You might think Subway's collapse is all about Jared Fogle. To a degree,
you'd be right. But, that's scratching the surface of how Subway became the largest
fast-food chain in the US, then collapsed.
While researching this video, we had to ask ourselves:
where do we start? It's that bad. So, let's dive into Subway in this episode of Forensics.
Subway's origins
Back in the '60s, a 17-year-old Fred DeLuca came up with the idea
of healthy fast food. Plus, it was a way for him to pay for medical school.
So, he convinced his friend, nuclear physicist Peter Buck to lend him $1,000
to start the idea. With the money and his mother also on board, DeLuca started Peter's
Super Submarines. The name then evolved to Peter's Subways and, finally, Subway.
From the start, DeLuca had one vision: rapid growth. So after opening the first store,
he worked hard at expanding to nearby locations.
By 1974, the first Subway franchise had already appeared out of state.
Subway had a lot to its favor. First, it was the only fast-food chain offering something other
than burgers and fries. Plus, DeLuca believed visibility was vital, so most locations were
in popular neighborhoods and city centers. This philosophy helped propel popularity overseas.
The first international Subway restaurant opened in Bahrain in 1984, the last place any chain would
consider for fast food, as the small country was recovering from recent political turmoil.
The founders hadn't thought of it. Instead, a Bahraini businessman proposed the idea, and it was
appealing; if Subway succeeded in Bahrain, then the business model could work anywhere.
Bahrain was a hit. Subway's menu allowed for versatility and ingredients that worked on
other markets. So, both domestic and international expansions continued.
Subway went from 100 locations in 1978 to 1,000 in 1987. That number grew to 5,000 in 1990.
In 1993 alone, Subway opened 1,100 locations. Part of the growth was
thanks to DeLuca’s vision, but there was another ingredient.
A fresh expansion around the world
Subway reflected a healthier lifestyle. For example, the mere option of adding more
vegetables was unheard of in those days. Plus, they also added smaller sandwiches.
Who in their right mind would do that? All the fast-food chains were going bigger. Well,
Subway sold it as a healthier portion, and it was genius.
Back in the '80s and '90s, the world wanted to be healthier. So these decades
saw an increase in the popularity of light beverages and healthy foods. Plus,
spandex and weird hairdos, but that's another story.
Also, DeLuca and Buck had made it cheap to start a franchise,
even today. Let's compare it to McDonald's.
It costs from $116,000 to $263,000 to start a Subway franchise. McDonald's
charges anywhere from $1 million to $2.2 million to open a franchise.
So, back in Subway's heyday, opening a franchise seemed like the perfect business
move, even if charged higher fees than the competition once the operation was running.
Still, higher operating costs didn't deter franchisees and, at one point, Subway dominated
the world. In the US alone, by 2013, it had 41% of the fast-food sandwich market in the US.
Subway was also the biggest franchise globally,
even bigger than McDonald's, with more than 30,000 locations by 2003.
So it seemed nothing could stop Subway. Plus, the company had genius marketing campaigns.
The marketing moves that made Subway great
Eat fresh.
The company's slogan was easy to understand and somewhat accurate. After all, Subway was
fresher than other fast-food chains.
Then, there was one promo in particular. Back in 2003, one Franchisee noticed that during the week,
hungry college students packed his restaurants. But, during the weekends, it was empty.
So, he created the $5 footlong during the weekends. Of course, it was a hit.
So much so that other brands copied it, such as Mcdonald's and Wendy's. By the way, during the
2008 recession, people loved the $5 footlong, and it propelled Subway’s popularity all over the US.
But it was one campaign that helped Subway reach a whole new level.
In 1998,
a 425-pound university student named Jared Fogle started eating at subways for three reasons.
One, it was close to him, so he didn't have to walk much.
Two, the meals were affordable and tasty. Three, they were healthier than other brands.
In less than a year, he had lost more than half his body weight, 245 pounds,
and, of course, people noticed. So, the university newspaper wrote an article on him
that drew the attention of Men's Health.
