Subway vs Quiznos | Footlong Fiascos | 4

0:00A note to listeners, this episode references explicit content that may not be suitable for younger listeners.

0:18September 2008 in Rockville, Maryland, about 15 miles north of Washington, D.C. John Edgars walks into a Quiznos in a strip mall along a busy commercial strip. He's mid-30s, in oversized skater jeans and a black hoodie. He approaches the counter, but no one's behind the register to take his order. A teenage girl in a Quiznos polo shirt sits with a young man at one of the tables. Edgars turns to her and holds up a Quiznos coupon for a free sub. Hey, you work here? I'd like my free sub. I'll take the meatball. The counter girl frowns at him. She's annoyed that he's interrupted precious time with her boyfriend.

0:59We don't accept the coupon promotion. The best we can do is$2 off any sub. Edgars drops the coupon on the table in front of her and jabs at the words FREE SUB in all caps. Read it and weep. It says FREE SUB. I don't see anything about two bucks off anywhere, do you? The counter girl ignores the coupon. She points one of her electric blue press-on nails at a computer printout on the bulletin board by the drinks dispenser. It reads, there's no such thing as a free lunch, no coupons accepted. Read that and weep. It's manager's orders. I can call him for you, but he'll just say the same thing. The company won't reimburse us for coupons, and he says if we honored them, we'd go bankrupt in a week.

1:43You're like the 20th guy who's coming here today with one of those things. Edgars grabs the coupon and scans it for a phone number to call. Forget this, I'm going to Mickey D's. Later that day, Edgars gets worked up all over again and calls an 800 number for Quiznos' customer service. He gets stuck in phone tree hell for 15 minutes and hangs up. Variations on this scene play out in Quiznos across the country. As the Great Recession digs in, the company tries to lure customers through the door by plastering social media, TV, and radio with ads for free food promotions, with no plans of reimbursing their franchisees.

2:25Furious store owners refused to participate. They band together in a flurry of new lawsuits, charging the parent company with fraud and abusive practices. A civil war between management and the front lines, with angry customers caught in the middle. It's a recipe for disaster. And even worse is yet to come. But this time, it's Subway's turn to burn their toast.

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4:59From Wondery, I'm David Brown and this is Business Wars.

5:26On the last episode, Quiznos won the Internet with edgy Super Bowl ads and mushroomed to 5 ,000 locations. But high company-mandated costs and increased competition drove franchisees' profits into the ground. Meanwhile, Subway finally offered oven-warm subs and hit marketing gold with one of the most successful promotions in fast food history, the$5 Footlong. But with the recession deepening, both chains struggle. Subway turns once more to its longtime pitch person, Jared Fogle, to boost sales. Their timing couldn't be worse. This is Episode 4, Footlong Fiascos.

6:17October 2008 in Raleigh, North Carolina. Jared Fogle crosses the main stage at the State Fair and takes his place at the Mike. Ten years after his 245-pound weight loss, he's still trim and fit. He carries a pair of his now-famous blue jeans in his hand. the ones with a 60-inch waist. Howdy, North Carolina. It's an honor to be here with all you fine folks on my year-long tour de pants. Vogel holds the pants up with both hands and pivots to stage left and right, so everyone gets a good look at how wide they are. It looks like two Jareds could fit in them. Yep, hard to believe I ever wore these.

6:58And at the end of this tour, I'm going to donate them to a museum where anyone can go to remind themselves that if I can eat healthy and lose all that weight, so can you. But I'm not here to lecture you about nutrition. I'm here to host the Pants Dance Revolution competition, so let's get to it. Our first finalist is Jackson Merrill from right here in Raleigh. He submitted a video of his hip-hop moves earlier this year and wowed the judges. So let's hear it for Jackson. Let's see him dance in his pants. Vogel carries the mic in his pants with him and watches from the wings as a 16-year-old boy slide steps onto the stage.

