If you didn’t take your lunch to work in the late 1990’s and early 2000’s, you have probably eaten your fair share of sandwiches from Quiznos.
Subs from Quiznos are rolled through a convection oven and lightly toasted, making them one of the most unique sub sandwiches on the market. Nevertheless, Quiznos has experienced a swift fall from glory. Today, the company has 2,100 franchises worldwide, down from 5,000 in 2008. 1,500 of the stores are located in the U.S.
WHAT WENT WRONG?
Unlike restaurants that supply franchises with supplies that are purchased wholesale, and thus cost franchisees less than they would pay for the goods if they purchased them independently, Quiznos instituted the opposite practice: franchisees have to purchase supplies from a Quiznos subsidiary for higher prices than they would pay if they purchased them independently.
Quiznos has made moves to help lower the cost of supplies, but they come too late for many franchises.
High priced supplies ate into franchises’ profit margins, causing many to close. The more franchises closed, the less stores contributed to the corporate advertising fund, which meant less money for promoting new products. The dip in advertising hurt sales, which caused more stores to close. The price of supplies created a vicious cycle of store closures that continues today, making the average Quiznos franchise a risky investment real estate purchase.
THE FUTURE OF QUIZNOS
Quiznos recently entered a concessionary agreement with its creditors that are owed a total of $600 million. The agreement will allow the chain to retain liquidity while it continues to negotiate a debt restructuring agreement with creditors. However, even with the recent replacement of top executives, Quiznos continues to miss key performance targets, and it recently missed a loan payment – two signs that Quiznos franchises are questionable real estate for investors.
While the Quiznos company (QIP Holder LLC) doesn’t seem to be in danger of suddenly closing its doors, the average Quiznos franchise is in a financially tenuous state that makes it a risky triple net property investment, to say the least. If you are considering purchasing a Quiznos franchise location as a triple net property investment, be sure to have Westwood Net Lease Advisors examine the franchise’s financial situation before you move forward with a purchase.
