QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

Discount promotions are one of the most contentious areas of the franchisor / franchisee relationship.  (Especially when it comes to Quiznos)

The reason is simple:  Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability.  Some franchisors make additional money marking up ingredients and food products to their franchisees.  Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.

SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The Smart Money article points out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.

One of the most contentious examples was the Quiznos Million Sub Giveaway.  Here’s the Smart Money finding for Quiznos, which report a $2.25 loss per sandwich:

Quiznos

Promotion: Million Sub Giveaway – The first million people to register for Quiznos’s Q Club received a coupon good for any sandwich. (Certificates for this promotion expired by March 15, 2009.)

What some stores normally charge: $5.29 (one six-inch chicken sandwich)

Promotion Price: Free

Bottom line for restaurant: Loss of roughly $2.25 a sandwich

"The response to Quiznos’s Million Sub Giveaway was tremendous — with all one million free sub certificates requested within three days of the launch," says a Quiznos spokesperson. While Quiznos claims to have reimbursed franchise owners for food and paper costs, which amount to roughly $2.25 for, say, a chicken sandwich, other costs including rent, utilities and labor fell to individual franchisees — leaving some franchisees with an average loss of roughly $2.25 per sandwich, according to a franchisee in Maryland.

RELATED POSTS:

SUBWAY: What Do Franchisees Make on $5 Footlongs?

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF QUIZNOS PROMOTIONS?  SHARE A COMMENT BELOW.

PAT O’BRIEN’S: Year-old Destin Franchise Closes

Just after celebrating its one-year anniversary, the Pat O’Brien’s franchise in Destin, Fla., has closed for good.

According to a story in New Orleans City Business, the Pat O’Brien’s franchise in Memphis closed just a year earlier. 

Shelly Waguespack, vice president of the New Orleans-based bar and restaurant concept, was quoted as saying that Pat O’Brien’s three other franchises in San Antonio; Cancun, Mexico; and Orlando, Fla., “all remain stable.”

According to the NOCB:  “The Destin franchise opened in October 2008, Waguespack said, just as the national recession began to escalate. Additionally, the franchise owner had difficulty securing a permanent partner, which contributed to its opening being delayed by several months, Waguespack said.

“In Memphis, the principal franchise owner died, and there were problems with the estate.

“The Destin franchise was part of a new development overlooking the Destin harbor that Waguespack said is an ideal location, with other New Orleans-themed concepts such as Commander’s Palace nearby.

“But there are no plans to reopen in Destin, chiefly because Pat O’Brien’s does not aggressively pursue new openings. “

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FRESH CITY: North Andover Franchise Closes

The North Andover, MA Fresh City franchise location has closed after four years.

Fresh City co-owner Larry Reinstein blamed the difficult economy on the closure, but said the rest of the area Fresh City locations were doing fine.

Comments left on the local news story indicated that a reputation for health code violations and lack of cleanliness my have been a factor in the restaurant’s demise. 

According to the story in the Eagle Tribune:

 

         The Fresh City chain closed its Turnpike Street restaurant yesterday after four years of serving burritos, stir frys, salads and sandwiches.

Fresh City co-owner Larry Reinstein said the North Andover franchise, located in the Eaglewood Shops mall, was a casualty of the difficult economy. He would not say when the decision was made to close the restaurant.

"We thank our many guests for their patronage," Reinstein said yesterday. "We appreciate it, but it became an unprofitable location."

* * * * *

Fresh City opened in the Eaglewood Shops in November 2005.

It was business as usual there on Thursday. But by yesterday afternoon, workers were removing tables, chairs and counters and the sign on the building had been taken down.

Reinstein, the president of Needham-based Fresh Concepts LLC, said there are 17 other Fresh City restaurants in Massachusetts, New Hampshire, Connecticut and Virginia.

"All other locations are doing just fine," he said.

Reinstein said he did not know how many Fresh City employees worked out of North Andover or when they were told about the plan to close the location.

"We’re trying to take care of as many employees as we can at other locations," said Reinstein. "Within reason, we’re going to try to transfer as many as we can."

