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Quiznos

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QIP Holder LLC
Company typePrivate
IndustryFast food restaurants
Founded1981; 43 years ago (1981)
FounderJimmy Lambatos
Headquarters
Denver, Colorado
,
U.S.
Key people
Doug Pendergast (CEO),[1] Susan Lintonsmith (CMO), Kenneth Cutshaw (President of International)[2]
ProductsSubmarine sandwiches, Salads, other food products
RevenueIncrease US$400 million (2014)
Websitewww.quiznos.com

QIP Holder LLC (d/b/a Quiznos) is a franchised fast-food restaurant brand based in Denver, Colorado, which specializes in offering toasted submarine sandwiches. The restaurant chain was founded in 1981 by Jimmy Lambatos and sold to Rick and Richard Schaden in 1991, and grew to nearly 5,000 restaurants. As of the end of 2013, the chain had about 1,500 domestic locations and about 600 international locations. Quiznos is the second-largest submarine sandwich shop chain in North America, after Subway.[3]

History

Early history

The first Quiznos Subs restaurant

The first Quiznos restaurant was opened in Denver, Colorado, by founder Jimmy Lambatos. At the time, Lambatos was an experienced chef, having previously worked as an executive chef for the Colorado Mine Co. Steakhouse, and having founded the Italian restaurant Footers in 1978. He founded Quiznos with partner Todd Disner in the spring of 1981. The first location was at the corner of 13th and Grant Streets in the Capitol Hill neighborhood of the city. According to Kevin Jenkins, "It was there that recipes for Quiznos special baguette-style bread, special dressings and unique recipes were created."[4]

According to Patrick Sweeney, "The sandwich shop earned a following for its toasted subs that Lambatos said were inspired by the oven-baked sandwiches he enjoyed while growing up in New York." Lambatos said of his decision to toast the submarine sandwiches at the first Quiznos that, "it's a signature type of thing. Heating anything brings out the flavors in food products."[5][6] The restaurant menu featured toasted submarine sandwiches, as well as salads, soups, and desserts.[7][8]

Expansion

■ Countries with current Quiznos operations

After two years, the restaurant started offering franchises to facilitate expansion[9] offering its first franchises in 1983.[10] The franchises were offered under the name Quiznos American, Inc. By 1987, 12 Quiznos restaurant locations were operating in the United States. That year, Rick Schaden, at the age of 23, and his father, aviation attorney Richard Schaden, opened their first Quiznos franchise in a Boulder, Colorado, shopping center. They opened three additional restaurants before purchasing the 18-restaurant chain from the founders in January 1991 and renamed it the Quiznos Franchise Corp. Rick Schaden became the president, and then CEO, of Quiznos after the purchase. Jenkins wrote that Schaden, "began building a professional infrastructure to support franchise owners that included volume purchasing, standardized training, and operations procedures, as well as marketing support." Quiznos was taken public in February 1994, with an IPO of one million shares of stock at $5 per share, resulting in a $4.4 million yield. By the end of 1995, Quiznos had 103 different locations.[4][11][12][13][14]

In 1997, Quiznos became the number-three submarine sandwich franchise in the world, with 278 locations in the U.S. and Puerto Rico. The following year, Quiznos Canada acquired the master franchise rights to Quiznos restaurants in Canada, as well as the master rights in the United Kingdom in 1999. Glenvista Enterprises then acquired the rights for several states in Australia. KMN USA LLC acquired the franchise rights for Japan, opening its first location in early 1999. The company again went private in June 2001.[14] In 2002, Wendy's acquired the rights to the brand for franchises in Australia, and later, New Zealand, but was unsuccessful in launching the chain in either country.[15] The first location in Mexico opened in Monterrey in 2002.[16] In 2005, the company partnered with Ray Wilson to open a new chain of fitness clubs called 123 Fit.[13] At its peak in 2007, there were more than 5,000 Quiznos franchise locations.[17][18]

The first location in Canada (and outside of the United States) opened in Vancouver in 1996.[19] The first European location opened in 2001 in Peterborough in the United Kingdom.[20] The first location in India opened in Hyderabad in 2011,[21] followed by the first location in the Philippines opened in 2012.[22] In 2013, Quiznos opened its first two locations in Russia during the same weekend in St. Petersburg.[23] Quiznos opened its first Taiwan location in Taipei[24][25][26] and also its first United Arab Emirates location in Abu Dhabi[27][28] in September 2014.

