DENVER - Long before dawn breaks, Greg Brenneman is on the run, a habit that can be a bit disconcerting for his temporary houseguest. Quiznos’ new chief executive officer invited Steve Provost to stay with him during his move to Denver, an invite that extended to 8-mile runs.
“He runs on a treadmill and I try desperately to keep up next to him,” joked Provost, the new chief marketing officer.
Brenneman, who relishes a challenge as much as he does a good run, is applying his turnaround expertise — first with Continental Airlines and then Burger King — to the troubled sandwich chain, whose dissatisfied franchise owners have complained about low profits, company operating requirements and the franchisee recruiting process.
Since jumping into the fray in January, Brenneman has worked to reduce food costs by as much as 4 percent, open communication channels with franchisees and test new products, like a Quiznos taco, to boost profits.
“In these situations, the biggest challenge is always identifying what the few things you can do to really improve profitability for the franchise owners are and then doing them quickly,” said Brenneman.
Some owners are pleased with the changes, especially the lower food costs. Others remain skeptical.
Ron DiSaverio, who owns three Denver-area Quiznos, said the company is moving in the right direction. “It just takes awhile so I’m always a little bit wait-and-see attitude only because that’s the nature of this business,” he said.
Founded in 1981 in Denver’s Capitol Hill neighborhood, Quiznos sought from the beginning to set itself apart with made-to-order toasted subs. The company and its 18 restaurants were purchased 10 years later by franchise owner Rick Schaden and his father, Dick Schaden, who set it on a fastgrowth track.
The Schadens took the company public in 1994, only to convert it to a private operation in a $6.5 million transaction in 2001 after deciding the stock sale wasn’t an effective source of financing.
Last year, private equity firm J.P. Morgan Partners LLC became an ownership partner, and Brenneman later became a partner through his company, TurnWorks.
Through the roller-coaster ownership ride, the chain expanded quickly, to at least 5,000 stores. Today it’s ranked third behind Subway and Arby’s by Technomic, an industry analyst firm. Although Quiznos does not release much information, Technomic restaurant industry analyst Darren Tristano said Quiznos has average sales of about $425,000 a year per store while Subway has average sales of about $375,000.
Quiznos’ success has come with growing pains.
Lawsuits filed by attorney Justin M. Klein, representing franchise owners in Illinois, Michigan and Wisconsin, allege the company draws in prospective owners, who pay $25,000 for a franchise, but doesn’t give them complete facts about restaurant locations and business operations.
Klein contends many franchisees sign contracts, only to wait a year or more for the company to build a restaurant. The suits also accuse the company of requiring franchise owners to buy all supplies from Quiznos at higher prices than if they bought locally.
“It’s common in the industry to have restrictions on certain suppliers, mandated suppliers, but it has to relate to quality standards,” said Klein, of Red Bank, N.J. “When it doesn’t relate to quality standards it’s merely an abuse.”
The company denies the allegations and filed motions to dismiss the suits.
Brenneman, meanwhile, has reached out to franchisees and targeted their food and other costs. If he can cut food costs by 3 percent and coupon discount offers by 4 percent, Brenneman believes he can add $25,000 to $30,000 in profits for franchisees.
Quiznos has hired a new advertising agency, Cliff Freeman and Partners, to produce edgier ads that showcase upscale food at a lower cost. Its marketing budget is about $80 million a year, Provost said, targeting adults looking for a step up from traditional fast food and young adults who have “gotten bored with chicken strips.” Brenneman and his team also are testing new products, such as flatbread and cold sandwiches.
He has met with franchise owners, delivers a weekly voice mail call to discuss operating developments, and spends latenight hours answering franchisee e-mails. He also created a Web site to assist franchisees and plans to give each a free computer to help them with a new online ordering program.
“There’s unbelievable enthusiasm coming back into the system,” Brenneman said.
Several franchise owners said they were pleased that food and paper costs — a large part of their overall costs — have dropped and that discount coupons have been reduced.
Tristano believes it will take time to show results but that Brenneman seems wellsuited for the job. “As a chain they seem to be doing very well overall,” he said.
What is Quiznos?
FOUNDED: Quiznos was founded in 1981 in Denver’s Capitol Hill neighborhood. Its mission was to set itself apart from other sub shops with a made-to-order, warm sandwich.
OWNERSHIP: In 1991, franchise owner Rick Schaden and his father, Dick Schaden, purchased the company and its 18 restaurants. They took it public but converted it to a private operation in a $6.5 million transaction in 2001. Last year, private equity firm J.P. Morgan Partners LLC became an ownership partner and Greg Brenneman later became a partner through his company, TurnWorks.
SALES: Technomic, an industry consulting firm, ranks Quiznos third behind Subway and Arby’s. Quiznos has average sales of about $425,000 a year per store where Subway has average sales of about $375,000 per store.