Reader comments posted on the article were critical of the cleanliness of the North Andover Fresh City franchise:

It wasn’t the food; it was the way they disinfected the trays…still pretty gross.

this just in fresh city not very fresh. Ecoli salds and salmanila burrittos were the down fall of this joint

They were shut down multiple times by the board of health why exactly were they allowed to reopen at all?

I think the reason Fresh City failed is because, a couple of years ago the board of health closed them down for a few days because the restaurant was not clean – I know that’s why I never went back. I am usually a 3 strikes kinda gal…but not when it comes to cleanliness and where I eat.

ARE YOU FAMILIAR WITH FRESH CITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

RICKY’S CANDY, CONES & CHAOS FRANCHISE

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RICKY’S CANDY: Why’d the Princeton Store Close?

Thanks to Krystal Knapp, writer for the Times of Trenton, for citing UnhappyFranchisee.com as a source for her recent article on the closing of the corporate-owned flagship Ricky’s Candy, Cones & Chaos store in Princeton, NJ (Princeton Borough sweetshop closes on a sour economic note).

Knapp’s article quotes comments left here and on the retired Franchise Pick  website in which Ricky’s new president Donald Cheng blamed the economy for the struggles of the Princeton store and the chain as a whole.  “The current economy has impacted the retail sector much more heavily than others. The Ricky’s model was heavily dependent on a robust economy where parents splurge on their children and friends,” wrote Cheng.  “However, as the economy worsened, more people became budget conscious and retailers have to react by providing better value and Ricky’s did not adjust fast enough."

Cheng had promised a repositioning of the Ricky’s concept to adapt to current economic climate, starting with the Princeton store.  After his short burst of comments here were questioned by current and former franchisees, Cheng was never seen nor heard here again.

The Times article includes some telling details of the financial woes of the failing chain, and its unsuccessful attempt at gaining bankruptcy protection:

In December 2008, the company filed for Chapter 11 bankruptcy. Among other creditors, court records show Ricky’s owed thousands of dollars in back rent to Nassau Tower Realty and $100,000 to the state in sales tax.

Ricky’s struggled to pay rent of $14,590 a month that increased to $15,673 a month in April, court records show. Ricky’s made a partial payment of $2,000 for September 2008, and the realtor tapped into a $75,000 deposit to pay for rent in the coming months. That money was exhausted and Ricky’s owed Nassau Tower $42,301 for March, April and most of February.

The bankruptcy was rejected by a judge and dismissed in May.

According to Knapp, “The Willy Wonka-esque franchise that sold candy, ice cream and other sweets went sour along with the economy, records show.”

Ricky’s demise may have occured “along with” the decline of the economy, but some argue not because of the tough economic times.  According to Guest, commenting on a related Ricky’s Candy post:

…The one flaw of the article is the idea that the economic conditions were a factor in the fall of Ricky’s. NO, IT WAS NOT…… Court documents from the Ch 11 attempt clearly showed that even when the economy was roaring and Toll Brothers couldn’t build a McMansion fast enough Ricky’s was not making any money and the only income supporting the shell was the franchise fees and royalties paid by people who thought they were buying into a successful business model. The house of cards began to crumble once the store owners began to communicate directly and the fact checking began.

Was the Princeton store simply a franchise sales tool from the start?

Ricky’s Candy, Cones & Chaos franchisees have alleged that the Ricky’s concept was not viable from the start and the company’s – and founder’s – main goal was to sell franchises.  Nearly all franchise stores have failed and closed, and angry franchisees are suing. 

The shockingly high rent of the Princeton store suggests that it perhaps was designed to be a brand showcase and franchise sales vehicle rather than a profitable candy store.  Could a candy store in Princeton, NJ, even in good economic times, realistically sell enough candy and cones to justify rent of more than $175,000 per year? 

Or did Ricky’s corporate assume the high rent and high overhead would be recouped not by selling candy, but by selling the dream of owning a successful Ricky’s franchise?

