America's Largest Fast-Food Chain May Be Losing Locations for "Dirt Cheap"
Being a franchisee of America's largest fast-food chain is not only tough but also financially unsound, according to Subway operators we've spoken to over the course of a few weeks. Facing operational hurdles, declining sales, and receiving no help from management is prompting an increasing number of them to look for exit strategies… and fast.
As the New York Times reported back in 2018, the chain's rapid expansion came at the detriment of its franchisees, who had to bear the brunt of Subway's draconian tactics in turning a profit. According to operators who have spoken to Eat This, Not That! (but wished to remain anonymous for fear of retribution from the company), these included unreliable franchise agreements, deliberate restaurant takeovers by Subway's business development agents, as well as threats of legal action against anyone who speaks up.
This year, amid pervasive rumors that the chain is being groomed for sale, the problems were laid out in the open when operators banded together and issued an open letter to Elisabeth DeLuca, the widow of the chain's original founder and the current co-owner. However, the letter has yet to receive a response, fueling the frustration among franchisees, who operate 100% of the brand's restaurants.
Data from research firm Technomic shows that Subway's domestic sales dropped to $8.3 billion in 2020, down from $10.2 billion in 2019. And the decline in business has been accompanied by massive store closures, too. Since March of 2020, Subway had by far closed the greatest number of locations among large fast-food chains, reporting 1,557 fewer stores than a year ago—a 6.6% net loss. Currently, the chain has over 22,200 restaurants, but insiders say that number is likely lower and could continue to drop drastically in the following years.
"From our peak of over 27,000 stores [in 2013], we are down almost 25%," said one West Coast franchisee who owns multiple locations. "If Subway continues to ignore franchisees and do nothing, it wouldn't surprise me if another 25% of the stores are gone in the next three years since the franchisees whose lease is coming up for renewal are not favorably eyeing this business."
According to another who spoke to Business Insider, franchisees are looking to unload stores "dirt cheap" to get out of leases and ownership. He said the value of a Subway restaurant has decreased significantly in his state of California in the last five years, going from $300,000 or $400,000 down to $100,000 at best.
Experts seem to agree. The brand is viewed as an unfavorable investment opportunity thanks to growing competition in the sandwich arena and low profitability of Subway's locations.
"The potential profit is down significantly—it makes little sense to continue operating it," the West Coast franchisee told us. "It's sad because this fate is completely avoidable."
Eat This, Not That! has reached out to Subway for comment but has yet to receive a response.
For more on restaurant chains, check out This Bankrupt Sandwich Chain Is On the Brink of Disappearing, and don't forget to sign up for our newsletter to get the latest restaurant news delivered straight to your inbox.