Recession and restructuring

Between 2007 and 2009, 1,000 Quiznos stores closed.[29] After the closure of around 2,000 restaurants during the Great Recession, a majority stake in the company was purchased by Avenue Capital Group of New York in January 2012. According to Ed Sealover, the purchase was done in "a deal that eliminated about one-third of the company’s $900 million debt and infused about $150 million cash into the company."[18][30] Avenue Capital Group brought on turnaround specialist Harsha V. Agadi as Quiznos executive chairman.[31] They also brought on Stuart Mathis as CEO; the former president of The UPS Store stated that the company would try to counteract shrinking sales by promoting "the quality of its food."[32]

Bankruptcy

On March 14, 2014, Quiznos filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the District of Colorado. Quiznos said it would continue operating while it restructured its debt and made operational improvements.[33][34] Quiznos emerged from bankruptcy about four months later on June 30, 2014, and reduced its debt by about $400 million.[35]

Locations

As of 2015 there are now fewer than 1,000 Quiznos restaurants in the United States. [36] The chain also said it planned to expand to locations in over 40 countries and territories, including Europe, the Middle East, Southeast Asia and Central and South America, by 2012.[37] In July 2013, the company stated it planned to expand into Russia, where it is looking to open about 500 stores.[38] QSR wrote in November 2013 that, "Following its most recent international successes in Mexico, Russia, and the United Arab Emirates, Quiznos will bring toasted sandwiches to Indonesia with the signature of PT Quiznosindo as the brand’s newest franchisor. The group, led by Tan Po Lian, plans to open 100 units in Indonesia over the next 10 years ... Quiznos South Korea has seen a system wide 12 percent sales lift, largely due to a country-wide marketing campaign, featuring actor Lee Sang Yoon, launched in March 2013. ... Expansion into Pakistan, Singapore, South Korea, the Philippines, and Indonesia is part of Quiznos’ continued international development plan to open more than 1,000 international stores in more than 40 countries by 2020."[39]

Advertising

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The company's first major advertising push was a successful advertising campaign during the 2002 Super Bowl. Early TV spots advertised the innovation of toasting sandwiches, as compared to the inventor of pants (humorously contrasted with men wearing bushes).[40] One commercial in 2003 depicted a man (a then-unknown Jim Parsons) who had been "raised by wolves" by suckling at a mother wolf's teat.[41] Other promotions include an early 2004 campaign featuring bizarre, rodent-like, singing creatures called Spongmonkeys,[42] as well as a series of Quiznos commercials in Canada featuring hockey commentator Don Cherry.[43] In 2005, Quiznos launched a campaign featuring Baby Bob.[44]

In June 2006, Quiznos revealed its new slogan: "Eat Up."[45] Ads nationwide feature a Quiznos sub with steam emanating from it with the tagline, "Mmmm... toasty." Actor Michael Clarke Duncan formerly provided the voiceover for all Quiznos commercials.[46][47] On September 18, 2006, Quiznos launched the most aggressive advertising campaign aimed at Subway. Dubbed the "Prime Rib Cheesesteak Challenge," customers were asked to compare the brand new Prime Rib Cheesesteak against Subway's Cheesesteak sandwich. The claim is that the Prime Rib Cheesesteak has twice the meat of Subway's Cheesesteak. If the customers are not satisfied, then they can fill out a form, mail the form along with their receipt, and they will receive a coupon for a free sandwich.[48][49] In subsequent advertisements, Quiznos was shown competing with the fictional "Wrong Way" restaurant based on competing restaurants.[50]

