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Quiznos: From Successful to Toasted

Katarina Floridia Professor Conrad Issues in Hospitality Management 06 April 2014

Floridia 1 Introduction: Quiznos was founded in the year 1981 in Denver, Colorado. The founders of Quiznos were Jimmy Lambatos and his partner Todd Disner. Lambatos and Disner eventually sold the company to Richard and Fredrick Schaden in 1991. When the Schadens purchased the company they took ownership of the 18 restaurants, which both Lambatos and Disner owned. Quiznos went public in 1994 through stocks and then went back to being privately owned in 2001. The company began to expand by opening up more franchises across the country. In 1995, Quiznos opened their 100th store. As the company began to grow, so did their reputation. In 1997, Quiznos was ranked third for the largest sandwich shop in the world. Two years later Quiznos began an international expansion and by 2003 became the second largest sub franchise in the world, behind Subway. Background Information: Global Expansion: Quiznos began to expand the amount of restaurants across the United States and worldwide. They had nearly 300 stores in the United States before beginning a global expansion in 1999 in Japan. The following year, Quiznos opened a restaurant in Costa Rica; in 2001 Quiznos took a big leap by expanding their business into the United Kingdom, Panama, and Iceland, giving them a presence in Europe, Central American, North America, and Asia. In the year 2002, they opened restaurants in South Korea. In addition, Quiznos also opened restaurants in one of the most popular tourist countries, the Bahamas in 2003. The year 2004 was another big year for Quiznos expansion in the global market. Quiznos opened restaurants in The Cayman Islands, El Salvador, Guatemala, Honduras, and Ireland.

Floridia 2 From the years 2005-2010, Quiznos slowed down their global development. In 2005, they opened restaurants in Saudi Arabia. Then finally in 2006, they took a year off for developing and used the time to research new potential areas. Therefore, when 2007 approached they were able to continue to expand their markets to Aruba and Nicaragua. Nevertheless, Quiznos in their prime years focused solely on building restaurants and creating a contagious brand awareness. From 1999-2011, Quiznos expanded their global market to 28 different countries and are located in 5 continents. In 2011, Quiznos made a bold move that caught consumers attention. Though Quiznos usually expands into one or two countries in a given year, they nearly doubled the amount of countries by expanding into nine countries including Curacao, Brazil, Guyana, St. Maarten, Philippines, Kuwait, Jamaica, India, and Ecuador, none of which had a Quiznos franchise. This is a high level of expansion and growth for any company in a one year period.

Advertising: Quiznos came into existence in the early 1980s, but did not start having advertising success until the early 1990s. In the year 1992, Quiznos released their first commercial to the public. The name of the commercial was Auto Parts, it was aired in Denver and was mentioned in AdWeek Magazine as one of the Best Spots of 1992 (Quiznos). With their success continuing to grow, they decided to make a change to their logo. In 1998, Quiznos changed its logo to focus on their famous Oven Baked Classic (Quiznos). Additionally in 1998, Quiznos launched their website called Quiznos.com. This is when the internet started to become more popular and Quiznos wanted to keep up with the trends.

Floridia 3 Quiznos decided that it needed to keep up with their competition (Subway) and continue to become one step ahead of them. In 2002, Quiznos released another new logo and this time they wanted to use their tagline, MMMM Toasty! in the logo (Quiznos). While adding the tagline, the logo also changed by having a big Q spilt with red and green sides.

In 2002, Quiznos released their first Super Bowl commercial. However, the timing of the commercial was not the best, due the fact of how long it was since 9/11 occurred. Quiznos commercial consisted of using the people from the most-watched television show for that year being funny by using cartoon violence (McCarthy). Consumers seemed to like the commercial from using data research from USA TODAYs, Ad Track. Of those familiar with the ads, 23% like them "a lot" compared with the Ad Track survey average of 22%. Men like them more than women do: 25% vs. 20%. However, the commercials polarized age groups in Ad Track. While 45% of consumers ages 18-24 like them "a lot," that numbers is only 4% for consumers age 50 and older (McCarthy).

