Quiznos Loans Franchisees Capital For Reimage Program

To revitalize its brand, Quiznos is rolling out a new decor package and upgraded training. To get franchisees to buy in, the restaurant chain is loaning them the money.

(Tuesday, October 20, 2009) - Quiznos recently announced a loan program that offers franchisees an interest rate below conventional lenders. Company officials say they are making loans of about $3,750 to franchisees for the purchase of a new upgrade package and charging a fixed interest rate of 5.25 percent.

That works out to an interest cost of roughly $197, or about $100 less than a conventional commercial loan at 8 percent. A third party is underwriting and servicing the loans, Quiznos says. The restaurant chain operates and franchises more than 4,000 units.

"We want to see that money work in the marketplace," Quiznos CEO Rick Schaden said in a prepared statement.

The company says it is also is funding a "working capital loan" of up to $14,000 at the same rate to shore up the cash flow of struggling franchisees.

What the Money Buys

The smaller loan is to be used to purchase wallpaper and installation, a graphics package, menu boards, professional cleaning services, uniforms, the resurfacing of customer areas, and a DVD for training purposes.

Quiznos Senior Vice President of Corporate Communications Ellen Kramer says a new "customer focused" training program is being rolled out along with the reimage program, though she won't share details.

The upgraded decor and training are expected to be completed throughout the system in early 2010.

Franchisee Support

Earlier this year the Denver-based chain made news by providing franchisees access to third-party lease negotiators to help trim rents. Schaden said the effort was prompted by the down economy, in which landlords were likely to negotiate lower rents to help tenants remain in business.

James Walker, chief development officer of fast-casual restaurant chain Baja Fresh, isn't surprised by Quiznos programs given the economy. "Even those franchisees that would qualify for loans are finding the time it takes to get a loan is four times longer today [than it was 18 months ago]," he says. Baja Fresh has no such program because franchisees tend to be well-funded, he claims.

Fuddruckers' Senior Vice President of Franchise Development P.J. Evans believes it's Quiznos' duty to help franchisees at a time like this. "As a 100 percent franchised system, Quiznos has an obligation to build the brand because franchisees are bearing the risk," he says. "It is in the franchisor's best interest to help spur growth."

Quiznos arch-rival Subway, which does not have a loan program for franchisees, is wrapping up a reimage program begun a year-and-a-half ago, says Jeff Moody, CEO of Subway's Franchisee Advertising Fund Trust. Nearly all franchisees have updated their stores. "We are not asking franchisees to spend more money in this environment," he adds.

Difficult Environment

Neither Quiznos nor Subway, each privately held, will divulge comparable sales figures, but executives at both restaurant chains acknowledge the competitive environment is extremely difficult. Although quick-service restaurants have fared better than full-service eateries, revenues are down overall. Chicago-based research firm Technomic Inc. reported at a presentation in September that total foodservice sales would fall an inflation-adjusted 3.8 percent in 2009 and 1.0 percent in 2010.

Competition aside, Quiznos' new loan program fails to impress veteran franchisee Kenny Faraj, who operates five units in Northeast Ohio. He complains the reimage program is not needed, particularly in newer stores, several of which he operates. "There's nothing wrong with the way the stores look," he says.

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