Quiznos sees Asia move as key to its future

December 16, 2014

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Quiznos is undertaking a major expansion in Asia as it emerges from bankruptcy, with plans to open 1,500 stores in China and several hundred more in other countries.

Kenneth Cutshaw, president of the company’s international division, says the overseas move is important to help restore the company’s financial health.

The Denver-based sub chain filed for bankruptcy protection in March, citing a need to reduce its debt load by more than $400 million and to aid franchisees who have fought with the company over their profitability.

It exited Chapter 11 protection in July after court approval of a prepackaged plan in which three senior lenders acquired 70 percent of the company’s shares in exchange for debt.

These new efforts in Asia represent the first substantial growth plans the company has announced since then. In addition to the Chinese partnership, Quiznos signed deals with master franchisees to open 100 stores each in Malaysia, Taiwan and Indonesia, including a 24/7, 10,000-square-foot location in Indonesia that will be the chain’s biggest in the world.

In betting big on growing Asian markets — it also has franchisees who have opened stores in South Korea, Singapore and the Philippines — Quiznos is following in the footsteps of larger chains such as McDonald’s and KFC that have found success in that region.

But Quiznos enters these new arenas after spending 10 years reducing its number of American stores from more than 5,000 to about 1,100, making Cutshaw keenly aware of how important this growth is.

“Yes, it is a key component to restoring our company’s financial health,” Cutshaw said. “We’re not alone. There are other brands that have had tremendous success outside the country and are still rebuilding their operations in the U.S.”

Quiznos entered the international market in 1999 in Latin America and now has more than 100 locations in that region. For its international expansions, it seeks out master franchisees who know the markets and who have experience operating chain restaurants. About 35 percent of its total stores are outside of the United States.

Asia would host the largest concentration of its overseas stores if the growth is completed as projected. Key to that is the 1,500 Chinese locations planned over the next 11 years in a partnership with AUM Hospitality and Parkson Holdings Berhad. Parkson operates about 60 top-tier stores of other brands throughout China now, Cutshaw said.

Quiznos will enter the market with what Cutshaw believes is a built-in advantage.

“American brands are given the strong benefit of the doubt when they enter an international market,” he said. “It’s perceived as a superior-quality product.”

Brands that have experienced Asian success have changed their culture and menu somewhat, adapting to the use of Asian meats and vegetables and an inclination toward spiciness, said Darren Tristano, executive vice president of Technomic Inc., a Chicago food-industry consultant. But there are big opportunities present.

“Looking abroad for growth … is definitely a way for brands to grow, especially for Quiznos as it comes out of bankruptcy,” Tristano said.


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.


Friendly’s Puts on its Sundae Best

October 1, 2013

0927_ExecPro-Maguire, John2 304As a Weymouth native, John Maguire spent a lot of time at Wilbraham-based Friendly’s restaurants while growing up.

“It’s where I hung out with pals,” Maguire said. “There are so many great memories of the brand. It’s an institution.”

Now a little over a year into his tenure as CEO of Friendly’s, Maguire has been tasked with bringing the chain back to its once-iconic status. Friendly’s has had a tough go of it in the 21st century. About 100 restaurants have been shuttered since the company filed for bankruptcy in October 2011, and the chain now has 380 locations. A 2012 Consumer Reports survey showed Friendly’s received poor marks in cleanliness and customer service.

But the company’s emergence from bankruptcy in early 2012 presented it with an opportunity for a new start. And as part of that reboot, Maguire was brought on to lead the chain in April that year. Maguire, 47, left his post as chief operating officer at Panera Bread for the opportunity. He had been with Panera for 19 years — and his experience there has informed his early days in the effort to turn Friendly’s around.

“I wasn’t planning on leaving Panera,” Maguire said. “What intrigued me about Friendly’s was that I watched it decline firsthand. … I asked myself, ‘Should Friendly’s continue to exist?’ I started doing research on the brand … and decided there’s no reason it shouldn’t exist.”

