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A few years ago when Subway was annihilating its competitors with cheap sandwiches and healthy alternatives to your typical hamburger, no one would have guessed it would fall the way it did.

With more than 24,000 restaurants in the U.S alone and 42,000 restaurants in countries around the world, Subway is without a doubt the largest fast-food company in the world. This is what makes it even more surprising that everything is going so terribly wrong.

Subway saw a 25% fall in business from 2012 to 2017 according to Business Insider and had to close multiple stores leaving hundreds of franchise owners struggling to figure out what went wrong

Unfortunately, most of the Subway stores are owned by individuals rather than investment firms and they took the hit hard through no fault of their own.

According to the New York Times, it came to the stage where officials from Subway were pretty much told to find a violation just so that they can shut down a store. 

“We’re ruining these people,” Ms. Hustler who worked for a regional supervisor said when discussing the closing of multiple stores.

So, what happened?

 

SZ 深圳北站 Shenzhen North Station 東廣場 East Square 繽果空間購物中心 Bingo Space Shopping Center shop Subway Restaurant Feb 2017 IX1

Henozuxj [CC BY-SA 4.0]

The rise of the world’s biggest food chain

 
While Subway may be struggling to keep customers interested today, it wasn’t always like that. Actually, it was quite the opposite.

When it first opened its doors in 1965, this simple idea was exactly what people were looking for. The first Subway was called Pete’s Subway and was created due to a partnership between Peter Buck, a nuclear physicist, and Fred DeLuca who was at that time a struggling college student. 

Fred DeLuca had approached Peter, a family friend, for help in paying his college tuition. However, Peter offered an alternative solution. He gave Fred $1000 to open his first sandwich shop and that single event is the reason we grab a subway on our way to work.

While Fred continued college and earned his degree, Subway kept growing and by 1973 Subway had 16 locations. For a guy that had only recently graduated and had money problems not so long ago, this was no small feat.

Subway took a while to catch on in the beginning but when it did it took off. New locations were opening every day and Subway proved to be surprisingly resilient to cultural differences.

Many critics voiced their fears about how a meaty sandwich is doomed for failure in Asian and Middle Eastern countries but vegan restaurants in India and Kosher options across the United States proved them wrong.

But while Subway is adaptable, 2019 revealed that it may not be adaptable enough.

Initially, the submarine sandwich that Subway is characteristically known for was more than enough to succeed. The open kitchen idea was essentially Subway’s creation and customers loved seeing their meal being prepared right in front of them with fresh ingredients. 

But as the years went by the open kitchen concept became more common and a dozen other sandwich places opened shop. Suddenly, this amazing idea was not enough.

 

Subway 6-inch Ham Submarine Sandwich SoHome Jacaranda Lilau [CC BY-SA 3.0]

 

Subway’s Fall: Was it them or us?

 
Subway positioned itself as a healthy fast food alternative, a dependable lunch, and a cheap buy. What more could a consumer ask for? What went wrong and why are stores closing faster than they are opening?

 

Too many stores, way too fast

 
Put simply, Subway got too big for its boots. The company was opening franchises at an alarming rate and their success blinded them.

The little jingle ‘five-dollar footlongs’ netted $3.8 billion in sales for the fast-food giant and there came a point when Subway’s founder Fred DeLuca was even quoted saying Subway could have 100,000 stores worldwide.

That didn’t happen, of course. After closing 355 stores in 2016 and 800 more in 2017, Subway only continued to shut down franchises the following year.

So, why was opening more stores a bad thing? Well, as I mentioned above, Subway does not own and operate its stores but rather franchises it out to individuals and families.

That meant the constant and unstoppable expansion of stores was causing Subway stores to compete with each other instead of competitor companies. 

In a space like downtown Manhattan, for example, there were 10 Subway locations in less than half a square mile. 

If two Subways were located a few feet apart from each other, it resulted in a fall in sales and Subway trying to beat, well,… Subway.

Subway corporate did not intervene though because even though the stores were not doing that well, more stores gave them more fees and royalties.  

So, while this was hurting small business franchise owners, Subway was still profiting- so far at least.

 

Who wants a plain ol’ sandwich?

 
Ham and cheese, turkey and mayo, BBQ sauce…. These ingredients worked with the older generations but the millennials of today are looking for something that excites their taste buds, is cruelty-free and has a kick of spice to it.

