Taco Bell Runs Naughty TV Ad For ‘Happier Hour’

March 27, 2014

taco-bell-campaign-188_2To drive awareness of its “Happier Hour,” which runs from 2 to 5 pm each day, Taco Bell is running new TV creative that’s slightly naughty, in a playful way.

The spot (in 30- and 15-second versions), from Deutsch LA, shows three different scenarios in which male/female pairs — office colleagues, college students and seniors — exchange suggestive looks and then appear to be heading out together for a tryst, as the song “Afternoon Delight” plays in the background.

But it turns out that they’re all actually headed to a Taco Bell, where they can get any “Loaded Griller” for $1, and any medium beverage for the same price, during those three afternoon hours.

The “Afternoon Delight” version is a Little Hurricane cover of the 1976 Starland Vocal Band song.

The keen-eyed viewer may notice a cameo by “America’s Next Top Model” winner Laura Ellen James, playing a college student who clearly makes the day of her much-shorter classmate when she lures him out of an in-progress lecture.

The spot started airing this week on networks and cable, and will continue running through the end of June, with additional media support through the end of August. Happier Hour is being promoted on Taco Bell’s social assets, including Facebook (10 million “likes”) and Twitter (1.1 million followers), as well as featured on YouTube.

Happier Hour is described in consumer promotions as a “limited time offer,” but it’s been running at participating locations since last year (an “always on” promotion), according to Deutsch. The current marketing push is the second campaign for Happier Hour; Taco Bell also ran a campaign last year.

The reasons behind a special afternoon event/offer aren’t hard to grasp. QSRs obviously benefit from driving more traffic during the quieter hours between and following regular meals. And offering snackable items at attractive prices has become a key strategy for driving such business.

According to a new “Snacking Occasion Consumer Trend Report” from foodservice research firm Technomic, 51% of Americans now report that they eat snacks at least twice a day — up from 48% two years ago. Nearly half (49%) report that they eat snacks between meals, and 45% replace one meal a day with a snack.

Among those who buy snacks at restaurants, 45% order from the value or dollar menu.

“There’s plenty of room for restaurants to expand their snack programs and grab share,” even as packaged food makers and retailers also push harder to grab those snacking dollars, noted Technomic EVP Darren Tristano.

And while candy is still the dominant snack (purchased at least occasionally by 71% of surveyed consumers), half of consumers say that “healthfulness” is very important to them when choosing a snack. As a result, many restaurants, like their CPG counterparts, are including healthier options within their snack offerings.


Burger King to Add Mobile-Phone Payment at U.S. Locations

March 26, 2014

AR-140329974.jpg&maxw=248&maxh=191&updated=Burger King Worldwide Inc. is introducing an application that will allow customers to pay for Whoppers with their smartphones as it races rivals to woo younger diners.

The program will be introduced next month and should be in all of Burger King’s more than 7,000 U.S. locations in “a few months,” Bryson Thornton, a spokesman for the company, said in an e-mailed statement. The option to order food and drinks ahead of time for later in-store pickup may be added, he said.

Fast-food chains including McDonald’s Corp. and Dunkin’ Brands Group Inc. are competing to quickly introduce the best loyalty programs and smartphone apps to try to attract millennials and teens. McDonald’s last year said it was testing coupon and mobile-payment apps at some of its U.S. locations. Dunkin’ Donuts rolled out a rewards programs to all of its domestic shops in January.

“I don’t think there is a clear leader,” Darren Tristano, executive vice president at Chicago-based Technomic Inc., said in a phone interview.

Burger King’s app, developed by Tillster Inc., will give customers coupons for deals, such as $1 any-size drinks and free fries, as well as nutrition facts. To pay with mobile phones, users can load value onto a virtual card within the app.

Mobile ordering and payment apps appeal to millennial diners — those 18 to 35 years old, Tristano said.

“What younger consumers are looking for is the ability to use their phones to do everything,” he said. “The cell phone has replaced the wallet.”

About 19 percent of American consumers had recently used a mobile device to make a restaurant pickup or delivery order, according to a 2012 study from Technomic. That will probably increase as younger generations age, the researcher said.

McDonald’s, the largest U.S. burger chain, said in December that it was testing a smartphone app, called McD, at 1,000 U.S. stores. The trial app, created by Palo Alto, California-based Mowingo Inc., sent customers deals and discounts to redeem with their phones at participating stores.