The Coca-Cola Company was originally the primary soft drink supplier for the franchise, until 2005. At that time, Coca-Cola signed an exclusive agreement to provide soft drinks to the competing Subway franchise. As a result, Quiznos signed an exclusive deal with PepsiCo (except in Canada and on college campuses that have exclusive deals with Coca-Cola) and Dr Pepper Snapple Group (to serve Dr Pepper).[51]

Lawsuits and controversies

One lawsuit cited a memorandum drafted by a Quiznos lawyer in 2003 that stated, “40 percent of Quiznos units are not breaking even,” a fact that prospective franchisees say they were never told.[52] The Small Business Administration said 23.4 percent of Quiznos franchises with SBA loans failed. In contrast, Subway had a 4.8 percent failure rate.[29][53]

As a single example of an unprofitable franchise, Fredrick N. Westerfield was running three Quiznos in Wisconsin. After spending $14,000 in personal savings to keep the stores running, he realized he had a debt of $750,000. He closed all his stores in 2005. "Customers used to come into the store and say to me, 'You must be rolling in the money,'" recalled Mr. Westerfield. "If they only knew."[52]

In 2002, the Seattle Times reported that the company initially ignored the plight of a Quiznos employee who took over operations of one Quiznos store after the true owner abandoned it.[54] Months later, the store was closed.[55] In June 2004, the Quiznos at Downtown Crossing, Boston, was at the center of a hepatitis scare.[56] Quiznos has been the target of several lawsuits related to its treatment of franchisees, including lawsuits in New Jersey and Wisconsin.[52] It has faced more lawsuits from franchisees than bigger chains, such as McDonald’s, Burger King, Wendy’s, and even its sandwich competitors Subway and Blimpie, according to an analysis by the legal research firm Thomson West. In February 2007, Quiznos franchisees filed a lawsuit seeking class-action status in Michigan.[52]

One lawsuit filed in New Jersey that sought class-action status, said that the astounding growth record of Quiznos is merely a façade. 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 lawsuit.[52] Three years after handing over her check for the fee, Elisa Whitehall said that she had yet to open a Quiznos in the location she bought and that Quiznos refused to return the fee.[52]

In 2006, Quiznos sent letters to 300 franchises saying mystery shoppers would be coming to test their services. The company sued franchise owners Richard Piotrowski and Ellen Blickman for not putting enough meat in a prime rib sandwich. Piotrowski and Blickman countersued and won the lawsuit in 2009. Judge Morris Hoffman called the meat-weighing exercise and subsequent termination letters a “charade” aimed at bolstering a national ad campaign against rival Subway.[57][58]

As of July 1, 2010, Quiznos was close to reaching a settlement over the multiyear class-action lawsuit that covers nearly 10,000 of its current and former franchisees. The case comprises four separate class-action lawsuits dating back to 2006 which consolidated in 2009 — involved allegations by attorneys for franchisees that Quiznos Franchise Co. LLC and other entities with ownership or control of the Quiznos chain had violated U.S. racketeering and corruption statutes. Also at issue was the chain’s supply chain and food costs, marketing and advertising funds, and disputes among franchisees that agreed to, but did not open, locations and whether royalties are owed. Quiznos has denied all claims made in the lawsuits and the settlement agreement involves no finding or admission of liability. The cost to Quiznos has been estimated from $100 to $200 million. [59][60]

On November 27, 2006, Bhupinder Baber, franchise owner of two Long Beach, California, Quiznos locations, committed suicide after a legal battle with the company.[61] In his suicide note, Baber attributed mistreatment by Quiznos to driving him to suicide.[62] The Toasted Subs Franchisee Association (TSFA), a group of franchisees, posted Baber's suicide note on its website, and intended to raise money for Baber's family. Quiznos attempted to terminate the TSFA's franchises.[63] The TSFA in turn filed an injunction on December 15, 2006, in the District Court of Colorado.[64] A 2014 article in the Long Beach Post suggested that the factors that contributed to Baber's suicide also led to the parent company's bankruptcy in 2014.[65]

On December 1, 2015, Quiznos opened a concept restaurant called Quiznos Grill [66] hoping to re-brand its products and increase menu offerings. Initial reviews of this restaurant highlighted the high price (~$20 USD) once items were added to the sandwich (vegetables, cheese, etc.) or meal (chips, drinks, etc.).