Subway does not deliver.

More adventurous sandwich restaurants like Jason’s Deli are taking over the market share with their fancy meats and healthier varieties. 

Some people with a few more pennies to spare are even willing to go for a ‘gourmet option’ such as Jimmy John’s Gourmet Sandwiches that have an avocado spread and super speedy service.

Subway is catching up by introducing pricier ingredients and more options but they are still trying to figure out when a sandwich became more than just a plain ol’ sandwich.

 

Healthy subway

Priyam1307 [CC BY-SA 4.0]

 

Is Subway really healthy?

 
If you were around during Subway’s early days, you would be sure to recognize the Jared Fogle ads that made the money billions in revenue. 

The man on the television holding up a pair of jeans that showed just how much he used to weigh and more importantly how much he weighs now thanks to Subway.

It was one of the primary reasons Subway was able to position itself as a healthy fast food alternative and it was the envy of its competitors. 

Two things went wrong here. Firstly, it is never a good thing when your brand’s spokesperson is arrested for anything, let alone something as grave as sexual charges. Whether it was Subway’s fault or not, it changed the way people looked at the brand and their biggest advertising technique was gone for good.

Second- The definition of healthy changed. People understood that stuffing themselves with meat and carbs with loads of sauces may not be as healthy as the Subway ads suggested.

Other sandwich joints like Jimmy John’s, Au Bon Pair, Potbelly and others seemed to be offering fresher and healthier alternatives as well. 

Fresh produce that is hormone-free is now the demand and Subway is still catching up while other restaurants are already delivering. 

A well-known food blogger Vani Hari even started a petition regarding Subway’s use of the food additive azodicarbonamide which she described as a chemical used in yoga mats. While this chemical is ironically enough approved by the FDA, it does not reflect well on a brand that pledges how healthy it is every chance it gets.

The few changes that Subway made to its restaurants like adding healthier sauces, for instance, were either too small a change or just too late.

Even characteristically unhealthy fast-food restaurants like Wendy’s began to add healthy items to their menu. McDonald’s even brought back the Dollar menu giving consumers no real reason to pick Subway.

What used to be available only at Subway was now available everywhere …and better.

 

No other sources of income

 
While McDonald’s was adding a breakfast menu and the now-famous McCafe to their list of sources of income, Subway was depending solely on their sandwiches. The one time they did attempt to add a breakfast menu, it was a dismal failure. 

This was one of the major reasons income fell. The bigger Subway got, the more important it was to have more than just a sandwich to their name.

In their defense, it is hard getting into the already oversaturated area of breakfasts on the go but nonetheless their only noteworthy source of income to date remains the sandwiches.

 

Subway’s signature advertising tactics went down the tube

 
A good marketing team can mean billions in revenue for a company and Subway had just that for a while at least.

With their ♪ Five dollar ♪ ♪ Five dollar footlong ♪ advertisements and Jared Fogle backing sandwiches as a healthy lunch alternative, customers were loving it. 

Jared Fogle attributed his massive weight loss to Subway and this was the primary reason why Subway was able to position itself as a healthy fast food alternative. Sales actually rose by 20% after the very first commercial featuring Jared!

Unfortunately for Subway a lot of the advertising techniques that they relied on most took serious hits. 

Jared Fogle was arrested for numerous child sexual abuse charges and the $5 footlongs that had made them $3.8 billion in sales during the 2008 recession lost their appeal as the financial crisis ended. 

Everything went downhill pretty fast and they were left scrambling to come up with different marketing techniques.

Instead of being able to develop another marketing strategy that emphasized its value, Subway did not really develop a marketing strategy of any sort.

A lot of their campaigns after that have been described as boring, already done and just generally lackluster.

 

Franchise owners are not happy

 
Unlike McDonald’s where franchises are bought by investment companies, Subway franchises are bought by families and individuals who have bills to pay. This can be attributed to how easy it is to open a Subway store.

If you wanted to buy a Subway franchise, you could do so spending only $116,000 which is one-tenth of what a McDonald’s franchise would cost to open. 

This was great in the beginning but with the fall of sandwich sales and the countless Subway locations that are giving each other competition, franchise owners were left frustrated.

Over and on top of this, franchise owners are supposed to pay subway 8% royalty fees (higher than most other fast food joints) no matter how badly the location is doing. To put this into perspective, McDonald’s only takes a 4% cut. 