Making Sense of Value and Pricing Expectations

March 25, 2014

The prevalence of value-based promotions spiked in recent years as U.S. restaurant operators aimed to drive incremental traffic and sales among consumers affected by the recession. The use of these deals is becoming ingrained in consumer behaviour, even as the economy slowly improves. During the economic recession, consumers were more likely to cut back spending altogether, deals or no deals. Now that the economy is on the mend, consumers are accustomed to these deals being available and likely expect that they will be in the future.

While price continues to be a major component of the value proposition, it is by no means the only factor. Value is multidimensional, including the quality of food and beverage, and the quality of service and convenience. These different facets of value allow flexibility in formulating value propositions and pricing strategies.

This article explores U.S. consumers’ value equation; the appeal of restaurant deals and promotions; consumer price thresholds and how low prices drive traffic. U.K. operators will find many of these themes suitable for their own customers, whether they are deal-seekers or not.

The Value Equation

The restaurant value equation is comprised of a host of factors. It’s not straightforward—and it’s evolving. Primary drivers of value are price, quality, service and atmosphere. Secondary drivers vary but may include the meal or occasion as well as the diner’s mood and needstates. Consumers asked to describe what constitutes good value in a restaurant mention food quality, appropriate portion sizes, fair prices, service and cleanliness.

Food and beverage trump price in creating good value. Highlighting specific qualities of food and beverages—such as quality, convenience or healthfulness—can help marketers create a message of good value. Even at limited-service restaurants, the quality and taste of the food are most important: 86% of consumers say food and beverage are key to the LSR value equation, vs. 74% who name price. At full-service restaurants, of course, service and ambiance are also central: 87% name food and beverage as a component of value, 60% mention price, 28% ambiance, and 24% the service and amenities.

Customisation can enhance the value proposition. Half of diners—and a larger proportion of those under 35—say customisation is important in creating a good value proposition. They want to know that the meal will match their personal preferences and that they will get (and pay for) only the ingredients they like. Restaurants can incorporate customisation by offering menu items in multiple portion sizes (thus making them appropriate for both meals and snacks); allowing ingredient substitutions; and varying the heat level of foods from mild to super-spicy. Even a simple bottle of hot sauce left on the table allows patrons to customize their dish to their liking.

Deal-seeking in restaurants has become ingrained behaviour for consumers. Dealing was essential during the recession, but since then operators have been hoping to scale back on deals as the economy improves. However, consumers expect to continue employing deals; more than half say they’re using more deals now than two years ago. Interestingly, deal-seeking is not tied to income constraints; eight out of 10 diners at almost all income levels say they order from dollar menus at fast-food restaurants at least once a month, and among those with annual incomes over $150,000, seven out of 10 do the same. In addition, four out of 10 consumers use “daily deal” websites, and two out of 10 use them more than once a month. (These sites encourage restaurant patronage, but not loyalty; 55% of subscribers to daily-deal sites say they turn to these deals so they can try new restaurants more often.)

Traditional buy-one-get-one and half-off specials resonate strongly with consumers. More restaurant traffic is being driven by specials rather than the quality of the food, atmosphere or experience, with consumers asking: “What can I get for the price?” Deals that provide immediate half-off savings represent the most attractive value: eight out of 10 consumers say buy-one-get-one deals and half-off promotions add strong value, compared to seven out of 10 who name set-price specials, coupons or value menus. Buy-one-get-one specials, coupons and half-off deals are effective in driving traffic, with almost two-thirds of consumers saying they’d be likely or extremely likely to visit restaurants that offered these.

Base: Approximately 800 consumers aged 18+; base varies as promotions were randomly rotated Sum of percentages may not equal cumulative percentage due to rounding Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Base: Approximately 800 consumers aged 18+; base varies as promotions were randomly rotated
Sum of percentages may not equal cumulative percentage due to rounding
Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Pricing Expectations

Consumer price thresholds increase as the day progresses.Operators should make sure that their price thresholds are in line with what consumers are willing to pay (keeping in mind that consumers may report lower thresholds than they would actually accept). Research for Technomic’s Value and Pricing Consumer Trend Report found a “sweet spot” between what consumers consider optimal and what they’ll pay without complaint for each meal in each restaurant segment.

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Base: 1,800 consumers aged 18+ Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Snacks provide a unique pricing opportunity because women are willing to pay more for snacks than men are. For example, while the average consumer would pay $5 for a snack, women aged 25‒34 would pay $6.50. A number of chains, from coffee-café Starbucks to quick-service burger chain SONIC, have experimented with “happy hours,” during which they sell snacks at a special price. And while some fast-casual bakery cafés are seen by consumers as offering only unhealthy pastries for snack time, Au Bon Pain has built afternoon traffic with female-pleasing small plates like hummus with cucumber and Thai peanut chicken with snow peas.

