Many businesses and franchises are struggling right now — causing some companies to think a little outside the box. Quiznos is an example of one franchisor that is taking steps to help out their franchisees. The company is paying for third party negotiators to go to the landlords of their franchisees and renegotiate better terms on their leases. For more on this, read the following article from Blue Maumau.
Quiznos, a sub sandwich chain, announced last week that it will help renegotiate the costs of store leases down to current market values. The company says that it has negotiated 40 leases so far with an average reduction of 15-20 percent. The program lowers the leasing cost to franchisees while extending the lease to benefit landlords.
Franchise owners have criticized the company in the past for negotiating expensive leases that owners have had to accept.
But this time Rick Schaden, Quiznos once-again CEO, says, “Through innovative and strategic techniques, we are working toward mitigating the impact of the economic situation and ensuring our franchise owners’ success. My primary goal as CEO is for franchise owners to say in one year from now they are better off than they are today.”
Schaden says he is focusing Quiznos’ 2009 business plan around maximizing profitability for franchise owners in nontraditional ways, such as the lease renegotiation initiative. “Even a down economy can be an opportunity and the current market for retail rent is an example of that,” he says.
Franchisee Brad Shelton, a spokesperson for the Toasted Subs Franchisee Association, an independent association that represents Quiznos franchisees, gives rare praise. "We are glad to see that Quiznos is finally addressing this problem,” he declares. “We hope these renegotiations will be successful for all franchisees."
Paul Steinberg, a former New York City franchise owner of competitor Subway and a franchise attorney cautions, “It is important to remember that retail leases can be very complicated. There is more than one way to skin a cat and landlords know of the different ways. They know that unsophisticated renters only pay attention to base rent and escalation rates. They can bury pass-through items such as property tax and additional rent items, while actually making these profit centers.”
Quiznos franchisees say that the lease initiative is a welcome development.
Thomas Mihailovich, a franchise owner in Rochester Hills, MI, participated in the lease renegotiation program in late February and says it works. Quiznos and a third-party team worked with Mihailovich and his lessor to arrange a reduction in rent of more than 20 percent, a cost savings of $50,000 over the term of the lease.
“I began the process and within one week I was saving nearly $500 per month on my rent,” said Mihailovich. “You really can’t complain about saving that kind of money. The whole process was so simple and they answered all my questions along the way. They delivered exactly what they said they could deliver.”
Quiznos’ press release says it is renegotiating the leases “at no cost to franchise owners.”
But there’s a little more to it than that. If there is a $500 or more savings, at least $500 or up to 12 percent will be charged by the lease negotiator to the franchisee. A Feb 13 memo from Executive Vice President of Development John Teza to franchisees says that Quiznos arranged the lease renegotiations through a third party. Teza writes, “Quiznos will pay the initial $500 engagement fee to the third-party firm,” the memo states. “If you participate in this program and if the third-party firm is able to negotiate a reduced rent that is acceptable to you, then you [the franchisee] will be responsible for paying the fee to the third-party firm (the fee will be the greater of $500 or 10-12 percent of the total savings)."
So although there is a cost, the bottom line is that there will be savings to the franchise owner-operator or the service is at no cost to him or her.
Franchisors can sometimes quietly negotiate kickbacks or rebates for offering such services through vendors. But when asked if Quiznos received a markup or percentage of the fee given to the third-party negotiator, Teza declares emphatically, “There is none.”
Toasted Subs Franchisee Association spokesperson Shelton, himself a Colorado franchise owner, expresses hope that such efforts to minimize lease costs will continue. “We hope that Quiznos will continue to scrutinize all leases and locations in the future,” he declares.
This article has been reposted from Blue Maumau. View the article on Blue Maumau’s small business and franchise news website here.