Each month, Site Optimizer will discuss industry trends — most importantly, leasing issues—with experts in the retail real estate industry. This month we spoke to Nick Koros, senior vice president of development with Quiznos.
In an era of declining property values, many retailers are seeing a new found willingness on the part of landlords to give them a good deal. About two months ago, Denver-based sandwich chain Quiznos started putting that to the test. The company began helping its franchisees renegotiate their store leases to lower expenses. The company, which operates more than 4,000 domestic restaurants through a network of franchisees, says the initiative is the key to helping its franchise owners be better off a year from now.
Site Optimizer: You started the lease renegotiation program in March. How does the program work?
Koros: The major focus is and continues to be franchisees' profitability.… We see an opportunity now to reduce rents. Every dollar a franchisee saves in rent directly affects their bottom line. We offer to franchisees the opportunity to work with third party vendors that we've hired that are professional lease renegotiators. Quiznos absorbs the $500 initial fee. Franchisees pay a small percentage of their savings. The percentage is about 10 percent.
SO: Since March, how many leases have you been able to renegotiate and what is the average reduction in lease payments?
Koros: About 60 to 80 are completed with 15 percent to 20 percent in savings. And we have out about 600 to 700 franchisees talking to the third party vendors currently.
SO: How difficult has it been to convince landlords to reduce rents and renegotiate these leases?
Koros: It really varies per landlord. Since the beginning of this year, there have been more receptive landlords. The latter part of last year, landlords were still a little reluctant to go forward and do something with reducing rents. I think the landlords understand the markets, understand the economic downturns. We have seen maybe 65 percent to 70 percent now that are receptive to working with us.
SO: What's the response been from franchise owners to your efforts?
Koros: It's been very positive. They know we're really trying to help them be more profitable. Quiznos is really absorbing a large fee since we have 4,200 domestic stores and we want to hit the majority of those.
SO: Would you say the downturn in the economy and real estate market has put more power in the hands of the lessee rather than the landlord?
Koros: It's a fairness balance. We're trying to be very fair with the landlords with the current conditions. We're asking landlords to be fair and help out with rents so our franchisees can stay profitable and stay in those locations. We're kind of leveling the field now across the board.
SO: How long do you think this environment will last where landlords are willing to look at lowering rents?
Koros: If I would make predictions, I would say the fourth quarter this year will be the worst quarter for landlords. First quarter next year ... vacancies will be filled in more.
SO: CEO Rick Schaden has said his primary goal is for franchise owners to say in one year from now that they are better off. How close are you to that goal?
Koros: I think we're very close, now that Quiznos has launched a lot of new products, a lot of menu price reductions and better price points. We're working our food costs. Rick was the founder and he came back in as CEO and he's making incredible changes. Again, what we're really concentrating on with the downturn...we really want to get our franchise owners into real high-quality sites. We're really on the look-out for those A sites. If they can get into those locations now with reasonable rents they can get in and be profitable.