“Fresh” and “premium” descriptors can increase consumer price thresholds.Nearly half of consumers say they would be likely to purchase—and to pay more for—food or beverage that is fresh; 37% say the same about premium options. Operators may be able to justify higher price points on food and beverage billed as fresh, homemade, premium, authentic, local, natural, organic, seasonal or sustainable. They should carefully consider both what such terms could mean when applied to their offerings and how to adjust their price threshold.

Value and Low Prices Help Justify Restaurant Visits

The good news for restaurant operators is that good value makes consumers feel better about eating out: 57% say they can eat out more often if meals are low in cost, and 52% say low prices help them justify the money they spend eating out.

Base: 1,500 consumers aged 18+ Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Base: 1,500 consumers aged 18+
Source: The 2013 Value and Pricing Consumer Trend Report, Technomic

Key Takeaways

The value equation involves multiple inputs, but price and quality both play strong roles in all segments. Deal-seeking in restaurants has become ingrained behaviour, and consumers don’t expect to change. Operators must find ways to adjust prices, deals and portions so they can still make money. Price and value promotions can effectively drive traffic. But be careful what you’re driving traffic to; you probably don’t need more business on Friday night. Freshness, quality and customisation can help justify higher prices.

There is pent-up demand for restaurant meals. Consumers who are looking for low prices are doing so to eat out more often. Older consumers seek value and “worth,” while younger diners have a more straightforward desire for deals; operators should consider strategies that don’t alienate any part of their customer base.

Darren Tristano is Senior Managing Director of Technomic Inc., a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit http://www.technomic.com.


Reaching the Socially Conscious Consumer

March 18, 2014

In the United States, as in the United Kingdom, more and more consumers—especially younger ones—are weighing a company’s efforts in social responsibility when they determine which businesses to patronize. During a presentation at our recent Consumer Trends & Directions conference, Technomic set out to define social responsibility when it comes to the restaurant industry; show how perceptions of social responsibility influence consumers; and look at the impact of social responsibility on business.

Social Responsibility in Restaurants

Social responsibility in restaurants is a complex idea, but has three key aspects:

The environment: This includes recycling programs; packaging (such as disposables made of recycled materials); energy-saving and water-saving practices; and waste disposal and composting. One company doing well in this area is Starbucks. In a growing number of units, the coffee-café chain gives customers the chance to toss paper hot cups into a separate receptacle for recycling or composting.

Community-building: Engagement with the community can involve fundraising; food donation; support of community groups, from providing free meeting space for groups of seniors to sponsoring sports teams; and, particularly in fast-food settings, emphasizing local hiring and offering wages, benefits and advancement opportunities that are better than the industry average. Darden Restaurants, a multiconcept operator whose stable includes The Olive Garden and Red Lobster, among others, brags that its high-profile nonprofit Darden Foundation has awarded more than $71 million in grants to charities since 1995.

Sourcing: Sourcing is simply where the ingredients come from; among other things, socially responsible efforts encompass organic, natural and local items as well as animal welfare (such as free-range poultry and grass-fed beef) and avoidance of hormones and steroids in meat and milk. One chain that has made sourcing key to its brand identity is fast-casual concept Chipotle Mexican Grill, whose “Food With Integrity” promise involves “finding the very best ingredients raised with respect for the animals, the environment and the farmers.” Both suppliers and restaurants must respond to increasing consumer preoccupations with sourcing.

How Social Responsibility Influences Attitudes and Purchases

According to Technomic research, nearly six out of 10 consumers say that when they’re weighing what restaurant to visit, it’s important to them that the establishment be socially responsible.

socialy_responsible_550

Source: Technomic Consumer Brand Metrics 2013

Technomic’s Consumer Brand Metrics program, which tracks how consumers rate 123 leading restaurant chains on a host of experience and reputation attributes, shows that some chains score much higher on social responsibility issues than others. It’s important to consumers that they perceive a restaurant’s values as aligning with their own, so not everyone rates the same chains highest. Nevertheless, there are clear leaders.

