Subway® is the World’s Biggest Franchised Fast Food Operation
Subway® Restaurants currently number 42,673 in 108 countries!
Subway® Restaurants are just as popular as McDonald’s, Burger King and Wendy’s around the world. In fact, the number of Subway® Restaurants exceeds the number of McDonald’s restaurants by several thousand and the gap continues to widen. But what is it about Subway® that has the world eager to chow down? Experts agree that the perception among fast-food fans is that this brand is healthier and less calorie rich than its competition. With many people moving away from fried foods, Subway® Restaurants appear to be filling the void. Why has Subway® drummed up so much interest among customers? This case study will uncover the facts about Subway® Restaurants by approaching the topic from both sides of the debate.
Subway Restaurant in Pittsfield Township Michigan
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The History of Subway® Restaurants
Back in 1965, Peter Buck and Fred DeLuca opened a restaurant called ‘Pete’s Super Submarines’ in Bridgeport, CT. Fred DeLuca loaned $1,000 from his friend Peter Buck to get this submarine shop up and running in the hope that he would earn enough money from it to put himself through college. It was difficult getting the business off the ground, but they changed the name to Subway and began franchising 9 years later. They wanted to brand themselves as the healthy alternative to all the other fast food franchises in the US. Both Subway founders became doctors – Dr Frederick A. Deluca and Dr Peter Buck. The company’s VP of Operations and VP of R&D is Ms. Suzanne Greco and the Director of Development and Director of Franchise Sales is Mr Don Fertman.
Today, Subway® Restaurants can be found in 108 countries with over 42,673 locations. And that number is growing all the time. The number of franchise units this year to date includes 26,897 restaurants in the US, 3,134 in Canada and 12,642 internationally. Subway® recently announced that it will be opening 2 restaurants in Switzerland, and 2 new restaurants in Riga, Latvia. The company headquarters are in Milford, CT with scores of regional offices around the world. The regional and country offices employ 1,000 people, with franchised operations employing 300,000 people. Contrary to popular belief, Subway® Restaurants is not listed on any stock exchange – it is a privately held company known as Doctor’s Associates Inc.
Consider that the Subway® brand serves in excess of 2,800 sandwiches and salads every minute and if all the sandwiches made by Subway® restaurants per year were placed end-to-end they would circle the Earth 6 times.
Is Subway® a Successful Franchised Operation?
The popularity of Subway® is evident in the sheer numbers of franchised operations around the world. With over 42,673 restaurants in 108 countries, this fast food restaurant chain has surpassed McDonald’s as the biggest global fast food enterprise. In terms of measuring success, a multi-pronged approach should be adopted. At the franchise level, there are easily accessible facts and figures for potential franchisees to scrutinize, and on a customer level there is the issue of nutrition and customer satisfaction. Over the years, US, Canadian and European customers have been moving away from fried foods. This has hurt many of the big players in the fast food industry such as McDonald’s, Burger King and Wendy’s.
Subway Commercial with Jared Fogle
Eat Fresh, Live Green!
However Subway® Restaurants have managed to take their vision of ‘Eat Fresh, Live Green’ to every country that franchises operate in. And this message has been well received by and large. In the US, Subway’s success has been measured by its marketing campaign spearheaded by Jared – The Subway Guy. Jared S. Fogle lost 245 pounds eating just Subway meals for a year. He ate 6-inch subs for lunch and footlong subs for dinner. So successful was this marketing campaign over the many years that Jared became the poster child of eating fresh and living healthy with Subway®. On a personal level, Jared has a net worth of over $15 million for his appearances in over 300 commercials for the company.
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Setting up a Subway® Restaurant Franchise
The process of setting up a Subway® Restaurant franchise requires a series of steps to be undertaken:
- 2 weeks training at the HQ – Miami, FL; Montreal, Canada; India, Germany, China, or Australia
- Marketing support via ad slicks, regional advertising, national media and co-op ads
- Ongoing support initiatives via toll-free telephone, lease negotiations, safety and security measures and online support among others
- Local store marketing initiatives
In terms of overall franchise rankings, Subway® Restaurants rank at #3 for 2014 for the Franchise 500®; #1 for the fastest growing franchise in 2014 and #2 for America’s Top Global for 2014. The total investment required to get started ranges from $116,600 to $263,150 with a franchise fee of $15,000. Franchisees should also be aware of the 8% ongoing royalty fee and the fact that all franchises are for a minimum period of 20 years. In terms of financial requirements, individuals or companies require $80,000 to $310,000 with liquid cash assets of $30,000 to $90,000 on hand.