7:41He's wearing low-hanging baggy jeans that show the band of his Calvins and bright red high tops. He opens with a front flip into a split. Jared taps his foot in time with a beat. The pants dance competition is off to a great start. Fogle's year-long whirlwind tour de pants takes him and his big jeans to ten major cities and countless schools, health care facilities, and recreation centers. Subway also runs a series of national TV ads featuring celebrities congratulating Fogle on his decade of healthy living. Between the ongoing$5 footlong promotion and Fogle's relentless campaigning, Subway remains at the top of the sandwich franchise rankings.

8:26And it keeps its position as the second biggest fast food chain behind McDonald's through the recession. But despite a slowly recovering economy, Subway is headed for rocky waters.

8:42It's a late afternoon in December 2008 at Subway HQ in Milford, Connecticut. Marketing exec Jeff Moody sits at his desk and makes a final edit to a presentation for tomorrow's morning meeting. He's the CEO of Subway's marketing company. Done for the day, he logs off his computer, gets up and grabs his coat from the back of his chair. He's looking forward to a quiet night watching Netflix. Moody gives the phone the evil eye, but picks up the receiver anyway. Jeff Moody here. Hi, my name is Cindy Mills. I'm a franchisee in Pensacola, Florida. I'm contacting you because I met your spokesperson, Jared Fogle, at a company conference a while ago.

9:25Right after that, he started calling me, sometimes every day. And well, I'm really upset. He said a lot of disturbing things. I don't think he's the kind of person you should have representing your company. Moody sits down again. Inwardly, he's groaning. He's had conversations like this before. In 2004, another franchisee told the company Fogle approached an underage girl at a subway event and seemed overly interested in getting to know her better. The PR team followed up on that incident and hauled Fogle over the carpet. Moody is well aware he has to finesse this new situation, or it could blow up in his face.

10:07Hello, Ms. Mills. I appreciate the call. Now, how can I help? For starters, you should keep him away from children. Subway's always sending him out to talk to school groups. Do you know he went to Thailand for what they call sex tourism? He's not a healthy person. He told me he likes to have... Moody's hand white knuckles the phone receiver. The words plausible deniability leap into his head. The less he knows for sure, the better. Miss Mills, I apologize for interrupting, but please don't tell me anymore. We've heard the rumors for years, but don't worry. He's met someone. She's a teacher, a wonderful gal.

10:45He seems to love her very much. They're getting married, in fact. We think she'll keep him grounded. But there's more. He wanted me to go on Craigslist and solicit... Moody stands up. He just can't hear anymore. Thank you so much for calling. And now your concerns are noted, and the company takes comments like this very seriously. Thank you again. Goodbye. Moody puts on his coat and goes home, praying Fogle really has turned a corner. If he hasn't, they could be in big trouble. But he's plotted out the optics before. Say they sever ties with Fogle and the press ferrets out the unsavory rumors anyway.

11:24Well, that would be a nightmare lose-lose situation. Better to keep his head down and hope for the best. But Moody has no way of knowing that Subway's headed straight for one of its biggest crises yet. And it has nothing to do with Jared Fogle.

11:45Subway. It's June 2013 in Toronto. Subway CEO Fred DeLuca sits at a table in the restaurant of his hotel, flanked by four Canadian franchisees. It's one of the hundreds of trips he makes each year to meet with Subway store managers all over the world. He's dressed in business casual, blue slacks, white button-down, and a blue V-neck sweater. So, guys, I'm here to listen and learn. Just don't suggest we add poutine to the menu. I can't stand that stuff. A franchisee puts his coffee cup down and takes the lead. Don't worry about that, Fred. The menu items aren't a problem. I'm concerned about our contracts.

12:25They haven't changed in over a decade. I'd like to know if you plan to update them and what kind of say we'll have on the new terms. DeLuca nods, but his mind is elsewhere. Despite his wool sweater, he's freezing. He's afraid everyone can hear his teeth chattering. And there's something going on with his vision. The room's getting dark as if someone dimmed the lights. He pushes his chair away from the table to go to the restroom and splash some cold water on his face. Excuse me, gents, I gotta get some air. He starts to stand, but halfway up, collapses to the floor, taking a water glass with him.

