Matty-Sways

Subway's franchise system helped turn the sandwich chain into a giant and insiders say it is now causing problems.

Subway is the biggest chain in the US, 24,800 locations, almost as many as Starbucks and McDonald's combined.

Over the past four years Subway is shrinking, 359 locations shuttered in 2016, 909 in 2017 and 1,108 last year. Declining sales and shifting trends have played a role in the closures, with Nation's Restaurant News reporting that the chain's system sales dropped by 3.6% in 2018.

The thousands of Subway locations across the US have been opened by franchisees — small business owners, working independently from the parent company. It only costs $116,000 to $263,000 to open a Subway location today, making it one of the least expensive franchises in the restaurant industry. For comparison, it costs $1.3 million to $2.2 million to open a McDonald's franchise. 

The company's 8% royalties, among the highest in the industry, and low cost of opening has lead to a glut of stores that are owned by different people right next to each other.

"It used to be the joke on my side of the franchise industry that, not only will Subway as a corporation take anyone with money, but they'll open a location three streets over," franchise industry expert Joel Libava told Business Insider. "They don't care." 

It was this mentality that lead to a Fortune article from 1998 titled, "Subway is the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of."

Franchisees have long complained about Subway allowing locations to open near each other, risking cannibalizing businesses. "I saw the handwriting on the wall with the focus being on opening as many units as possible, even if it angered franchisees," Scott Godwin said, who owned three Subway locations in Virginia until the early 1990s.

Is this a correction or the begin of a colapse bright on by growing non-strategically and too fast.

Read full article here

Comments

Economics, Finance and Investing

FEATURED
COMMUNITY