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The Denver-based toasted-sandwich chain Quiznos Corp., according to Bloomberg News, has filed for bankruptcy.
John Gordon, a restaurant consultant told the NY Post that “The buyers had overconfidence with the franchise model. They had just an implicit belief that a franchise model is flawless.”
According to Fox Business, most of the company’s stores are “independently owned,” which complicates how the bankruptcy filing will affect the individual stores.
Quiznos had $875 million in debt. The company reportedly had a 2006 investment by CCMP Capital, JPMorgan’s former private equity firm, and then a subsequent debt refinancing, according to Forbes. The company had been battered by years of sales declines and franchisees struggling to break even. Stores started closing by the dozens and by 2012 the company broke some of its debt covenants and was in danger of filing for bankruptcy. Instead, Marc Lasry’s Avenue Capital stepped in with a complex debt-for-equity deal that shaved $281 million off the company’s debt.
The problem was? That deal still left Quiznos with nearly $600 million in debt. That meant that the company quickly needed to stem the rapid decline in its store base, and it needed to get sales up in a hurry. Neither was likely.
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Like all franchises, Quiznos gets its revenue from franchisee royalties. But its bigger business involves the sale of food and other products to operators.
It has been reported that Quiznos Corp. charged franchisees too much and that food operators had been complaining about them for years. When sales began falling, franchisees began closing. To try and get sales up, Quiznos then discounted and couponed, which only made profit matters worse, and store closures accelerated. Quiznos could only do so much with that level of debt.
Quiznos Corp. Follows Sbarro LLC, the New York-based pizza chain, another struggling food chain, as Sbarro sought protection from creditors, according to Bloomberg News. In February, Hot Dog on a Stick also filed for bankruptcy protection, according to the L.A. Times.
Image credit: www.cnbc.com
