![]() Subway has made some significant changes over the last few years. Jersey Mike’s average store volume reached $1.2 million in 2022, well above Subway’s $492,536 average during the same time, according to FranData, a franchise data analysis company. JPMorgan Chase & Co, which is handling the sale, is dangling a $5 billion debt financing package to help entice skittish buyers worried about where they’d get the money to buy the company, according to Reuters. It’s no small concern: Although Subway reported 10 consecutive quarters of positive sales growth in April, its franchisees still lag behind competitors. And when combined with rising borrowing costs and uncertainties around the economic outlook, none of this bodes well for Subway’s $10 billion asking price. This trend is, naturally, bad for royalties by keeping them flat. Scrutiny over the ingredients of its bread, the freshness of its vegetables and the contents of its tuna. Subway’s reputation took a serious blow in 2015 when its spokesperson Jared Fogle was convicted of sex crimes against children.įast forward to today and the company closes one store for almost every one it opens. But as consumers became increasingly aware of food ingredients, additives and fillers, Subway was slow to evolve along with them. A few coffee shops within four blocks of each other in a dense urban city is probably not a problem in terms of competition, but it is when you’re selling a foot-long sandwich or anything similar.įor a time, Subway fostered the idea that it was the “healthy” alternative to fast food, whose horrors for your health spread through films like Fast Food Nation. “There are no radius restrictions or minimum or maximum population requirements which limit where we can license or open another Subway Restaurant, unless otherwise provided under applicable state law,” according to the company’s 2021 franchise disclosure. So while the startup costs look attractive, it’s the fees that really hurt franchisees, especially when franchisees are not given any exclusivity when it comes to a specific territory. To be sure, Subway’s royalty fee of 8 percent of gross sales and its 4.5 percent advertising fee are high compared with competitors such as Jersey Mike’s, which charges a 6.5 percent royalty and 5 percent for advertising. That’s well below the cost of opening a McDonald’s restaurant, which can be anywhere from $1 million to $2 million. It costs anywhere between $207,050 and $476,900 to open a Subway,Īccording to the company. But how to reduce concern among potential franchisees about oversaturation? The answer is low startup costs. ![]() That helps to explain why the company put one of its sandwich shops in a house of worship. Here’s the rub: Subway doesn’t own any of its outlets, which means that to increase profits it either has to add new franchisees or raise fees charged to those franchisees. At one point a decade ago it even surpassed McDonald’s as the world’s largest chain of restaurant franchises. Under a be everywhere and anywhere strategy, it seems like the company thought any venue was ripe for one of its sandwich shops, from schools to laundromats and even churches. From a few hundred restaurants in the 1970s, it now has nearly 37,000 around the world. ![]() is asking itself right now - and it may not like the answer.Īlthough its distinctive green and yellow signs have become a fixture of American fast casual dining, the closely-held Milford, Conn.-based franchise has yet to find a buyer six months after putting itself up for sale, asking $10 billion. It’s not so much the price tag that’s the issue - McDonald’s Corp has a stock market value of about $213 billion - but rather Subway’s growth-at-any-cost business model. And yet that’s the very question sandwich chain Subway Restaurants Inc. At a time when the value of an increasing number US companies are exceeding the once unthinkable $1 trillion mark, it feels odd to ask whether businesses can be too big to be profitable.
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