You are also paying Subway a 4.5% marketing fee. This does not include the $15,000 one-time payment new owners have to hand over to Subway just to own the store!

Initially, this was a win-win situation for both the franchise owner and Subway but as Subway’s sales dropped and new competitors took away the limelight, franchise owners were left with stores they could barely afford to maintain.

When the company started to plummet, owners were left confused and scrambling for financial information that is a lot more private than it should be.

According to the New York Times, one of the pages in Subway’s 600-page disclosure agreement actually states that they can change any of the franchise rules “at any time during the term of your Franchise Agreement under any condition and to any extent.”

This document that would ordinarily be poured over by anyone buying a franchise was skimmed over at best by the thousands of immigrant families that had brought stores from Subway.

Owners were furious. Franchises were lodging hundreds of complaints and Subway was labeled a bully in no time.

Lawsuits, questionable tactics, and franchise owners being forced to give up stores had turned Subway’s own against the brand. 

One of the biggest issues for franchise owners was the development agents hired by Subway. Development agents were in charge of reviewing franchises, getting new ones on board and maintaining certain locations in a particular area but these development agents can also own franchises of their own which causes a conflict of interest.

This means that the development agent is hiring people to inspect their stores as well as their competitors’ stores. It allows development agents to get rid of competition and become the big player in no time. 

Subway rarely intervenes. 

 

 

Fred De Luca 2011-03-09 001Subway [CC BY 3.0 ]

Fred DeLuca’s death

 
After the founder’s death in 2015, things only got worse. The company did not have the same leadership it was used to and sales tanked. 

Stores were closing rapidly and Subway was not trying to catch up to new trends like delivery or mobile apps like other stores.

This also means fewer people were interested in buying a franchise in the first place.

 

Lack of Innovation

 
Subway stuck with the tried and tested and has suffered because of it. Other than their attempt at a breakfast menu, there have not been many changes over the decades. 

Subway took far longer to roll out their digital loyalty program than other companies did and even their mobile apps were lacking until very recently.

When talking about Subway’s lack of innovation, Joel Libava who is an independent consultant for franchises said,” Walk into any Subway, and everything looks exactly the same as it did 25 years ago.” which pretty much summarizes what every consumer is thinking.

Subway cannot make a comeback with just a few tweaks, it needs a whole new game plan.

 

What does the future hold for Subway?

 
While the future may seem bleak for the fast-food giant, all hope is not lost. Can Subway bounce back? Probably but it is going to take a complete rebranding.

 

Subway-Fresh-Forward-NI-002

Benjaminobererlacher [CC BY-SA 4.0]

 

Necessary changes

 
At the moment, Subway’s best bet is expanding in international markets where the problems they are facing within the United States simply do not exist. This is pretty much what Subway is banking on at the moment and it is paying off. Franchises in foreign countries are the only ones that are really doing well right now.

But what about on their home turf? Is there any hope there?

Subway recently invested $80 million so that they could partner with Tastemade to create new menu items and improve their customer service, which is a step in the right direction. 

The recent introduction of rolls and more focus on the delivery service are all tiny changes that could help Subway recover as well but is it enough?

The problems Subway faces are complicated but not unconquerable. Changes in consumer wants, advertising failures, and a CEO’s death are major problems but they do have solutions.

There are dozens of American companies that have been on the brink of death before they made a triumphant return so there is no reason why Subway cannot.

Twenty years ago, media outlets were talking about the end of Apple and $1 billion losses but the company was able to launch products that have made it one of the most valuable companies in the world.

Best Buy almost became a retail failure before things turned around for them. They were almost bankrupt before the new CEO made the necessary changes that brought back sales and profits.

While Subway does have a tough road ahead, all hope is not lost. Focusing on fewer franchises and coming out with a few great products could well be enough to turn things around for them.

The company has already begun making changes with newer technology being added to stores and more items on their menu. 

In 2017, they introduced the Fresh Forward program that brought in newly developed stores with modern interiors and better technology including new menu boards, USB ports, and more.

Subway is also offering grants up to $10,000 to its existing locations for remodeling if they fit the requirements.

Taking a step back and rethinking their approach completely maybe Subway’s best bet at the moment. 

As long as they focus on what people want and always take the more innovative route, Subway has a good chance of redeeming itself and stopping stores from closing faster than new ones can open.