When asked to rate chains on the attribute “is socially responsible,” consumers gave ice cream chain Ben & Jerry’s, quick-service chicken concept Chick-fil-A, and coffee giant Starbucks the highest scores. For the attribute “has values that are similar to my own,” Darden’s polished-casual Seasons 52 concept, Ben & Jerry’s, and family-dining chain Cracker Barrel Old Country Stores came out on top. Consumers rated burger QSR McDonald’s, Chick-fil-A, and Ben & Jerry’s highly on the attribute “supports local community activities.” And for “has an excellent reputation,” consumers ranked fast-casual Panera Bread, high-end steakhouse The Capital Grille, and quick-service In-N-Out Burger as the leading chains.

Social responsibility is more important to certain consumers, including ethnic minorities; younger consumers, including Millennials and Generation Z; and, most importantly, heavy restaurant users, who are visiting restaurants more frequently and having a greater impact on total sales. Younger consumers, especially, perceive social responsibility as part of the value equation in a restaurant experience; they see it as worth something because it makes them feel they are spending their money in a way that lets them feel good about themselves.

Base: 1,500 consumers aged 18+ Consumers responded on a 1–6 scale where 1 = not important at all and 6 = extremely important  Source: 2013 Value and Pricing Consumer Trend Report, Technomic

Base: 1,500 consumers aged 18+
Consumers responded on a 1–6 scale where 1 = not important at all and 6 = extremely important
Source: 2013 Value and Pricing Consumer Trend Report, Technomic

Looking at specific efforts, around six out of 10 diners say they’re more likely to visit a restaurant that makes charitable donations of leftover food. Almost as many say they would also be willing to pay more for menu items at restaurants that make food donations. Consumers don’t mind the idea of restaurants promoting their food charity programs. In unaided recall, they were most likely to remember Panera Bread, McDonald’s, Applebee’s, Chili’s, Starbucks and local independent restaurants as donating food.

Waste disposal is another key issue. More than six out of 10 consumers believe that composting of organic waste is so important that it should be mandated by legislation. Recycling programs for non-food waste are also important to many and can be a strong traffic driver; 47% said they’d be more likely to visit a fast-casual restaurant if it offered recycling, and 43% said the same about fast-food restaurants and coffee cafés. Most of those consumers also said they’d be willing to pay more at restaurants that offered such programs, particularly coffee cafés.

Social responsibility initiatives can deepen a brand’s alignment with its customers and thus build sales, as leading restaurant marketers have attested. In a recent letter to shareholders, Panera Bread wrote “[The Live Consciously, Eat Deliciously initiative] is intended to drive a deeper affiliation between Panera and our customers, and we believe such an effort has the potential to deliver a greater, long-term return on investment from advertising than more promotional messaging.” And Starbucks CEO Howard Schultz said, “I think that the rules of engagement for a public company are changing…I believe strongly that there’s a new movement to recognize that we have to serve the communities, that’s about keeping the balance between profitability and social consciousness.”

Case Study: Roti Mediterranean Grill

As part of the Socially Conscious Consumer session at Technomic’s Consumer Trends & Directions conference, Peter Nolan, chief brand officer of Roti Mediterranean Grill, an emerging fast-casual chain based in Chicago, spoke about how Roti makes social responsibility part of its brand positioning.

In the old days, Nolan said, healthy eating and socially responsible practices “didn’t work,” but now consumers—particularly younger generations—want to live in sync with their values. He argued that “real” trumps “wow.” Authenticity, transparency and trust are important, Nolan said. Initiatives must be true to the brand’s identity and the values of its executives and employees; socially responsible practices based on marketing research will come off as false. Roti—whose motto is “Food that loves you back”—chooses initiatives that are relevant to its healthy menu, such as in-restaurant cooking classes for low-income kids. Burger restaurant Meatheads, in contrast, supports high school football.

Nolan suggested that packaging is a great way to start. Roti replaced its disposable plates with compostable plates made from sugarcane fiber. Roti composts food waste and lets customers know it donates food to a food bank.

Today’s consumers associate fresh, organic, local and sustainable foods with quality. Nolan noted that smaller companies may believe their distributor wouldn’t supply these ingredients, but if a number of customers ask, the distributor may find a way to accommodate requests.

Finally, he suggested that companies make it a mission and get the word out. Patrons want to get personally involved in charitable activities. For example, if a restaurant is raising money for literacy, it can promote the initiative as giving customers a chance to teach people to read. Restaurants can promote their initiatives via integration with customer loyalty programs, email messages, social media, and even simple in-store signage.