Panera spent the 2000s moving in the opposite direction of Friendly’s. Its growth — the chain now boasts more than 1,600 restaurants and has added 500 since the financial crisis — can largely be attributed to Maguire, Panera executive vice chairman Bill Moreton said. “John has a core understanding of both customers and employees,” Moreston said. “He knows that the best way to serve a customer’s needs is by helping associates understand what associates do.”

That appears to be Maguire’s modus operandi at Friendly’s. The company’s top current initiative, he said, is to improve customer service, in part with a new employee training program. “We’ve hired people in the past who haven’t been so friendly,” Maguire said. “We set a higher standard than most brands (for service) with the name on our sign.”

Before Panera, Maguire worked for Wonderbread and Bread & Circus supermarkets. Those manufacturing and retail experiences have also informed his early days at Friendly’s, whose retail ice cream products have thrived while the restaurants have declined. Friendly’s ice cream is now sold in more than 8,000 grocery stores nationwide and has seen a 20 percent year-over-year sales increase in the last two years, Maguire said.

Maguire said 70 percent of Friendly’s customers order dessert, compared to just 6 percent at restaurants nationwide. “You’ve got to make sure people clearly understand what differentiates us,” he said.

Meanwhile, the company has brought more focus to the rest of its menu. Since joining the company, Friendly’s has dropped several items, such as quesadillas, steak tips and stir fry. Instead, the chain is working to improve on the quality of its classic offerings. For instance, it has begun making the Fishamajig with haddock rather than pollock.

Friendly’s is also remodeling its restaurants as part of the effort to address past complaints about cleanliness. The company has remodeled 40 of its restaurants, will remodel 10 more before the end of the year, and will eventually bring a facelift to all of its locations nationwide.

Restaurant consultancy Technomic said consumers have approved of the changes so far. Customer satisfaction at Friendly’s spiked in the fourth quarter of 2012, though it has tempered since. Technomic analyst Darren Tristano compared the Friendly’s comeback attempt to Little Caesars’. In the early 2000s, the pizza chain began expanding again after introducing higher quality ingredients and remodeling its restaurants.

Maguire said total revenue at Friendly’s grew in 2012 and is projected to grow again in 2013. Meanwhile, Maguire said, there are plans to open at least two new restaurants in Eastern Massachusetts — the company’s strongest market — in 2014.


Popular Chain Restaurants Which May Be Closing Doors

January 15, 2013

Some of America’s biggest restaurant chains have lost more than 50% of their sales over the past decade as they closed hundreds of locations.

Many of these businesses failed to update their brands or menu options, making them vulnerable to a new generation of eateries.

Based on data provided by Technomic, a consulting firm for the food-service industry, 24/7 Wall St. reviewed the 10 restaurant chains with the biggest declines in both locations and sales between 2001 and 2011.

The struggling brands “tend to be older,” says Darren Tristano, executive vice president of Technomic. The type of cuisine sometimes plays a key role, Tristano says. In the case of barbecue establishments, for instance, competition is less of a problem than the limited menu options. Barbecue fare typically attracts male customers, and it isn’t a meal diners want to eat every day.

Many of these restaurants saw their heydays come and go decades ago. Of the 10 chains with the biggest declines, eight have filed for bankruptcy in the past decade.

The tepid recovery from the recent recession will make recovery a huge challenge for these brands.

 


Max & Erma’s Goes Back to Roots to Attract Diners

December 28, 2012

Columbus-based restaurant chain battles back from bankruptcy with store makeoverspic

The Beavercreek location of Max & Erma’s chain is the first of the three corporate- owned Dayton area restaurants to undergo an extensive renovation. Brandi Whitmer, a server at the restaurant, brings food to Jean Haus of Beavercreek and her son Tom Haus of Dayton and his daughter Karina, 3.

The venerable Max & Erma’s restaurant chain is battling back from bankruptcy with new leadership, a back-to-basics approach, and a little freshening up.

Nearly all of the 73 restaurants in the chain are getting some type of a makeover. The Max & Erma’s in front of the Mall at Fairfield Commons in Beavercreek, which opened 19 years ago, held a ribbon-cutting and grand reopening last week after shutting down for a week in mid-November for extensive renovations.