13:03Hey, are you okay? Somebody get a doctor, come on. Two days later, a doctor in a Toronto hospital delivers the bad news. DeLuca has an aggressive form of leukemia. An air ambulance transports him to Yale New Haven Medical Center in Connecticut. DeLuca needs a bone marrow transplant, followed by chemotherapy. His prognosis is bleak. With their tireless leader out of commission and no clear successor in the wings, Subway drifts. But Quiznos is in no position to take advantage of their rival's vulnerability. They're in a full-on tailspin.

13:46It's 2014 at Gold's Gym in DeWitt, Michigan. Joe Lopez finishes a set of Bulgarian split squats and places two 30-pound free weights back on a rack. He's in his early 40s, short and jacked like a personal fitness trainer. He owns a few Denny's locations in the area and is fanatical about working out. Lopez grabs his phone out of his shorts pocket and heads to the lobby to take a call. He's been shopping around for a new fast food location to add to his stable, and he's expecting a call from his realtor. Hello, Sam? Hey, Joe. I just saw the Quiznos properties I told you about in Grand Rapids and Lansing, and I think you should jump on this.

14:30It's a distressed sale. The owner's so desperate to get out. He's willing to let him go for$60 ,000. Lopez visibly starts at the price. That would add up to$120 ,000. He knew the quality Italian subchain would cost more than his downmarket Denny's, but not that much more. He'd have to dig deep to swing that. What? Did you say$60 ,000? $60 ,000 each? I'm not sure I can come up with that kind of cash and have enough left over to make improvements. No, it's$60 ,000 total, only$30 ,000 apiece. The chain is bargain basement right now. I'm telling you, for that kind of dough, you can't afford to say no.

15:12Lopez snaps up the rock-bottom price doors. But within a year, he, too, is out of business. Like so many other store owners, he can't make a go of the foundering chain. Since 2007, more than half of the 5 ,000 Quiznos worldwide have closed their doors. This massive implosion, the fastest in fast food history, has a myriad of causes. Still reeling from the Great Recession, Quiznos paid out$206 million to settle the class action lawsuit with its disgruntled franchisees. Growing competition from lower price chains like Jimmy John's, Jersey Mike's, and industry leader Subway drove Quizno's revenues down and debt up to the tune of$875 million.

16:00As the debt grew, the company's advertising budget vanished, creating a vicious circle of lower sales. In 2011, the Chaudens declared Chapter 11 for the one-time sub-success story and sold a majority share to two hedge funds. Now, in 2014, the two hedge funds are suing the Schadens for fraud, alleging that company executives obscured store closures, manipulated earnings, hid shortfalls, and floated excessively aggressive projections to prob the investors into buying the company. And on top of everything else, the company faces 10 new franchisee lawsuits. Quisno's is in freefall. But back in Milford, Connecticut, all is not right with rudderless subway.

16:51DeLuca's sister, Suzanne Greco, stands in for him as he battles leukemia. U.S. sales declined by$400 million, falling faster than any of America's other top 25 food chains. And that's despite spending a billion dollars in advertising. The Mega Deli is now America's third best-selling food chain, behind McDonald's and Starbucks for the first time in seven years. Franchises like Chipotle Mexican Grill and Firehouse Subs are beating Subway at the game it helped create, offering fresher, healthier, build-your-own-meals. It's led to what analysts say is one of the sub-empire's biggest threats yet. What Americans see as healthy has evolved.

17:41Subway hasn't. If Subway doesn't get with it soon, they'll follow Quiznos in a nosedive to the bottom of the sandwich heap.

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20:08It's July 7th, 2015 in Zionsville, Indiana, 15 miles northwest of Indianapolis. Jared Fogel's usually quiet suburban home buzzes with activity. Federal officers in Navy FBI t-shirts crisscross the lawn carrying computers, media storage disks and cardboard boxes to a white evidence truck in the driveway. It's a humid morning and they're already sweating. A fire marshal leads a black police dog on a long red leash through the front door. Neighbors huddle on the sidewalk and in their front yards, watching the raid unfold. Across the street, dozens of TV crews and journalists jostle behind yellow police tape, competing for the best camera angles.