What Franchisees Can Expect to Earn
According to data released by multiple Subway® franchisees, the profit margins range between 18% and 25% depending on sales volume, location and level of competition. Margins in the 12% - 18% range have also widely been publicised, but many franchise owners say the figure is closer to 20%+. The question is often raised how these fast food restaurants can turn a profit when they’re charging just $5 per footlong. Based on the research, there is a profit margin of around 20% on each footlong sold. That translates into $1 per footlong of profit.
Subway® franchisees are required to buy their food from one distributor but this does not appear to perpetuate high costs for franchisees – on the contrary the margins are low and the distributors are only too happy to be supplying Subway® Restaurants. There are no regional managers with this brand, rather there are development agents. They are tasked with opening up new restaurants in different areas, but they are also required to maintain certain profitability standards so as not to undercut the performance of existing Subway® franchises. Figures of $8,000 per week in gross sales have been bandied about, but this certainly varies from one location to the next. Many Subway® franchisees consider $80,000 per annum to be the average profit.
Is Subway Really Healthier than McDonald’s?
From a purely logical perspective the argument is often made that McDonald’s is unhealthier than Subway® since the former generally fries its food. However, a report by the University of California, Los Angeles found that these two franchises are equally unhealthy. Dr. Lenard Lesser led the investigation into the two fast food franchises. Lesser, a researcher at Palo Alto Medical Foundation Research Institute, recruited a total of 97 adolescents between 12 and 21 years of age. These people bought meals at Subway and McDonald’s and they consumed 1,038 calories on average at McDonald’s and 955 calories at Subway®.
In terms of calorie count, there is very little difference – but the Institute of Medicine recommends no more than 850 calories per school lunch meal. In fact, the findings concluded that both fast food chains had extremely high sodium levels (Subway® at 2,149 mg vs McDonald’s at 1,829 mg). Plus, Subway® sandwiches contained on average 212 calories more than McDonald’s sandwiches. Some health experts warn of the ‘Health Halo’ effect at certain fast food franchises perceived to be healthier – customers eat more thinking that it is better to do so at places like Subway®.
Subway is Just as Unhealthy as McDonald's! | The Rubin Report
Subway® has also had its fair share of food scandals over the years. One such controversy was the Yoga Mat Chemical that was reported earlier in 2014. The ingredient in question is azodicarbonamide. This chemical has been approved by the FDA as a bleaching agent. Subway® is not the only company to use this chemical in its bread – Starbucks, Burger King and McDonald’s use it too. The controversy gained publicity when a food blogger noted that this chemical is used in the production of Yoga Mats among others. While no information was published in respect of the food scandal on sales figures, Subway subsequently removed the ingredient from its bread. There is a carcinogen that is created during the baking process with this chemical, known as urethane. Subway® purportedly began removing the chemical in the fall of 2013 from several of its restaurants. It has also reduced high fructose corn syrup and sodium levels from its products too.
The Footlong Scandal
The Footlong Scandal caused a major uproar among Subway® fans in 2013. The incident that went viral was reported in Australia. The response from Subway executives did little to inspire confidence among Subway® connoisseurs, ‘SUBWAY FOOTLONG' is a registered trademark as a descriptive name for the sub sold in Subway® Restaurants and not intended to be a measurement of length.’ Additionally, the restaurants have been reducing the size of their servings to cut costs. It was reported that cold cut sizes have been reduced by as much as 25% recently, much to the dismay of customers. The problem was quickly jumped on in New Jersey where two men have initiated a class-action lawsuit against Subway for shorting them on their footlongs. In spite of the attention-seeking publicity stints Subway® Restaurants are leading the way and leaving the rest of the competition far behind.