Related Posts on Ricky’s Candy, Cones, & Chaos:

RICKY’S CANDY: Message from Donald William Cheng

RICKY’S CANDY, CONES & CHAOS: Summit, NJ Store to Close

RICKY’S: Princeton, NJ Store Eviction Notice

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

SPORTS CLIPS: A Great Franchise? Read Recent Comments.

In April, 2009, franchise writer and consultant Sean Kelly asked readers “Is Sports Clips a Great Franchise?”  The question was prompted by the incongruity between published reports of success and anonymous rumors of widespread franchise failures.

According to the company, in January, 2009 Sports Clips opened their 600th salon and are reportedly up to 630.  According to Sports Clips founder and CEO Gordon Logan, “Sport Clips opened almost half of all hair care concept franchises in the U.S. last year.”

The comments that we’ve received so far in November have been overwhelmingly negative.  In fact, the single Sports Clips defender’s comment warranted its own post (read SPORTS CLIPS Franchisee: Failed Owners Have Themselves to Blame)  Here are the November, 2009 comments on the original post:

Mon 11/2/2009 10:22 AM  sportsclips is a joke wrote:

Is there anything else we can do as Franchise owners if we band together? Our entire state has suffered from a blatant lack of support and virtually everyone is losing money. Is it true that even if you want to sell Gordon will try to take any money above and beyond your buildout cost, because he claims it was his system that made your business worth more than just the cost of the build out? If so, you will be attached at the hip with this devil for a lifetime. Better to take your loss now and just close up shop 

Could all of the disgruntled owners file a lawsuit against Gordon Logans unethical practices? I can tell you from personal experience that Gordan lied to my face at one of his famous "huddles" and to make matters worse he had one of his henchmen lie our entire state in the form of an email. I would like to go into more detail but do not need additional screw–tany from Gordan and his kind…

Wed 11/4/2009 11:52 AM  Been There Done That wrote:

Attempts have been made to organize an Independent Organization of Franchisees, but there was never any interest.  In fact, the franchisees who tried to get something going were lambasted by others.

Logan doesn’t just try to cap sales at buildoutamount, he has been known to assert that the store is worth no more than asset value in order to block sales and make life difficult for owners trying to get out.

I walked away a pauper, but at least I no longer have to listen to the lies from Logan and Clete Brewer.

Those still in the system should band together. 

Wed 11/4/2009 11:58 AM  Been There Done That wrote:

I attmepted to get a group together to sue, but I was unsuccesful.  Ultimately I shut the store, made a settlement payment to the landlord, and defaulted on my loan.  My financial situation is a disaster, but I stopped the bleeding and got out of this awful system.

Regarding Logan’s lies, the list just keeps growing.  At the last "huddle" that I attended he said from the podium that they don’t make anything on what owners are required to buy.  The required disclosure in the UFOC says otherwise.  Additionally, the costs that they dislose to offset the revenues are obviously inflated.  Logan makes 100′s of thousands every year off what owners have to buy, yet lies about it.

He has no scruples.  "heart of a champion"???  Spare me. 

class action ? wrote:

I have heard through the growing and now very large network of devastated owners that there is a law firm somewhere in Texas that is building a case against these demons.  if that is true then all owners must stand up and be counted and join in.  you have already lost your shirt. at least we must protect the future owners that will loose their retirement / college money for their kids / and their sanity and relationships.  these people know what they are doing and it is wrong 

Wed 11/4/2009 9:04 PM lawsuits wrote:

I have heard a group has banded together.  there is a big named lawfirm involved. apparently….one of the big daddy lawyers from chicago ….his son and daughter in law have lost their ass with sportclips and the lawyer dad is pissed and is going to go full speed at logan and put his sorry bullshit ass out of business. 

Wed 11/4/2009 11:49 PM  me wrote:

I have noticed the other site disappeared, whats with that.Some pressure must have been applied from somewhere, I think wwe all know from where. Whats with legal action. Any one have some info? I would like to join!!