Then in 2006, it was back to the drawing board in regard to changing their logo for a fourth time. This time they added their new tagline, EAT UP. While using their EAT UP tagline they started a campaign that went after their competitor Subway. They did the Prime Rib Cheesesteak Challenge which was comparing Quiznos Prime Rib Cheesesteak sub to Subways Cheesesteak sandwich. Quiznos believed that they had more meat in their sandwich than Subways sandwich. Since they were already going after Subway, they decided to make an agreement with PepsiCo for their drink and snack provider. The terms of the agreement were not released, but it came after Coca-Cola and Subway made an agreement for the drink and snack provider.

Floridia 4 From 2007-2010, Quiznos changed their logo again each year. In 2007, they went back to their MMMM TOASTY! tagline. In 2008 and 2009, they were minor changes to the logo in regards to the tagline. This led to a complete change in their 2010 logo from previous years. They had the big Q spilt in red and green, Quiznos written in green, and had Subs-SoupsSalads in white underneath Quiznos. It seems that their primarily focused their efforts on creating a premier logo, instead of focusing on what their business was known for, sub sandwiches.

Analysis of Dilemma: Lawsuits and Controversies: Quiznos had to deal with lawsuits and controversies through their existence. A majority of the lawsuits and controversies began in the early 2000s. Some of the lawsuits or controversy dealt with taking peoples money and not doing anything with it. There were two major lawsuits and controversies that needed more attention. The first controversy to be discussed was an owner of couple of Quiznos restaurants decided to commit suicide. On November 26, 2006, Bhupinder Baber walked into a Quiznos bathroom and took his life. Mr. Baber owned two Quiznos restaurants and was going through legal problems with Quiznos. Also a series of lawsuits were filed by attacking Quiznos, in regards to money being received with no action being taken. The lawsuit were about people who paid Quiznos $25,000 for the franchisee licensing fee, but did not find them a location and did not return their licensing fee. Recession: The recession was a big factor for slowing down the growth and success of Quiznos. The recession took place in the United States between the years 2007-2009. When the economy is not

Floridia 5 doing well, individuals and companies have to start cutting back on things. Quiznos is one of the companies that struggled through the recession and had to cut back on things. One way of cutting back was to start closing some of their stores. Quiznos closed around 1,000 stores between the years 2007-2009. The 1,000 stores that were closed were from all parts of the United States. After the recession, another 1,000 stores closed by Quiznos to make it 2,000 stores closed from the beginning of the recession to the end. Explanation of Dilemma: Quiznos was dealing with lawsuits, controversies, and the recession, while trying to continue their growth nationwide and internationally. The lawsuits and controversies had taken a toll on the company. The controversy with Mr. Baber was unfortunate and Quiznos was the center of the blame. He was dealing with the lawsuit that he brought forth to the company and it was taking years to get resolved. He was struggling to make a profit with the two Quiznos restaurants that he owned. Before Mr. Baber died, he wrote a note and stated that Quiznos was to be blamed for his death. Someone must do something about what Quiznos is doing to the trapped franchisees, he wrote. I deeply regret getting into Quiznos. I wish I had never heard of them (Creswell). His story was not only a portrayed a negative image for the company, but other people who sued Quiznos mentioned his story in their argument. There were a few major lawsuits against Quiznos. The lawsuits dealt with accepting peoples licensing fee of $25,000, but not finding them a location within a year and held on to the fee for themselves. The New York Times reported a story in regards to these allegations, In 2003 and 2004, Quiznos said it sold 234 trade areas in the state of New Jersey to franchisees, collecting the $25,000 franchisee fee, but none of these locations ever opened, according to the