20:54A young woman leaves the pack and approaches a man wearing a bathrobe standing in the middle of the street. She holds her iPhone up in front of the bystander. Hi, I'm from the Indy Star. Do I have your permission to record an interview with you? The tape's just for background. The man waves the phone away. Nah, I just came out to see what all the fuss is about. Jared's an okay guy, though. He lent me a pair of gardening shears once. The reporter persists. The police won't say what the target of the raid is, or if Jared Fogle is a suspect, just that they're conducting an investigation in the area.

21:26But were you aware that the executive director of Jared Fogle's foundation was arrested a few months ago and charged with possession of child pornography? Have you noticed Jared Fogle engaging in any suspicious behavior? The man draws his bathrobe tighter around him and shudders. Man, sorry, I don't know anything about that. Wow. Jared Vogel, the Subway guy in child porn. Yikes. That's not good. The raid comes just five months after Subway celebrated Vogel's 15 years of weight loss with a high-profile commercial during the Super Bowl. It's worse than not good for Subway. It's catastrophic. Later that day in Subway HQ in Milford, Connecticut, Subway's top management gather around a conference table with acting CEO DeLuca's sister, Suzanne Greco.

22:22A vice president in marketing paces nervously at one end of the room. He stops in front of a beverage cart in the corner and pours himself a glass of water from a pitcher. Before we do anything, we should call Fred. I know he's sick, I know, but you know him. He'll kill us if we don't consult him first. DeLuca has recently fallen into remission thanks to the bone marrow transplant. He's at his home in Connecticut under strict rules to avoid stress. His sister, Suzanne, is still unused to her leadership role. She reaches for the speakerphone on the table. I know the number. I'll call. Holy Moses, you guys.

23:01I was just going to call in. What the hell is going on with Jared? I'm watching the raid on TV. You know that guy always gave me the creeps. He'd kiss my butt and then get belligerent when I wouldn't give him more money. I gave that guy a car once. Nobody ever gave me a car. Despite the crisis, the subway execs are relieved. DeLuca sounds more like himself than they expected. Suzanne smiles and takes the lead. What do you think, Fred? Should we fire him right now or wait? I mean, Jared hasn't even been charged with anything yet, and he is reportedly cooperating fully with the police in this investigation.

23:35Ah, geez, Sue, this is obvious. Suspend him right now. We have to take an unequivocal stand. We can always fire him later. The marketing exec rubs his eyes. He rushed into the office as soon as he saw the morning coverage of the 6 a.m. raid. He's tired. They're all tired. But Fred, you know every time we pull back on Jared, the franchisees get mad. He's the rain man. Guys, don't you get it? This is the end of Jared. Nobody's going to make big money off a pedophile. Or a suspected pedophile, or whatever he is. A PR exec stands up and heads for the door. I'm going to start on the press release right now.

24:17Fred's sister watches him leave and bites her lower lip. He didn't even wait for her order. No one takes her seriously. We got it, Fred. You're right. I'll check in later. You get some rest. In the rush to put out a statement, No one remembers a recent addition to the Subway for Kids part of the official company website. It's a game featuring, of all things, Jared's famous 60-inch jeans. Kids can use them like a butterfly net to catch sandwiches, bottles of water, and candy to earn points. The name is particularly unfortunate. It's called Jared's Pants Dance. Promos for the game stay live well into August, after the company has fired their longtime mascot, and Fogel admits in court to possession of child pornography and sex with minors.

25:09The press touts it as one more example of the OG sub shop being dysfunctional without DeLuca, its micromanaging founder at the helm. A few months later, Subway celebrates its 50th anniversary. Just weeks after that, DeLuca dies without a clear successor. Subway is in uncharted waters. But Quiznos, after five years of revolving door leadership, finally seems to be charting a new path.

25:49It's December 2015, three blocks from Quizno's original store in downtown Denver. A 30-something couple parked their car in a strip mall lot. A black, white, and red neon sign on the brick facade reads, Quizno's Grill. There's a logo between the two words that looks like a fraction, the letter Q on top of a black line above a G. The woman looks up at the sign and turns to her boyfriend. Quizno's Grill? This doesn't look like Quizno's. Are you sure this is right? Her boyfriend shrugs. He's confused too. When you said you had a hankering for Quizno's Chicken Parm Sub, I looked it up online. This is what I found.