Damn! Torpedoes Get Quiznos Back on Track

Quiznos has always positioned itself as a cut above Subway in the fast-food market—and priced its sandwiches accordingly. These days, however, value is what sells. After a two-year slide, Quiznos is proving it can be as deft as the submarine king, helped in large part by a yesteryear approach to market research.

Quiznos reconnected with the frugal-who-lunch last March, by offering the $4 Toasty Torpedo, a 13-in. sandwich on a thin loaf of ciabatta bread. It did it again in July with an 8-in. version, the $3 Toasty Bullet. And in October the company expanded its bargain options with a Bullet plus soup or salad combo for $5. Since the Torpedo's launch, Chief Executive Richard E. Schaden says, sales have been flat, even as industrywide revenue has declined and stalwarts such as McDonald's (MCD) have reported drops in U.S. traffic. "Flat is the new up," says Darren Tristano, executive vice-president of food-service consultancy Technomic.

Quiznos seems to have put internal turmoil behind it, too. The privately held company has had three CEOs in three years, including Gregory Brenneman, who took over in 2007 after three years as Burger King (BKC) chief. Brenneman is now executive chairman, while Schaden, who founded the chain in 1991, reclaimed the CEO spot last February. Quiznos also just settled four class actions by franchisees, agreeing to pay $114 million in compensation for disputed food and marketing fees. Over the three-year legal fight, the number of franchised restaurants slipped 10% in the U.S., to 4,100 today.

"A LITTLE DATED"

Management was thrown for another loop when Subway slashed prices on foot-long subs to $5 in spring 2008. Denver-based Quiznos responded by lowering its prices too. But the discounting ate into margins and didn't lift sales. Quiznos also cut back on product development. In late 2008, though, as rising joblessness and Subway's cheap prices took more lunchtime customers away, Schaden decided to reconvene test groups to find new sandwiches.

While restaurant operators regularly enlist consumers for feedback, many have turned away from focus groups. Panera Bread (PNRA), for instance, asks customers to try new products individually in restaurants, to avoid the peril of group think. Andrew Stefanovich, a senior partner at Prophet, a marketing consultancy in San Francisco, says a shortcoming of focus groups is that consumers can only react to what they're fed, and not propose something new. "Frankly, it's a little dated," he adds.

Quiznos executives nonetheless swear by their speed-dining approach, empaneling as many as 25 groups in back-to-back, 90-minute tastings. By reworking recipes based on snap reviews, Quiznos can get products from test kitchen to the market in six months. Panera requires at least a year. Quiznos also can find the right ingredients, portion sizes, and pricing that ensure healthy profits before moving ahead.

Now Quiznos is gunning for upmarket consumers, too, with two new subs priced at up to $7.49. That may seem foolhardy, with unemployment at 10%. But Schaden is confident. After all, focus groups ate them up in October.

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