling the economic life out of you.

Sprinkle in some fierce external competition and they never stood a chance.

The business has been in a death spiral ever since.

I’ll wrap up with this…

I’m a firm believer that where there’s smoke, there’s fire.

Between the court’s 2004 acknowledgment that the Schaden’s acted in “bad faith” when they low balled their shareholders during the 2001 privatization dealings and the 2009 and 2010 settlements for price gouging, there’s a hell of a lot of smoke.

I’ve never met the Schaden’s, but I can confidently say that I’d never enter into business with them.

Despite yet another takeover by High Bluff Capital (REGO Restaurant Group) in 2018, multiple re-brand initiatives and numerous partnership announcements, Quiznos now has less than 200 US locations left in 2024.