Wed 11/4/2009 10:12 AM do your homework wrote:

for any prospective owners out there. do not do this. you will loose everything. it is a scam and you will loose everything you put in / your sanity / and probably your marriage or relationship. you will be nothing but a patsy helping these scums build a brand and make royalties while you continue to borrow money to hold on.  out of 650 stores i would wager that only 10% of them actually turn a profit and could prove it.  this is wrong …these people need to be stopped.  I am in my 3rd year of ownership and have lost everything. 

Sat 11/7/2009 10:00 AM  Been There Done That wrote:

This group needs to reach out.  There are LOTS of current and former franchisees in most parts of the country that would love the opportunity to watch Logan get that stupid hat handed to him as his only remaining possession.  If those pursuing legal action would reach out, they’d find others willing to join in.

If the oompany went bankrupt, it would be a godsend for those still operating.  Many stores would be at breakeven if they weren’t sending royalties to TX, along with pouring marketing and training dollars down the drain.  It is the rare sports clip franchisee who thinks they get value for any of those weekly debits.

Rumor has it that the latest UFOC even increases some of these fees and adds additonal weekly fees for the computer system.

Logan’s deceit and greed is gonna be his undoing.  Hopefully soon.

Sat 11/7/2009 9:36 PM  Updabutt wrote:

Only a real idiot would invest in this franchise now. In 2003-2005, they were not exposed for the crooks they really are. With all you can find on them now, be smart people, Bernie Madoff is a saint compared to Gordon Logan…

Lawyers and more lawyers. This goon, Gordon Logan is a crook and thief of the highest level. #2 Stooly, Clete is no better.
1. Great concept
2. No way will you make money unless you are already rich and can open 20-30 of them.
3. The fees per week and month make it impossible to make money.
4. Hair stylists that will work in these places are convicts, criminals and drug heads. Do you want your family near this type of people.
5.They do a great job of sucking in the highly successful business people as an investment, bilk them for $500K and then take their location, equipment and give it to one of the chosen ones. Kinda like the hair mafia.
6. Watch their IOC offering. They misspell and put in false names and addresses of those sued or being sued so you cannot speak to these people.
7. Have seen pictures of their new concept in FL where they hire strippers, hold "gentlemen’s parties and hair is becoming the second line of work.

Wed 11/11/2009 3:08 PM  Took It In the Shorts wrote:

It’s difficult to say who is more evil between Logan and Brewer.
1.  Don’t agree that the concept is great. After you dig in, you learn that the cost of entry is too high and limiting the market by eliminating people who pay the most for a haircut leaves lots of money on the table.
2. Success is driving almost entirely by having a great location.
3. Agree that fees were killers.
4. I had some stylists like you describe, but also had lots of good folks.  Finding the good ones was very difficult.  Finding the thieves and druggies was very easy.
5. Hair mafia is a good description for them. Fortunately, once you’re away from them you may be significantly poorer, but you can get away.
6. They also fail to disclose names of former owners in their UFOC.  Could be errors based on the quality of people they have at HQ, as they are mostly incompetent.  They also have most former owners sign gag orders so they can’t talk about what went on.
7. Haven’t seen any pictures, but from what I could tell most of the stores down in Fla were losing money hand over fist.  They need to do something to make money, so strippers makes sense.  Last time I was in Fla, it seems like there was a girlie bar on every corner.  Must keep the old codgers blood pumping.

Fri 11/13/2009 3:41 PM  Fonda Cox wrote:

I worked for Clete Brewer’s sorry ass at another company he ran in the ground.  Don’t believe a word he says.  He is a wolf in sheeps clothing.  He fed us a line of bullshit about how he was going to make us rich.  We worked our fingers to the bone and he is the only one that got rich.  He and his little wifey even had the nerve to have thier 13,000 Square Foot home featured in a magazine after they screwed everyone.  At meeting he would have us pull on a rope and say lets all pull on the rope to make us successful.  Little did we know we were pulling in one direction and he was pulling in another.

