Subway Fights Back Against Restaurant Closure



Matt Wujciak
11/11/2019

subway

“What local marketing have you done to help increase sales?” a Subway questionnaire asks individual store owners. 

After three years of record breaking closures (not deals, stores), Subway has come up with a new strategy to stop the bleeding. The restaurant chain has instituted a new policy mandating that store owners who choose not to re-sign their five-year leases complete a questionnaire and work with a headquarters-based committee regarding their decision, the New York Post reported. The change has been instituted after more than 2,300 Subway franchise locations were shut down since 2016. 

“Subway places a tremendous value on its network of small-business owners.." Does it?

One Subway PR spokesman recently told reporters “Subway places a tremendous value on its network of small-business owners...And as such, aims to ensure viable Subway locations remain open. We help franchise owners find buyers for their restaurants whenever possible.”

“Helping franchise owners” and “whenever possible” don’t  seem to be the ideas expressed in the contract pressuring mom-and-pop Subway owners to save depleting store sales. 

According to Fox Business, Subway does not own its eateries and instead relies on franchisees and the fees collected from them - franchisees pay a 12.5 percent fee (gross sales, excluding sales tax) each week, with 8 percent going toward franchise royalties and 4.5 percent toward advertising.

Subway is plummeting; it’s never been in this big of a pickle. That’s why it’s doing everything in its power to  tie chain operators to their 20 year franchise agreement, something Subway hasn’t done in the past. 

Franchisee backlash

“I wouldn’t fill out the form,” one franchisee based in the South told The Post, adding he knows of another nearby franchisee who’s been asked to fill out the form and has so far refused.

“I don’t believe there is anything in the franchise agreement that gives them the right to fine us,” he said of store operators who refuse to fill out the questionnaire, which asks franchisees “to explain in detail what steps you have taken to try to make this shop viable.”

Another Subway franchisee brings up an interesting point. “Subway is going to make franchisees lose more money,” a West Coast store operator predicted of the new procedure. “If you are a single-store owner, what are they going to sue you for? You are already destroyed and will probably close.” But “an owner with 20 stores may not want the hassle and will keep a losing store open.” If Subway’s policy doesn’t have the legal authority to tie franchisees to their stores for the duration that their new policy intends, could it be strictly larger chain owners that they’re targeting? 

Subway has been accused before of playing hardball with its restaurant operators. Earlier this year, smaller, yet successful franchisees were accusing the company’s development agents of dinging stores for minor infractions, like smudged glass, in an effort to take over profitable locations.

Subway is losing revenue and losing it fast. While there is an apparent need for Subway’s change in corporate strategies, pinning (losing, none the less,) individual franchisees to their stores will not prove profitable. 

It doesn’t take Gordon Ramsay to realize that Subway store owners are trying to shut down their stores because what they’re doing isn’t working. However, Subway is incorporating a losing strategy either way you look at it. First, why would Subway want to task losing store owners with figuring out their restaurant’s problems? Is it not a big enough sign that what they’re doing isn’t working? And if it’s new store owners Subway wants, would you trust the previous store owner attempting to dump the restaurant onto someone else to find a new owner, in Subway’s best interest? Lastly, with Subway’s depleting sales and brand reputation, do you think many people would want to spend their entrepreneurial finances on investing in a Subway restaurant on the verge of shutting down? 

Investing in a new internal infrastructure

I understand Subway is trying to put an end to the year-over-year store closure. Hassling franchisees to work harder not smarter won’t solve the problem. Investing in a new internal infrastructure from a perspective far greater than individual stores might have a better chance. 

From a marketing angle, Subway needs to establish new processes that build their reputation, not contribute to the store that customers associate with disengaged customer service, unhygienic infrastructure, and improperly staffed fast food restaurants. 

Perhaps Subway would consider implementing a remodeled customer service strategy that invests in employees the way Chick-fil-A does with higher salaries, employee benefits such as 401k plans and scholarship opportunities, and business management training to ensure that their staff is going above and beyond. What better way to attract employees willing to go above and beyond for smaller franchisee styled stores like Subway or Chick-fil-A than investing in their employee’s future? Or perhaps Subway would benefit from a Chipotle strategy with more promotional incentives for customers, better application features to ensure smooth online ordering, and minimal staff members with a higher emphasis on operational efficiency? 

So when the next time Subway asks mom-and-pop store owners to fill out a questionnaire answering “What local marketing have you done to help increase sales,” hopefully they will have the strategic resources from the corporation that will make them want to answer it.

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