Subway Plans Franchisee Overhaul
As we hurtle towards the end of 2018, it’s time to look back and reflect on some of the big franchise stories of the year. Earlier this year, franchise giant Subway made headlines when they implemented an aggressive restructuring program, closing or consolidating hundreds of stores across the US. Subway is one of the oldest players in the fast food market, having grown over its 50 year history into the biggest restaurant chain in the world. As at the beginning of 2018, there were over 42000 Subway franchisee units across 100 countries, with over 26000 in the US alone – that’s as many as Starbucks and McDonalds combined! (Source : Statista)
And whilst this drastic cull might have been seen by some as a simple reaction to falling customers numbers and poor performance figures across many locations, has this program of closures in fact been a savvy move heading into 2019 by the brand, which brought us such favorites as the Meatball Marinara and Veggie Delite?
Subway of course operates in a highly competitive marketplace, facing competition not only from other fast food franchise giants, such as McDonalds and KFC, but also coffee shop chains, supermarkets and independent retailers. It’s already undergone a massive re-brand and store redesign over the last few years, expanded its product range to include healthier options and paninis, and introduced customer loyalty programs to try and boost customer numbers and improve its outdated image.
Access Is More Than Just Inclusion
One of the major issues with the Subway franchise model has always been that it allows stores to open very close in proximity, and clearly this has the result that neighboring franchisees end up competing against each other for customers, creating a negative culture within the network. There has been open criticism that the brand focused more on the number of units, rather than helping it’s franchisees increase sales – a fact admitted by CEO Suzanne Greco to Bloomberg in April of this year: “We focused in the past on restaurant count. We’re focused now on strengthening market share.”
In addition, the brand has also experienced some publicized internal conflicts in the franchisor/franchisee relationship, to the point franchisees numbering in the hundreds petitioned the Head Office in 2017 over the brand’s plans to reintroduce a value Footlong promotion amidst fears of the impact the offer would have on struggling franchise units.
Subway’s move to restructure and roll out a drastic program of store closures (and not for the first time – they closed several hundreds of unprofitable stores in 2016 just before the re-brand) is one that would strike fear at the heart of most franchisors. Of course, there’s kudos in numbers, and no franchisor realistically wants to see their franchisee network decline in size. However, quality always wins over quantity, and Subway has keenly identified that part of their route back to success, as well as improving internal lines of communication within their existing franchise network and providing unhappy franchisees with exit opportunities, is focusing on their multi unit franchisees. This year has seen the trend towards multi unit franchise owners gain further traction – where a franchisee owns multiple franchise units in different locations. It makes sense to scale up this way for both franchisor and franchisee – a multi unit owner is already familiar with the brand and operating procedures, and there are saved costs for both parties in having one “back office” for several locations. Subway has had a large proportion of it’s franchisees owning multiple units for a long time, so this isn’t a new thing for the brand by any means. But now, as well as shutting the door firmly in some venues, Subway has carried out a process of “consolidation”, allowing some of their single unit franchisees to sell out their multi unit franchisees wanting to expand their portfolios. Taking this step should allow Subway to build a stronger franchise network and ultimately a more streamlined and profitable operation overall too, hopefully allowing the brand to regain a foothold in the marketplace.
The only thing that remains to be seen as we head into a brand new year is – will this be too little too late for the home of the Footlong, or is the Six Inch scale-down approach one that will pay dividends for both subway and any franchisee in 2019?