SPORT CLIPS Franchisee: Failed Owners Have Themselves to Blame

Not ALL the recent comments about the Sport Clips franchise have been negative.  One commenter, who claims to be an experienced franchise owner with three decades of experience, claims that Sport Clips is a great business model and that every one of the franchisee’s stores has been profitable.

According to the Worksforus, “operated PROPERLY, this concept is an easy winner.”  He/She states “Most people that fail need to look in the mirror and stop blaming others for their lack of business success.”

Thu 11/12/2009 11:17 AM  Worksforus wrote:

We are happy with our Sport Clips stores and wish we had gotten into the business sooner. We don’t agree with everything that happens at Corporate but it’s unrealistic to expect otherwise. No one gets along or agrees 100% of the time.

We’ve been involved with different franchises for nearly 30 years and find Sport Clips to be a great business model. We have yet to have a store not make money. Nothing is fool proof but operated PROPERLY, this concept is an easy winner.

Most people that fail need to look in the mirror and stop blaming others for their lack of business success. The tone of some of these commentors gives great insight into why they may have failed.

Of course, the lone positive comment of the month prompted a quick rebuttal.  Sat 11/14/2009 10:23 AM  Doesn’t Work for LOTS of people wrote:

You write: “We have yet to have a store not make money.”

What state are you in?

Have you talked to franchisees in Calif or any of the states in the south, whether it be Louisiana, Georgia, Florida?  The store average for the 140+ states in the southeast is barely $4,000 a week, for both service and retail.  These people are not making money.

You write: “Nothing is fool proof but operated PROPERLY, this concept is an easy winner.”

Are you aware of the corporate store in Jacksonville, Fla?  I have informatrion from a franchisee down there that this store has been opertaing as a corporate store for two years.  Surely SC is operating their own store properly?  After two years that store is averaging $3,300 and 230 customers?  Do you consider that a winner?

You write:  “The tone of some of these commentors gives great insight into why they may have failed.”

I followed the advice of some of these commentors and called lots and lots of former owners.  What I heard makes me think that you have it backwards.  The tone reflects not why they failed, but the fact that they were bullied by the franchisor, that they lost their life savings, and that the system fails many times in spite of how hard they worked.

ARE YOU FAMILIAR WITH THE SPORT CLIPS FRANCHISE?  SHARE A COMMENT OR INSIGHT BELOW.

BURGER KING Franchisees Sue Over $1 Cheeseburgers

Burger King’s National Franchisee Association filed a lawsuit this week against the franchisor over the $1 Double Cheeseburger promotion.

Last summer, Burger King franchisees twice voted against the $1 double cheeseburger promotion.  Despite clear objections, Burger King forced all franchisees to sell its double cheeseburger for $1, starting in October.

The suit was filed in U.S. District Court in Miami.  In it, the franchisees allege that the Burger King franchise agreement does not give BK the authority to “dictate maximum pricing.”

*  *  *  *  *

Burger King Franchisees Stand Up For Their Rights… & Profit Margins

Burger King’s National Franchisee Association represents more than 80 percent of U.S. Burger King franchisees.  They reportedly filed the lawsuit only after their attempts to negotiate with the franchisor were unsuccessful. They are asking the court to acknowledge that the right to set prices rests with BK franchisees, not Burger King corporate.

According to a story in the Miami Herald:

Franchisees argue that Burger King is using the promotion to boost sales to satisfy Wall Street investors at the expense of franchisees’ profits. The company’s most recent earnings report showed a 6 percent drop in profits, a 5 percent decline in revenue and a 4.6 percent fall in sales at stores open in North America more than a year.

Based on numbers Burger King provided to franchisees, the company projects that the double cheeseburger will lead to a 5 percent increase in restaurant sales. That will translate into an increased bottom line profit of $365 per restaurant based on $105,000 in sales, according to the analysis.

But financial models run by one Illinois franchisee… suggest that the bottom line impact for restaurants would be a loss of between $489 and $930 depending on the percentage of total sales generated by the value menu.

Stifel Nicolaus restaurant analyst Steve West agrees with franchisees that it is a dangerous move for Burger King.