Floridia 6 lawsuit. Three years after handing over her check for the licensing fee, Elisa Whitehall said she had yet to open a Quiznos in the location she bought and Quiznos refuses to return her $25,000 licensing fee (Creswell). One of their companys spokesmen worked hard to find a location for each individual who purchased a franchise licensing fee. This lawsuit was close to another lawsuit with Quiznos licensing agreement. The licensing agreement forced store owners to purchase their products through American Food Distributors, which is the partnership for Quiznos for supplies. The store owners had to purchase all their products through American Food Distributors, which even included toilet paper. The store owners would not be able to purchase their supplies from other distributors for a cheaper price. Therefore, this caused a controversy because store owners struggled to make a profit, which made them angry at Quiznos. The lawsuits dealt with antitrust and racketeering violations. A Quiznos spokesman said that American Food Distributors did not break even in 2006 and that the company was committed to lowering costs to franchisees and is making progress in that direction (Creswell). Eventually, Quiznos had to pay $200 million to settle the lawsuits. The settlement payment went towards, price-gouging members on supplies they must buy from the franchisor to fatten their own profits, and making hundreds of franchisees who paid their signup fee but couldn't find an approved store location forfeit their up-front money (Tice).

Conclusion: Quiznos was a successful company from the 1980s to the early 2000s. They moved up the ladder to become the second largest sandwich franchise in the world. They had Quiznos restaurants in 5 continents and over 40 countries. Quiznos had successful advertisements,

Floridia 7 television commercials and had a lot of national recognition for the companys work; however, Quiznos struggled with find a concrete loge to maintain for their business. In addition, the lawsuits, controversies and the recession slowed down their nationwide growth. At the beginning of the 2014 year, Quiznos had to file for bankruptcy because their organization hit rock bottom. Discussion Questions: 1.) If you had the opportunity to become a Quiznos franchisee would you? Why or why not? 2.) If you were the CEO of Quiznos, would you approach their growth strategy differently? 3.) What are the core problems associated with the marketing efforts of Quiznos? 4.) In your opinion, what led to the down fall of Quiznos? 5.) Was Quiznos trying too hard to catch up to their competitor Subway? References: Associated Press. (2004, August 29). Quiznos makes switch from Coca-Cola to Pepsi. Retrieved March 28, 2014 from http://www.deseretnews.com/article/595087240/Quiznos-makesswitch-from-Coca-Cola-to-Pepsi.html Bloomberg Business Week. (2014). QCE Finance LLC. [Company Overview]. Retrieved March 27, 2014 from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapid=33545 Creswell, J. (2007, February 24). When Disillusion Sets In. Retrieved March 28, 2014 from http://www.nytimes.com/2007/02/24/business/24quiznos.html?_r=0

Floridia 8 Entrepreneur. (2014). Quiznos Sub. [Company Profile]. Retrieved April 01, 2014 from http://www.entrepreneur.com/franchises/quiznossub/282737-0.html# Jenkins, K. (2002, September 12). Quiznos fills niche between fast, fine dining. Retrieved March 27, 2014 from http://www.semissourian.com/story/87927.html McCarthy, M. (2002, April 30). Quiznos doesnt hold back ads. Retrieved March 27, 2014 from http://usatoday30.usatoday.com/money/index/2002-04-29-quiznos.htm Quiznos. (2013). History. Retrieved March 27, 2014 from http://www.quiznos.com/About/History-Timeline.aspx Sealover, E. (2012, May 18). Quiznos strives to be Better Than Ever. Retrieved April 01, 2014 from http://www.bizjournals.com/denver/print-edition/2012/05/18/quiznos-strives-to-bebetter-than-ever.html?page=all Sweeney, P. (2003, February 16). Briefs spot puts Quiznos founder in the public eye. Retrieved March 27, 2014 from http://www.bizjournals.com/denver/stories/2003/02/17/story5.html?page=all Tice, C. (2010, July, 02). As Lawsuit Settlement Nears, Quiznos and Franchise Owners Need to Hug it Out. Retrieved April 01, 2014 from http://www.cbsnews.com/news/as-lawsuitsettlement-nears-quiznos-and-franchise-owners-need-to-hug-it-out/ Trowbridge, D. (2010, July 13). Quiznos activates strategy to bounce back. Retrieved March 28, 2014 from http://www.dispatch.com/content/stories/business/2010/07/13/quiznosactivates-strategy-to-bounce-back.html

