The popular sandwich franchise, Quiznos, was in the hot seat this week as reports of a possible bankruptcy loomed in the news. The Denver-based company has struggled for quite some time now as the economy and poor management have battered the business. After the closing of 40 percent of stores nationwide, company officials began looking at their options.
Safe, For Now
Quiznos owns the supply chain for its franchise restaurants, which are sold to private investors and owners. Each store is individually owned and operated by a franchise owner, who then pays Quiznos parent company for the rights to operate using their intellectual property. The problem here is that if a franchise owner wants to purchase anything for the store, from straws to meat, they have to buy them from the parent company. This limits the franchise owners flexibility and, in the end, puts a strain on profit margins. Another issue arises when the parent company offers coupons and discounts, which a local franchise owner simply cannot honor if they are to maintain any level of profitability.
The inability to work together and leaving the bulk of the financial burden on franchise owners has driven many out of business over the last few years. Between store closings and mounting debt burdens, even Quiznos parent company hasn’t been able to dodge the economic bullet. With nearly $870 million in debt hanging over their heads, Quiznos sold ownership to a private equity firm in hopes of avoiding the impending bankruptcy. The new transaction eliminated close to $300 million of the debt through new funding, which should be enough to stave off further threats for a while.