“They’re going to pressure margins and lower their average check,” said West, who in September downgraded Burger King’s stock to a “hold” rating.  “If you don’t get enough sales, you’re shooting yourself in the foot. History has shown that this doesn’t work.”

Some argue that deep discounts like $1 Double Cheeseburgers are a necessary evil in the current economy.  However, McDonald’s stopped selling its double cheeseburger for $1 because of profit margin concerns at the end of last year.  And nothing irritates franchisees – who pay royalties on their gross sales, not their profit – than a franchisor who acts indifferently toward their bottom line.

RELATED POSTS:

SUBWAY: What Do Franchisees Make on $5 Footlongs?

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

UPS STORE, MAIL BOXES ETC. Franchisees File Class Action Suit

The UPS Store and Mail Boxes Etc. franchise owners have launched another legal attack over the alleged screwing-over they received by franchisor United Parcel Service (UPS).

According to the NOTICE OF PENDENCY OF CLASS ACTION Morgate LLC v. Mail Boxes Etc., Inc., United Parcel Service, Inc., et al.
Superior Court of California, County of Los Angeles, Case No. BC294647": 

“The Court has certified a national class (“the Class”) consisting of all franchisees in the U.S. who operated a Mail Boxes Etc. store and who converted their franchise to The UPS Store through the Gold Shield Amendment on or before March 21, 2003, regardless of whether such franchisee is still operating The UPS Store Center.

The Court has also certified a subclass (“the California Sub-class”) consisting of all franchisees who meet the above-described criteria and whose centers are or were located in California. Every franchisee who is a member of the California Sub-class is also a member of the Class.”

Janet Sparks summarized the class action allegations in her post on Blue Mau Mau:

The complaint alleges three claims against defendants: negligent misrepresentations; intentional misrepresentations; and misrepresentations based upon disclosures required by the California Franchise Investment Law (CFIL).  Plaintiff alleges that the members of the class were misled by false statements and concealment of material facts contained in five documents provided to franchisees during an organized presentation to franchisees by UPS and MBE, known as the “Gold Shield Program.”

…Plaintiffs are seeking the recovery of damages from the MBE defendants. In addition, for the alleged violations of the California Investment Law, they are seeking the option to rescind the Gold Shield amendment of their franchise agreements.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

RICKY’S: Princeton, NJ Store Eviction Notice

The sweet dream that was Ricky’s continues to sour.

Back in July of this year, Donald William Cheng expressed confidence that better times were to come for Ricky’s Candy, Cones & Chaos, commenting:

Rickys Candy Cones and Chaos is now run by Mr. Donald William Cheng as of May, 2009. The Princeton store is undergoing a restructuring and is out of bankruptcy. New changes are being effected to combat the changes in the business environment… New management and marketing have been brought in to ensure that future partners and franchisees will be able to sustain a dip in the economy by providing long term financing and stronger financial management and brand management

The same month, an article commemorated the 5th anniversary of the Princeton, NJ corporate store:

Opened by owner Rick Barber in 2004, Ricky’s has continued to grow and evolve, notes Mr. Cheng. “The original idea was to have ice cream and candy for a party. Then, plush toys were added. Now, we want to expand our focus and include more events and parties at the store. Not only birthday parties, but baby showers, graduation parties, bar/bat mitzvahs, even having favors and candies for wedding receptions. We really want to emphasize the service category….

“In addition,” he continues, “we are going forward with an international expansion of our candy line. We’ll have Godiva chocolate as well as candy from Japan and Korea. We will still have all our bulk candy, chocolate bars, and other candy, but we will become a specialty candy store. We plan to reconfigure the store and make it more international.

After his initial comments, Mr. Cheng ceased communicating.  This week, Former owner wrote that “Ricky’s Candy, Cones & Chaos Princeton Flagship Store (Corporate Office) has an eviction notice on their front door.” 

We received these photos from an anonymous Unhappy Franchisee reader.  This may be the end of the line for Ricky’s.

WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

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