Floridia 9 Teaching Notes: A.) Abstract: The case is about the rapid growth and the associated struggles of the sub franchise Quiznos. These struggles include international expansion, advertising, a recession, and the resultant lawsuits and controversies that they faced. The international expansion talks about adding Quiznos in countries, which never had a Quiznos restaurant before. The advertising is about how the company changed their logo and tagline, successful commercials, and competing against their competitor Subway. It mentions about how the company was affected by the recession. It also talks about how the company had to deal with the lawsuits and controversies. B.) Teaching Objectives and Strategy of the Case: This case study can be used in a capstone hospitality course, franchising course, and management course. 1) Franchisor-Franchisee relationship, business practices, and lawsuits. C.) Target Audience: undergraduate students in a Hospitality Management program D.) Recommended Teaching Approach: 1) This case study may be assigned as class assignment or on an exam. 2) The case study may be used a group assignment. 3) The case study may be used for a class discussion. 4) The case study may be used a presentation. E.) Suggested Answers to Discussion Questions: 1.) Students will likely state they do not want to become a franchisee of Quiznos due to

their recent bankruptcy filing, etc. Other students may contend that they would want to be a franchise owner due to the strong brand recognition, etc. Quiznos have recently filed for bankruptcy. It is hard for the owner of the franchisee to make a profit. Quiznos have a lot to deal

Floridia 10 with in regards to lawsuits and controversies. They have closed around 2,000 restaurants since the start of the recession. They are focusing too much on international expansion and the logo. 2.) Students may come to a conclusion that they would not have expanded internationally

that quickly. Students may also think that they should have focused on geographical location and building up a certain region. I would not go more than two new countries in a given. There is a lot of research and work that needs to be done before expanding so quickly to new countries. I would have stopped global expansion right after dealing with the lawsuits or at the beginning of the recession. 3.) Students may not consider changing the logo so many times. They may argue that

waiting a certain amount of years to modernize it would be the best move to keep up with society. Also, that the constant change in the logo may mean that they do not have a clear message to who they are. In addition to the fact, that there were no major changes to the logo to justify the changes. This also shows they were not sure whether or not they were going into the right direction. Additionally, they were trying too hard to compete with Subway, who never changed their logo. Quiznos should have gone to build brand familiarity; constant changes only distracted the consumers from how they were identifying themselves. 4.) The down fall of Quiznos was caused by the recession and taking more on then they

could handle. Even though the lawsuits and controversies were very significant, it still did not push it over the edge. The recession was hard to deal with for any company not just Quiznos. During the recession people cut down their spending. With people not spending their money, means businesses are going to suffer.

Floridia 11 Quiznos had around 2,000 stores closed from the start of the recession. Therefore, the global expansion made it difficult to keep stores operating in the United States and internationally. The products cost a lot of money and the owners could not go somewhere else to get it cheaper. This caused the owners of the restaurants to no make as profit as they would like or closed down the restaurant. 5.) Quiznos was trying too hard to compete with their competitor Subway, instead of

focusing on who they are. They wanted to expand as much as possible to overtake Subway. This means expanding in the United States and worldwide. Quiznos made the deal with PepsiCo right after Subway made the deal with Coca Cola. This showed that Quiznos wants to different and better than Subway. Quiznos made the advertisement campaign about how they put more meat in their sandwich than Subway. Thus, to prove to the world that Quiznos gives more value for what the customers pay. Quiznos came up with popular commercials and advertisements to get the consumers attention. They did this by coming up with unique and never seen ideas to get their brand recognized by consumers.