Quiznos to file for bankruptcy amidst debt and declining sales

Global sandwich chain Quiznos is preparing to file for protection under Chapter 11 of the bankruptcy act. According to reports published the evening of Feb. 27, the one-time fast food giant has accumulated about $570 million in debt and is experiencing declining sales nationwide.

Quiznos has been negotiating with creditors and unhappy franchisees for weeks to put together a restructuring plan that will help to ease the bankruptcy process, reported The Wall Street Journal, but thus far a deal has not been reached.

Two years ago, the chain underwent a major effort at turning business around, which included an out-of-court debt restructuring and change of management, according to the news source. While these efforts didn’t manage to change the company’s slide into bankruptcy, a Chapter 11 filing may be able to give Quiznos the flexibility on leases and contracts that it needs to turn things around.

A major challenge that the company will face, even if the bankruptcy filing is successful, is the damaged reputation that it now holds with its franchisees, who feel that the company has been attempting to squeeze more money out of them than is fair. Darren Tristano, executive vice president at restaurant consulting firm Technomic Inc., told The Wall Street Journal that the franchise fees charged by Quiznos – 7 percent in royalties and 4 percent in marketing – are higher than the industry average of 6 percent in royalties and 2 percent in marketing.

Since the company’s hey-day in the mid-2000s, its U.S. store count has fallen from more than 5,000 to about 1,200, according to CBS News. The average store’s sales have also fallen from an annual $425,000 per year to only $300,000 for the best performing stores, with weaker stores doing considerably worse.