Subway has ignored “screams for help” from its struggling franchisees for years — and is now vulnerable to being “gobbled up” by a fast-growing rival, a lawyer representing hundreds of sub store house owners warned.
Subway final week mentioned CEO John Chidsey will “retire” on the finish of the yr — 5 years after he turned the primary government outdoors the founding household to guide the chain. That’s even if Chidsey had mentioned he deliberate to remain after the corporate was bought in Could for $9.5 billion to Roark Capital.
As Subway introduced the CEO exit, it additionally revealed it was scrapping its $6.99 footlong deal a month early after admitting to franchisees the deal “is not driving anticipated results,” Restaurant Enterprise Journal reported.
Subway’s downbeat headlines got here in stark distinction to latest information from a a lot smaller competitor, Jersey Mike’s. The latter now operates simply 3,000 US areas versus Subway’s 20,000 — but bought itself to buyout agency Blackstone Group for $8 billion, not far off what Subway fetched six months earlier.
Subway’s $6.99 footlong promotion was the most recent in a collection of punishing strikes underneath Chidsey for Subway franchisees, who’re compelled to pay an 8% royalty charge on gross income no matter their profitability.
Chidsey has likewise compelled franchisees to transform eating places regardless of uncertainty on returns and pay “undisclosed” know-how charges, in response to Robert Zarco, who supplies counsel for the North American Affiliation of Subway Franchisees, which represents about half of Subway’s 20,000 US eating places.
“If Subway keeps treating its franchisees the way it has over the last five years where it is ignoring their screams for help, Jersey Mike’s will have an easy task of gobbling up the Subway brand,” Zarco advised The Publish.
“I hope it’s the reason for the change because it should have been,” Zarco added, referring to Chidsey’s exit. “Because of the tensions that are prevalent, it is a good move for Roark to come in and wipe the slate clean and establish a better working relationship with the franchisees.”
Chidsey had not made any notable overtures to NAASF, Zarco mentioned.
Roark — which owns dozens of main fast-food chains together with Dunkin’, Arby’s, Sonic, Baskin-Robbins and Buffalo Wild Wings — didn’t reply to requests for remark.
At a swiftly assembled assembly in August, Subway President Douglas Fry admitted that gross sales had been down 5% to 10% year-to-date in lots of areas. In the meantime, he estimated that Jersey Mike’s same-store gross sales, or gross sales at shops open at the very least a yr, had risen 1%, sources advised The Publish.
“We’re doing worse than the rest of the industry,” Fry admitted on the time, in response to the sources.
However the $6.99 footlong deal prescribed by CEO Chidsey — a former Burger King CEO — solely made issues worse, in response to franchisees.
“This is the first time I haven’t honored a promotion,” a franchisee with greater than 10 Subway eating places within the US Northeast advised The Publish.
That retailer proprietor was one of many fortunate ones: Whereas most Subway franchisees who signed contracts earlier than 2021 can choose out of promotions, newer franchisees had been compelled into the money-losing deal.
“The last 20 days have been kind of hellish,” a Subway worker wrote Wednesday on Reddit concerning the worth meal. “It might have gone better if the higher-ups actually worked in the store and saw why the owners didn’t want it to be for any sub.”
The franchisee griped that underneath the promotion, a single buyer may order 4 “Monster Subs,” which have steak, pepper, cheese and onion, for lower than $30. In consequence, the $6.99 footlong deal failed to enhance his product sales, at the same time as his prices skyrocketed.
Subway is making Carrie Walsh, President of its Europe, Center East and Asian areas, its interim CEO. Zarco mentioned she is favored by a few of the Subway franchisees who know her.
Subway has shrunk by 15% over the previous 4 years, from 23,799 US eating places on Jan. 1, 2020 — shortly after Chidsey took the helm — to twenty,133 on Jan. 1, 2024, in response to public filings. The chain is believed to have gotten a bit smaller this yr, sources mentioned.
In the meantime, the common Jersey Mike’s, whose CEO Peter Cancro has change into a billionaire off the Blackstone deal, makes about 3 times as a lot cash as the common Subway, in response to public filings.
“Blackstone buying Jersey Mike’s tells me it’s time for me to run,” the Northeast-based Subway franchisee with greater than 10 eating places mentioned, including that he may simply see Jersey Mike’s greater than doubling in dimension quickly to eight,000 US eating places.
Blackstone Senior Managing Director Peter Wallace on Nov. 19 mentioned his agency had “deep experience helping accelerate the expansion of high-growth franchise businesses” like Jersey Mike’s.
