Why Subway Is in Trouble
By Alaina Lancaster on Jan. 24, 2018MILFORD, Conn. -- The largest quick-service restaurant chain in the United States is in the midst of a hard run. When talking with Subway franchisees about their parent company, the tension is often palpable.
One retailer and Subway franchisee, who spoke on condition of anonymity, noted that the franchisor turns a blind eye to how development agents reject site proposals from franchisees and build the locations for themselves. That retailer does not appear to be alone in his dissatisfaction with the sandwich chain: A recent report from Business Insider of insights from more than 30 franchisees of the Milford, Conn.-based behemoth echo a similar tone of dissent.
As traffic and store counts continue to slip, Subway’s story offers a cautionary tale for retailers, “the result of numerous decisions going back years, as well as some bad luck and a consumer that continues to change,” wrote Restaurant Business.
Here are three lessons convenience stores can learn from the brand’s missteps ...
1. Overzealous expansion
Some industry experts think that the restaurant industry is nearing saturation. Dunkin' Donuts CEO Nigel Travis told Business Insider the country is likely “over-restauranted.” That’s especially troublesome for Subway and its about 44,000 locations in 100 countries, according to the chain’s website. With that many cooks in the kitchen, franchisees have told Restaurant Business that they have to open new locations just to protect their nearby units. If they didn’t, one of the chain’s 21,000 franchisees would move in on their territory.
Through the recession and dwindling traffic, down 25% since 2012, according to Restaurant Business, Subway did not let up on its expansion. The chain leads the industry in terms of U.S. unit count.
2. Marketing mishaps
Both of the brand’s slam-dunk marketing campaigns turned into liabilities in the past few years.
Jared Fogle, who popularized the Subway Diet and lent a healthy glow to the chain, was sentenced to 15 years in prison for child pornography and sex crime charges. Although consumer sentiment around the chain recovered, sales have yet to bounce back, according to a BuzzFeed News report.
Sluggish sales could also be due in part to the company’s pivot away from its $5 Footlong. When Subway announced that the chain would instead offer a $6 Footlong deal in 2016, fans took to social media to deride the loss of value. In December, the chain announced a return to a $4.99 Footlong to boost stagnant sales. Now, it’s franchisees who are cheesed off. Hundreds of Subway operators have asked the franchisor to postpone the plan for fear the discounts could further hurt fraught bottom lines, according to Restaurant Business.
3. Tough competition
Since Subway began franchising in the ’70s, the sandwich segment has exploded with new entrants, such as Jimmy John’s, Jersey Mike’s Firehouse Subs and Potbelly. To modernize and compensate for competitor’s strengths, such as Jimmy John’s "freaky fast delivery," the chain has rolled out a “Fresh Forward” design. The prototype includes digital menu displays, ordering kiosks, overhauled menus and new packaging and uniforms.
The strategy seems to be working, at least for some franchisees. “Since opening with our new look, we have seen our turnover rate drop by more than half,” said John Dell, owner of 98 Subway restaurants and the first franchisee to adopt the prototype at his unit in Knoxville, Tenn. “At the same time, our customer service comments have improved by more than 30% over the same time period.”
But Subway is not dead. Restaurant Business points to Arby’s and KFC, which have been able to overcome bleak sales records and angry franchisees, as back-from-the-ledge success stories. “A few quarters of sales increases can fix many of these issues," RB wrote. “Sales are, after all, the silver bullet that fixes everything.”