Key Takeaways

Social responsibility can be multifaceted. Environmentally friendly sourcing, a community presence and other aspects may be important to different consumers when they are deciding which restaurant to visit. Consumers respond to and perceive value in social responsibility. A restaurant that’s seen as socially responsible has the opportunity to increase price thresholds as well as traffic.

Marketing opportunities are expanding. Restaurants should leverage the positive vocabulary of social responsibility, communicate their values and programs to their customers, and pursue long-term consumer engagement with social issues, rather than seeing them as mere promotional opportunities.


Outside the Spoon

March 12, 2014

outside-spoonFrozen-yogurt concept looks beyond sweet treats for menu expansion.

The buzz behind frozen yogurt may be waning, but Red Mango Frozen Yogurt & Smoothies is one brand that won’t be limited by its category. The Dallas-based chain began testing a café concept at several Houston and Long Island, New York, area franchises.

The concept, called Red Mango Café, features an expanded menu of healthy flatbreads, salads, and wraps, says Jim Notarnicola, the company’s vice president of marketing and franchising.

Expanded menus are increasingly popular at specialized concepts like frozen-yogurt franchises, says Bonnie Riggs, a restaurant industry analyst for The NPD Group. “They’ve already got the real estate, they’re already open for business, and they have the customers, so now they can offer them something more,” she says.

Launched in the fall, Red Mango Café features six flatbread items that offer diners a savory experience with less than 350 calories. The salads are topped with natural dressings, and for cold winter months, the café serves a line of hearty soups. Some locations also offer specialty juice products.

Because Red Mango has always positioned its frozen yogurt as a healthy alternative rather than a sugary treat, the expanded menu has been well received, Notarnicola says. “Our customers are telling us it made sense to them that we would be adding these kinds of products, and it gives them another reason to come back in a different daypart,” he says.

While Red Mango doesn’t share sales numbers, Notarnicola says, results confirm the concept is moving in the right direction.

More menu choices can help units grow market share, says Darren Tristano, executive vice president at Technomic. “The frozen-yogurt business has become very competitive. There are not only a number of chains but also a lot of independent entrants, so as a result, it’s getting more difficult to be successful,” he says. “Broadening the menu seems to be a way these brands can grow their revenue.”


The Proliferation of the Coffee Café

March 10, 2014

As one of the most successful chains in the coffee-café segment, Starbucks is the dominant category leader. This 40-plus-year-old brand has successfully grown to more than 11,000 U.S. locations, with sales topping $11 billion, accounting for a U.S. market share of nearly 55% of coffee cafés. Loyalty is strong and American consumers are in love with their Starbucks.

The segment continues to be the high-growth industry leader with Dunkin’ Donuts and Tim Hortons rapidly expanding. But consumers are finding new ways to brew specialty, gourmet coffee at home with branded K-cups and Nespresso pods, making it more affordable and convenient to do it yourself. So what are the challenges ahead for coffee cafés?

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Saturation Is Inevitable!

Same-store sales growth will ultimately hit a ceiling, and with consumer sensitivity to price increases, sales growth will become a greater uphill battle.

Coffee-café segment competition will heat up, and new national chain, regional chain and independent units will increase major market penetration. Smaller rural and suburban markets will be getting more attention. Fast-casual brands in the bakery-café segment like Panera Bread, Einstein Bros. Bagels and Corner Bakery will also create new options for consumers as more locations open. Quick-service brands like McDonald’s will provide lower-priced, drive-thru convenience that provide value-seekers with a strong level of quality that is also affordable. Brands like Subway and Taco Bell’s entry into breakfast will create new formats and offerings that appeal to consumers, taking some wind out of the coffee-café segment’s growth sails.

So Where Are We Headed?

Coffee cafés will continue to focus on brand opportunities that increase check average as guest counts decline through greater saturation. New emphasis on the quality of baked goods, healthy food options and snacking will provide fuel to drive higher sales. On the beverage side, consumer demand for quality teas and fresh-pressed juices will give consumers more reasons to increase spend and look to coffee cafés for better-for-me food and beverage.

Aging stores will require remodeling, and new technology integration is a necessity to remain relevant to consumers, because long lines force loyal fans to go elsewhere to avoid the wait and get similar quality and prices elsewhere. Interactive, high-quality service will become a standard, and experienced baristas will look to competitors for career and compensation growth.

How Do You Make a Difference?

Strong efforts by front-line staff to provide fast, accurate and engaging service with a smile, keeping units clean, and continuing to provide high levels of value through menu, price, ambiance and strong emphasis on the overall consumer experience will give brands who invest a huge advantage.


