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Rick Schaden, accused of ripping off franchisees, is back at the helm of Quiznos

Rick Schaden is back on the job. The major shareholder in Quiznos has returned as CEO, replacing Dave Deno, who'd been promoted to the post fewer than five months ago. According to the announcement that Quiznos released last week, Deno resigned for personal reasons: The commute between Denver and Louisville, where his family lives, was just too difficult.

Schaden, who'd opened three Quiznos franchises after graduating from the University of Colorado, joined with his father to buy the brand and its first eighteen stores in 1991. The younger Schaden served as CEO until 2007, leaving soon after his firm, Cervantes Capital, sold part of its Quiznos ownership to J.P. Morgan. At that point, Greg Brenneman, who has a stake in the company through his firm TurnWorks Inc., became the CEO. Brenneman is also chairman of CCMP Capital Advisors, a firm that J.P. Morgan formed to manage its investment in Quiznos.

At the time of Schaden's departure, Quiznos was being sued by franchisees who claimed that he and his partners had set up an illegal business model that allowed them to profit off of kickbacks and franchise fees instead of sandwich revenues. Members of the independent Toasted Subs Franchisee Association, which raised money for the suits, made public the suicide note of a California franchise owner who shot himself in a Quiznos store. "There are a large and growing number of us who believe, unreservedly, that the handful of people who own and/or otherwise control the Quiznos Corporation should spend the rest of their lives in prison," he wrote in that note.

When I interviewed disgruntled franchisees for my first Quiznos story, "You're Toast!" (May 3, 2007), they criticized the old Quiznos leadership – namely Rick Schaden – but said they were optimistic about the potential for change under Brenneman, who'd made a commitment to improving franchisee relations and profitability. Over the past two years, TSFA members continued to pursue legal actions against Quiznos but stayed relatively quiet about any concerns with the new management, even after Deno became CEO and Brenneman moved up to executive chairman.

Last week, however, TSFA president and Boulder franchisee Danny Kessels broke his silence in an e-mail to Westword.

"The announcement of Rick Schaden's return adds insult to incredulity. While Rick has purportedly been away over the past few years, he has really never left. We suspect Dave Deno's departure is an acknowledgement by Dave and the J.P. Morgan contingent that there is nothing anyone without control of the system can do to change the illegal business model in place. The past few years have taught us what we all knew: that the reason franchisees struggle in the Quiznos system is due to the self-serving actions of Rick Schaden and others (including Cervantes Capital LLC) who have historically used the Quiznos Combined Entity as a cash cow for their own needs. Unfortunately, even the new management team brought in by J.P. Morgan has failed to right the ship. The TSFA is disappointed by this latest turn of events and views it as another slap in the face of hardworking franchisees who are attempting to keep their heads above water."

In announcing the management change, Brenneman pointed out that Schaden's entrepreneurial skills had helped build the Quiznos brand from 18 to 5,000 locations and should be useful in these tough economic times, too. "Rick was a franchise owner before buying and growing Quiznos," Brenneman said. "He has a detailed understanding of the brand. The marriage of Rick's passion for the brand and new products, along with the world-class management team we have brought in over the past two years, will enable us to maximize franchise owner profitability going forward."

During Schaden's break from Quiznos, his other investment firm, Consumer Capital Partners, launched Smashburger. He also founded America's Road Home, a nonprofit working to end homelessness. Quiznos has settled numerous franchisee suits to avoid the cost of litigation, but four TSFA-backed class actions are still pending in federal court in Wisconsin, Illinois and Colorado.

According to Clyde Rucker, Quiznos head of communications, franchisee profitability has been and will continue to be the company's goal. "One of the latest promotions we've had, the New Lower Prices, really is geared toward increasing our traffic coming through franchisees' stores," he says, adding that those lower prices were designed with food-cost sensitivity in mind. "We are also engaging in things like lease renegotiation for our franchisees, which obviously will have a huge impact on their profitability. In addition to that, we have a very strong product pipeline in terms of new products on the horizon that really resonate well with consumers. We're just continuing to engage with franchisees and provide them with the best service possible from a franchisor perspective. I'd also throw in there the best leadership."

Schaden, he concluded, "has always been involved with the organization. This is just a formality of him becoming the CEO."

 
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