Term Paper on "Quiznos Restaurant Valuation"

Quoted Instructions for "Quiznos Restaurant Valuation" Assignment:

please prepare a powerpoint presentation including excel spreadsheets which show the revenue, cashflows, and cost of equity calculations. The presentation should be based on the following

Quiznos: Franchise Business Outlook

Description of business

Quiznos is one of the most rapidly-expanding fast food franchises in America. It is similar to Subway or Blimpee*****s in that it provides a variety of hot and cold subs, some of which are healthy, others of which are not so healthy. Quiznos offers several uniquely flavored subs, like its prime rib subs, but it mainly distinguishes itself from its competitors based upon the famous taste of its toasted subs. Like its main competitors, Quiznos also offers customers the option of buying salads and soups as well, and a variety of seasonal and weekly specials and combo meals.

Although Quiznos does have *****˜lighter***** options, it does not have the particularly healthy image that Subway has crafted, through Subway*****s effective use of its *****˜Jared***** weight-loss campaign. However, Quiznos has cornered the market on tasty hot subs with its *****mmm*****¦toasty***** slogan. Taste is of greatest importance in its marketing endeavors, as it boasts that its subs are *****chef-inspired, made on our own proprietary bread with fresh meats and cheeses sliced daily for freshness, and toasted to perfection***** (*****Quiznos Questions,***** 2007, Quiznos Franchises Website). Ensuring that the subs are toasted properly and served to customers warm is thus a critical part of being an effective franchise operator of a Quiznos. Quiznos states that it is fast food, but fast food *****˜done well*****.

Business outlook

According to the independent trade publication Nation*****s Restaurant News, The Quiznos Sub franchise is the fastest growing chain of franchise restaurants, as measured in sheer number of U.S. units. It was ranked the second *****Best Overall Franchise***** by Entrepreneur Magazine in 2006, and was ranked third best in terms of its increases in sales. These statistics bode well for any potential franchise owner, particularly a potential owner that desires to eventually own more than one Quiznos.

One reason for this rapid expansion may be the relatively broad range of food options offered by the franchise. This makes going a Quiznos franchise an easy *****˜compromise***** food option for dining out, in that consumers can find either salads or soups, light or hearty fare, at the same location. Also, there is the long-standing popularity and ease of eating sandwiches for lunch. It is easy to get the food *****˜to go***** and to eat it in a car or at one*****s desk at work. Quiznos that are located near busy offices or establishments like hospitals and schools are likely to benefit from consumer*****s positive feelings about the quickness of preparation and consumption of sandwiches.

Finally, one of the most important keys to Quiznos***** success may be the many non-traditional location sites the franchise has explored, ranging from campuses to convenience stores, airports to truck stops, business, industrial, and convention centers to hospitals, sports venues and casinos to military bases (*****Non-traditional sites,***** 2007, Quiznos Franchises Website). The willingness of the franchise to target such non-traditional food purveying venues bodes well for the overall health of the franchise in the future.

Revenue estimation

Estimated revenue from the franchise varies, depending on the location and size of the franchise. However, one Quiznos established in 2003, in a *****great location***** near a hospital with *****street visibility***** was recorded as having a below-projected monthly cash flow of $5,403 (*****Quiznos Sub Sandwich Shop,***** 2007, Absentee Owner Business for Sale). These figures for the Arizona Quiznos were based upon a business with an absentee owner, but such revenue intake must be viewed soberly in the context of the initial cost outlay for the business.

Cost estimation

According to the official Quiznos website, first time agreements with franchises require an initial outlay of $25,000, while all additional agreements are $20,000. This agreement is purely to buy the organization*****s name, and to establish a relationship with the corporate headquarters for uniforms, training programs, and obtaining supplies like sandwich ingredients. The Quiznos organization provides training, advertising, and support for franchise owners. This means that opening up a franchise, can be far less than the costs of beginning an entirely new business, as a new business must generate new standard operating procedures and establish an image that will garner public attention for the establishment. On average the costs of the stores range between $190,000 and $250,000 nationally.

Cash flow

The sales revenue of the initial year of operation of one 2007 franchise was approximately $261,655, yielding a net profit of $36,438 (Quiznos Franchise for Sale, 2007, Business for Sale).

Cost of equity calculation

To buy a franchise, Quiznos requires the franchise owner to have a net personal worth of $125,000 and possess liquid cash of $70,000. Net Worth is defined as Total Liquid Assets, including cash, stocks, homes, cars, recreational vehicles, businesses, etc. minus Total Liabilities such as debt (*****Quiznos Questions,***** 2007, Quiznos Franchises Website).

Projected cash flow

Projected cash flow takes into consideration such monthly expenses as employee (and owner) salaries, utilities, loan payments, and general upkeep. If the entire annual sales revenue of the initial year of operation of one 2007 Quiznos franchise was approximately $261,655, yielding a net profit of $36,438, this indicates that the average cash flow of a similar establishment might be in the $220,000 range, given that operating expenses encompassed the resulting profit. However, projected sales may rise, based upon potential increased demand if consumer awareness spikes*****”conversely, inflation might eat into some of the profits, requiring greater cash outlays.

Value of the business

The value of a Quiznos franchise has been called into doubt by a recent lawsuit waged by the Toasted Subs Franchisees Association Inc. (TSFA), which, filed the suit on behalf of an estimated 5,000 owners nationwide, *****alleging that the franchisor has systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field,***** forcing franchisees to buy food, supplies and services from Quiznos at inflated prices while simultaneously setting low retail prices for its products. (*****Franchisees filed class-action suit against Quiznos,***** 2007, Business Courier). The policy results in greater profits for the company, but not for the franchise owner. While the agreement established with the franchise owner can relieve some of the pressure of a new business to gain a regular clientele; it can also mean that flexibility in finding the most inexpensive suppliers is taken away from the franchise owner.

Works Cited

*****Franchisees filed class-action suit against Quiznos.***** (15 Aug 2007). Business Courier.

Retrieved 12 Sept 2007 at

http://www.bizjournals.com/cincinnati/stories/2007/08/13/daily29.html

*****Non-traditional sites.***** (2007). Quiznos Franchises Website. Retrieved 12 Sept 2007 at

http://www.quiznosfranchises.com/non_traditional.asp

*****Quiznos Franchise for Sale*****. (2007). Business for Sale. Retrieved 12 Sept 2007 at

http://www.businessesforsale.com/Quiznos-Franchise-For-Sale-1.aspx

*****Quiznos Questions.***** (2007). Quiznos Franchises Website. Retrieved 12 Sept 2007 at

http://www.quiznosfranchises.com/franchise_faq.aspx

*****Quiznos Sub Sandwich Shop.***** (2007). Absentee Owner Business for Sale. Retrieved 12

Sept 2007 at http://lite.globalbx.com/popular/absentee-owner-businesses-for- sale/listing189000.html