The Max & Erma’s on Miller Lane in Butler Twp. is in line for similar remodeling in mid-January, with the Springboro location off Ohio 741 likely to follow later in 2013, according to Max & Erma’s President Steve Weis. Renovation plans are not yet finalized for a franchise-owned Max & Erma’s inside the Dayton International Airport.

Weis, who has held the top job at Max & Erma’s for about seven months, said the makeover is “long overdue.” The restaurants are adding new tables and chairs, a gas fireplace to the dining room, more flexible seating arrangements in the bar and new carpet throughout. Across the chain, Max & Erma’s will spend about $3 million on the upgrades this year, and while the costs vary by store, many locations will spend “a couple hundred thousand (dollars) at least” on the renovations, the company president said.

Customers are warming to the changes: Max & Erma’s same-store sales have been up for eight consecutive months, and the Columbus-based chain is outperforming its competitors in the casual dining category of the restaurant industry, Weis said. “People are coming back,” he said.

Max & Erma’s competes against some industry heavyweights in the bar-and-grill portion of the “casual dining” segment, including a “big three” of Applebee’s, Chili’s and T.G.I. Friday’s, according to Darren Tristano, executive vice president for Technomic, a Chicago-based food service research and consulting firm.

The last five years have been a struggle for most restaurant chains in this casual-dining category, with sales declining quickly as the economy slid into recession, Tristano said. Most chains’ sales flattened out following the decline and have now started to bounce back. But even those higher year-over-year monthly sales figures that Max & Erma’s and some of its competitors are showing are not all that impressive because they they are “against comparable numbers from a year ago that were not very good,” Tristano said.

The type of exterior and interior renovations that Max & Erma’s has undertaken will help retain its most loyal customers and will give “lapsed” former customers and those who have never visited a reason to dine there, Tristano said. But the makeover can’t do the job alone. “You still have to have the right menu, the right service, and the right experience” to ensure long-term success, he said.

Weis knows a little something about his competition in the casual-dining segment: he was serving as regional vice president at Thomas & King Inc., one of Applebee’s largest franchisees, when he was hired away in July 2011 to serve as Max & Erma’s vice president of operations. He was promoted to president in May 2012.

The casual-dining chain’s parent company is Denver-based American Blue Ribbon Holdings, which bought the company out of bankruptcy for $27.5 million in September 2010 and which also owns restaurant chains Village Inn and Bakers Square.

It was a long, hard slide for Max & Erma’s, which four decades ago was one of the two pioneers of the casual dining segment along with TGI Friday’s. Over the years, chains such as O’Charley’s, Ruby Tuesday, Bennigan’s, Buffalo Wild Wings, Applebee’s and Chili’s crowded into the casual dining pool, sparking intense competition.

Once a publicly traded company before it was purchased in April 2008 by Pittsburgh entrepreneur Gary Reinert Sr., Max & Erma’s had more than 100 corporate-owned and franchised stores in 2006, but had dropped to about 80 by the time it filed for Chapter 11 bankruptcy in late 2009. It closed its first Dayton-area restaurant on Kingsridge Drive behind the Dayton Mall in Miami Twp. just a few weeks after the bankruptcy filing. Today, Max & Erma’s operates 73 restaurants — 52 corporate-owned, 21 franchise — in nine Midwestern states.

Weis said Max & Erma’s strayed from its roots under previous owners.

“We started as a neighborhood gathering place,” Weis said. “They got away from the neighborhood gathering space, and the restaurants started looking more formal” — and more like many of its competitors. The current renovations reflect a back-to-basics approach, with a more open feel, with high-top tables in the bar replacing four-person booths and allowing customers to move tables together to accommodate large family gatherings or office get-togethers.

The company president said he recognizes his task will be difficult. In addition to the stiff competition within the casual-dining segment, Max & Erma’s is feeling heat from “fast-casual” chains such as Panera and Chipotle, from “better-burger” chains such as Smashburger and Five Guys Burgers and Fries, and from independent bar-and-grill owners. But he is buoyed by the chain’s recent successes and remains optimistic.