Mascots

In 2004, Quiznos started using the bizarre, fuzzy looking creatures called the Spongmonkeys in their advertising commercials. One of them plays a guitar, and the other sings a song called "We Love the Subs", in an apparent and shorter spoof of their original song, "We Like the Moon". Several commercials with the Spongmonkeys were released, including ones about rejoice and coupons. However, after a few months, Quiznos discontinued airing these commercials.

An inflatable character costume that is in the style of a plastic Quiznos cup and is used in and around the store.

See also

References

  1. ^ Jennings, Lisa (January 12, 2015). "Quiznos names Doug Pendergast president, CEO: Former Krystal CEO to replace Stuart Mathis, who has resigned". Nation's Restaurant News. {{cite news}}: Unknown parameter |subscription= ignored (|url-access= suggested) (help)
  2. ^ Jennings, Lisa (October 3, 2012). "Quiznos names Kenneth Cutshaw president of international". Nation's Restaurant News. Retrieved December 2, 2013.
  3. ^ Jargon, Julie (December 6, 2013). "Crisis Quickens at Quiznos". Wall Street Journal. Retrieved April 21, 2015.
  4. ^ a b Jenkins, Kevin (September 12, 2002). "Quizno's fills niche between fast, fine dining". Southeast Missourian. Retrieved October 31, 2013.
  5. ^ Sweeney, Patrick (February 16, 2003). "Briefs spot puts Quiznos founder in the public eye". Denver Business Journal. Retrieved October 31, 2013.
  6. ^ Smith, Andrew F. (2011). Fast Food and Junk Food: An Encyclopedia of What We Love to Eat, Volume 1. ABC-CLIO. p. 586. ISBN 9780313393938. Retrieved November 6, 2013.
  7. ^ Smith, Andrew F. (2006). Encyclopedia of Junk Food and Fast Food. Greenwood Publishing Group. p. 225. ISBN 9780313335273. Retrieved November 6, 2013.
  8. ^ Wagner, Kyle (February 20, 2004). "System not a go at all Quiznos". Denver Post. pp. FF-09. {{cite news}}: Unknown parameter |subscription= ignored (|url-access= suggested) (help) Alternate Link via ProQuest.
  9. ^ Gartner, William B.; Bellamy, Marlene G. (2008). Creating the Enterprise. Cengage Learning. p. 354. ISBN 9780324353631. Retrieved November 4, 2013. {{cite book}}: Unknown parameter |last-author-amp= ignored (|name-list-style= suggested) (help)
  10. ^ The Philip Lief Group; Arden, Lynie (2010). 220 Best Franchises to Buy: The Essential Sourcebook for Evaluating the Best Franchise Opportunities. Random House. ISBN 9780307432117. Retrieved October 28, 2013. {{cite book}}: Unknown parameter |last-author-amp= ignored (|name-list-style= suggested) (help)
  11. ^ Christman, Bob (December 18, 1995). "Young sub mogul dives into Tucson waters: Quiznos CEO, 31, is captain of 103-deli chain". Arizona Daily Star. p. 7D. Retrieved October 31, 2013. {{cite news}}: Unknown parameter |subscription= ignored (|url-access= suggested) (help)
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  13. ^ a b "Quiznos launches health club chain". Denver Business Journal. February 10, 2005. Retrieved October 31, 2013. {{cite web}}: Italic or bold markup not allowed in: |work= (help)
  14. ^ a b "The Quizno's Corporation: Company Profile, Information, Business Description, History, Background Information on The Quizno's Corporation". Reference for Business. Retrieved October 31, 2013. {{cite web}}: Italic or bold markup not allowed in: |publisher= (help)
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  66. ^ http://nrn.com/fast-casual/new-quiznos-grill-concept-debuts-part-turnaround-plan
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