Chapter 4, Problem 1EA

After seeing a Quiznos franchise recruitment infomercial to recruit franchisees, you are tempted to apply to open your own Quiznos sub shop. However, your research on the company turns up some disturbing information. Many current franchisees are unhappy with the company's management and practices, among them excessive food costs, lack of promised support, and selling new franchise locations that are close to existing stores. A group of New Jersey franchisees sued Quiznos for selling them franchises but not providing locations 18 months after taking their franchise fees. Some franchise question Quiznos's purchasing tactics, food and beverage suppliers based on the referral fees it receives instead of the lowest-cost provider. Other franchisees have suffered major financial losses.

Quiznos, which owned or operated more than 5,000 sub shops at one time and now has less than I locations with less than 900 in the United States, disputes the various claims. The president of the company points out that in a franchise operation, there will always be unhappy franchisees and those who can't make a success of their units. Besides, Quiznos's franchise offering materials clearly state that the company may open stores in any locations it selects.

Using a web search tool, locate articles about this topic, and then write responses to the questions.

Be sure to support your arguments and cite your sources.

Ethical Dilemma: What are Quiznos's obligations to its franchisees? Is it ethical for the company to new franchises very close to existing units and to choose vendors based on fees to the parent company rather than the cost to franchisees?

Sources: The Franchise King, "What Happened to Quiznos?" accessed September 14.2017: Karsten Strauss. "Is Quiznos Toast?" Forbes. https://www.forbes.com June 17.201 S: Venessa Wong. "Can Quiznos Be Saved? - BuzzFeed News, https://www.buzzfeed.com, December 8.201 S: Kristi Arellano. "Quiznos" Success Not without Problems." Denver Post June 19.2005, p. Kl; Dina Berta. "Quiznos Denies Franchisees' Charges of Cost Gouging, Encroachment Problems," Nation's Restaurant News. June 20, 2005, p. 1 "Quiznos Denies Fraud Suit Charges by 17 Franchisees," Nation's Restaurant News. May 16, 2005, p. 102.

Summary Introduction

To explain:

The obligations Company Q owes to its franchisees and whether it is ethical for Company Q to start new franchisees at the place where businesses exist from before. Whether it is ethical to choose vendors on basis of fees to be given to parent company than the cost to franchisees.

Explanation of Solution

The success of a franchise depends on the mutual understanding between the franchiser and the franchisee. If both parties cannot build a relationship based on trust and mutual understanding it would be impossible to be successful in the long run. There are so many franchising outlets that are successful in one part of the world and would fail completely in another. The main reason behind this is the party's inability to build a sustainable relationship.

As a franchiser, Q has an obligation to ensure the long-term success of the franchisee. This includes, training, cost reduction, strategy implementation, tactical advice, cash management, technological and marketing support etc. Only if the franchisees built their business will Q be able to continue receive the franchise fees and royalties.

Even though Q has the legal right to open stores in any location they see fit and select suppliers based on their preference; it cannot do these things by undermining existing franchisees. By hurting existing franchisees, Q is neglecting its ethical responsibility of acting in a way that benefits both parties.

Current practices of Q are questionable and violate ethical standards. This will hurt them in the long-run, and it is quite evident with the number of outlets being reduced to 1500.