“The greatest thing about Max & Erma’s is that our customers really do love us,” Weis said. “They had been disappointed with how it was run under the previous ownership. Now we are just focused on serving our customers and executing our plan.”


Small Business: Sizzler Steers Comeback Through Local Area

March 17, 2012

Pennsylvania Gas

Small Business: Sizzler Steers Comeback Through Local Area

Sizzler USA Restaurants Inc. is staking part of its latest recovery plan on the Bay Area.

The closely held company plans to open five new restaurants in the region, with the first new location to open in the next two years, and the last opening within six.

Sizzler is targeting high population areas that also have daytime workers nearby, such as Fremont, San Jose, Union City, Milpitas, Pleasanton and Livermore, though it hasn’t made final decisions on where the restaurants will be. The chain is also remodeling existing restaurants in Santa Clara, Hayward, Pinole, Auburn and Sacramento.

Once popular for its low-price meals and bottomless salad bar, the Culver City-based restaurant chain has been squeezed by higher-end and lower-end competitors, while a trend toward healthier food has driven some patrons elsewhere.

In 1996, Sizzler filed for Chapter 11 bankruptcy, closing more than a hundred stores in the process. The company has since mounted several turnaround efforts. Last year, a management-led group that included a former Sizzler owner bought the franchise for an undisclosed sum from an equity firm that had owned the franchise since 2005.

The local expansion is the latest phase of Sizzler’s broader comeback plan, which started roughly a year ago. Nationally, Sizzler is aiming to attract customers by remodeling restaurant interiors, including fresh paint, new finishes and automated ordering kiosks. It is also playing up freshly cut and ground meat, and even a food truck, called the “ZZ-Truck,” that serves fare such as sandwiches, salads and ice cream around Los Angeles and Orange counties.

“If I would have invited you to Sizzler four years ago, I would have said, ‘It’s great food but don’t pay attention to the building,’ ” says Kerry Kramp, Sizzler’s chief executive, who announced the new Bay Area restaurant openings in February.

While Sizzler is also targeting other urban areas such as Minneapolis and Denver for its revival, the Bay Area is a particular focus because it has historically been a strong market for the company. Overall, Sizzler will have 17 Bay Area locations after the openings and refurbishments, making it the region with the second-most Sizzlers, just behind the 18 planned for Chicago.

Focusing its potential new restaurants on Bay Area cities such as Fremont and Milpitas will likely offer opportunities for the chain, says Darren Tristano, an analyst at research firm Technomic, which has no financial ties to the restaurant. Those areas don’t have much in the way of competition for Sizzler, he says.

“Sizzler is factoring in ways that make them more relevant,” Mr. Tristano says, adding that the restaurant’s expansion is coming as the rest of the industry retrenches. “This is the right time to try to grow against other restaurants’ poor performance,” he says.

Sizzler plans to open new restaurants and refurbish others in the Bay Area, part of a national strategy. Some locals have already been won over. Janice Visaya, a 21-year-old student in San Francisco, first went to an older Sizzler restaurant about two years ago with her boyfriend’s family, primarily because it was the closest American buffet in the area. “I always seem to keep going back for their steak and baked potato,” she says.

Sizzler’s wider efforts to attract customers by emphasizing its fresh food and new look helped boost sales in restaurants open at least a year to $298 million in 2011, up 1.5% from 2010.

Still, the once-iconic 53-year-old company, which is down to 170 stores from more than 600 in the ’80s, faces steep challenges in its attempted comeback.

Analysts say the restaurant industry has changed since Sizzler was the go-to place for a good, inexpensive steak—a 12 ouncer at a Sizzler outside San Francisco costs $12.99. Fast-food outlets have eaten into Sizzler’s typical market, while higher-end restaurants have lowered their prices to stay competitive. In addition, the latest data from market researcher NPD Group show that Americans are eating at home more often.

Despite this, Rob Black, executive director of the Golden Gate Restaurant Association trade group, notes that the Bay Area doesn’t have many restaurants catering to families. That could be an opportunity for Sizzler.

“Sizzler is family-focused and there’s an important role for those restaurants in the Bay Area,” he says.

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