Quiznos Summary

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Sandwich chain Quiznos made its name selling hot subs at premium prices, but a leveraged buyout at the top of the market and the recession helped turn that strategy to toast.
Now the company finds itself on the brink of default, also thanks to sour relations with franchise owners, costly rents and stepped-up competition from rivals like Subway. The chain now has about 3,500 stores, down from nearly
5,000 before the recession.
With sales sliding, Denverbased
Quiznos told lenders
July 8 that it would soon violate loan terms, which would put the chain in default and could trigger demands for immediate repayment of its debt.
The chain has hired Wall Street restructuring advisers to negotiate with its lenders, and said it
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"This used to be a high-end product," said one Quiznos franchisee in Florida.
Once Subway's $5 sub hit the market, Quiznos had to chase its competition, he said. Profitability waned "and stores started closing left and right."
This franchisee said he has been able to stay afloat only because he sets his own prices and hours and buys supplies from Sam's Club, in violation of company policy. Quiznos Chief Executive Greg MacDonald said the profitability of franchise owners is the company's top focus. "Quiznos management has initiated cashflow- improvement programs, such as lower food costs, reduced discounts and labor optimization," Mr. MacDonald said in a statement last week. "These recent cash-flow improvement programs have been a significant contributor to improving the financial health of our franchise owners."
Jason Medders, a Quiznos owner in Milledgeville, Ga., said he has faced the same challenges as other franchisees but that his store is profitable because "I go out there and work it every day."
Offering deals and discounts doesn't always work, however. In 2009, the chain tried a million-sandwich giveaway, but many operators didn't honor the coupons because they feared losing too much money, angering customers who came in seeking the free sandwiches.
"We're not McDonald's," Mr. Medders said. "You can't just open the doors and go to the golf course."
"You have to

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