Quiznos Moves Toward Bankruptcy Filing

February 28, 2014

Sandwich chain Quiznos is preparing to file for bankruptcy-court protection within weeks as it contends with unhappy franchisees and a $570 million debt load, according to people with direct knowledge of the matter.

Quiznos has been negotiating with creditors for weeks on a restructuring plan that would streamline its trip through bankruptcy court, these people said, but a deal hasn’t yet been reached.

The chain’s move toward bankruptcy comes two years into a major turnaround effort that included an out-of-court debt restructuring and a management shake-up. While a Chapter 11 filing would give the company much-needed flexibility on leases and unattractive contracts, the company must repair its damaged relationship with franchise owners who say they’re being squeezed out of business by the high cost of operating a Quiznos outlet.

“If a brand wants to succeed, its franchisees have to succeed,” said Darren Tristano, executive vice president at restaurant consulting firm Technomic Inc.

Thousands of Quiznos locations have shut down in recent years as the company’s competitors have opened new locations at a rapid pace. Quiznos’s world-wide store count now stands at about 2,100, while its chief rival, Subway, has 41,000.

Founded in 1981, Quiznos was considered innovative at the time with its toasted subs. But its sales have suffered as Subway offered a $5 foot-long sandwich starting in 2008 and new competitors such as Potbelly Corp. PBPB -0.84% and Jimmy John’s Franchise LLC moved into the crowded sandwich market.

In its heyday in the mid-2000s, Quiznos stores, on average, rang up $425,000 in annual sales; since then, that figure has dropped to around $300,000 for the top-performing stores and to far less at the weakest stores, according to people familiar with the matter.

Quiznos franchisees say they’re struggling to stay in business. In addition to the fees the company charges them to use its name, store operators must also buy most of their supplies and ingredients from Quiznos’s distribution business.

Franchisees long have complained that the subsidiary charges more than what they would pay to purchase those goods elsewhere.

Mr. Tristano said the fees Quiznos collects from franchisees—7% in royalty fees and another 4% for advertising—is higher than the industry average of 6% in royalty fees and 2% for marketing.

Fabian Andino opened a Quiznos franchise in 2006 in Port St. Lucie, Fla. It wasn’t long before he realized that he was paying higher prices for items like tomatoes through Quiznos’s distribution business. To save money, he bought produce from local farms but said the company charged him weekly penalty fees for not placing minimum food orders.

A person close to the company said it didn’t assess such penalty fees, but that franchisees who wanted to receive rebates for food costs were required to place minimum orders.

When Quiznos decided to offer delivery service in 2008, he recalled, franchisees were told to pay $10,000 to the company in return for signs and decals for their delivery cars and in-store inserts.

“They marketed it as though it would be the magic wand that would save the operation, but I knew it was another ploy Quiznos was using to raise more funds for them,” Mr. Andino said. “I refused.”

Mr. Andino said the company withdrew the payment request and supplied him with the materials free of charge. He said he couldn’t make his Quiznos business work and closed his store in late 2009.

“Quiznos did not have the proper name recognition or great marketing,” said John Medici, a 71-year-old retired warehouse manager in Longwood, Fla., and onetime Quiznos customer. “You have to give people the impression that your food is better than the food down the street.”

Steven Raposo said he spent a total of $350,000 to open a Quiznos franchise in Norton, Mass., in 2005. He said he and his family soon realized they wouldn’t be able to bring in enough money to cover expenses and put the franchise up for sale. They sold the business less than a year later for about half the price.

Mr. Raposo said his annual sales would have been about $600,000, but he was still facing monthly losses of between $3,000 and $5,000.

“It sounds like we were doing a lot [of business] but there was actually no profit because of food costs and labor,” said Mr. Raposo, a practicing chiropractor.

To address franchisees’ concerns, Quiznos management cut food and supply prices last summer, a person close to the company said in December. The company has also tried to improve store operations in the U.S. by making sure restaurants were clean, adding new menu items and removing slow-selling ones.

But so far, Quiznos’s turnaround efforts haven’t met expectations and the company has missed key performance targets, according to people familiar with the matter. The company also has a high debt load for its size, in part the legacy of a 2006 leveraged buyout.

Quiznos missed a loan payment at the end of 2013 and has been operating under a forbearance agreement with its lenders, which delays a potential default, as it negotiates with creditors including Fortress Investment Group FIG +1.87% LLC, Oaktree Capital Management and Avenue Capital Group, which is also its majority owner.


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