The famous magazine included Fogle in the section "Stupid Diets that Work." So, that's a compliment?
Anyways, after Subway heard of the story, the company jumped at the opportunity.
Jared Fogle made perfect sense. He was an ordinary dude who had become
"healthy" thanks to Subway. Jared even showed his old jeans, massive at 60 inches of waist,
all around the world. So, the story was perfect for ads, and Fogle became a celebrity.
Subway was riding the Jared wave hard. He was so popular that,
when there was a quick pause in ads featuring him in 2005, sales dropped 10%.
The relationship seemed perfect, but it wasn't. By 2010, Fogle had regained 40 pounds
and seemed lost. Still, Subway backed him up.
The company used this as a narrative and helped him get back into shape to run the NYC Marathon.
Yes, he vowed never to do it again, but he had achieved it,
and Subway was part of the story. Advertising campaigns like these
turned the company into an icon, but things would turn sour in no time.
Before we dive into the tragedy,
let's summarize the magic. In 2011, Subway had $11,5 billion in revenue.
In 2013, it dominated the sandwich market. And, at its peak, Subway was the biggest
chain in the US, with 27,000, while McDonald's had less than 15,000.
But, in 2014, everything changed. Before I tell you why, I have a question:
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Now back to the video and the nasty part.
The Fogle debacle
If you look at the numbers, 2013 and 2014 were the beginning of the end for Subway. In 2014,
sales dropped 3% and continued dropping to 13% in 2020. As a result,
that famous market share shrunk from 41% in 2013 to 28% in 2020.
But, why?
Remember when we said we didn't know where to start. Well,
we've reached that point in the video, and the best thing to do is get the ugly out of the way.
In 2014, reports surfaced that Jared Fogle had abused minors and had pornography.
But they were only rumors. That is until the FBI raided his house and found tons of material.
So, Fogle went to court, and things only got worse. You see, Subway had denied any knowledge
of this. They tried like crazy to free themselves from the controversy, but they couldn't.
Documents revealed that Fogle solicited underage sex from a Subway employee in 2008.
The employee reported him, but the company washed its hands.
Their excuse was that, since Fogle wasn't an employee, they couldn't do anything.
But, reports showed that the company also silenced complaints about Fogle's behavior,
such as propositioning minors at Subway events.
In 2015, a court sentenced Fogle to 15 years in prison. While this did cause
a significant dent in Subway's reputation, it could recover. After all, with a good PR
campaign, such a massive enterprise should've been able to handle this.
It's just that Fogle wasn't the only issue.
Subway’s Undertaker was its Founder
Fred DeLuca was a visionary, and he was also quite a character. But, unfortunately,
he had a reputation for chasing coworkers’
wives and girlfriends. One source even said: "if you have a skirt and a pulse, he'll chase you."
What you do in your personal life shouldn't matter to the story, but
we're mentioning it for a reason. After all, he did own the biggest fast-food chain in the US.
Let's just say his management style was "different." For example,
he sent calendars with half-nude male executives, including himself, which
has got to be the weirdest way to promote team unity. At least, everyone hated the calendars.
But it wasn't just about weird calendars and hundreds of affairs. DeLuca had no vision
for the future, nor did he have a succession plan. All he cared about,
it seems, was skirts and expansion. That turned out to be a problem when he died.
He lived for expansion, and Subway took the idea too far. Do you remember the
high operating costs? Well, franchisees opened more stores to increase revenue,
which is something that Subway actively pushed. But, many of those times, they were very near to
other existing locations. So, it grew, but it also cannibalized its revenue.
Subway was effectively killing itself, fulfilling DeLuca’s dream.
The problems didn’t end there. In its heyday, Subway allowed franchises to
order local produce daily. But, they changed the politics to once a week, twice if sales are high.
Have you seen what happens to lettuce and tomatoes after one week? It's not good.
Subway was butchering the very same items that made the company stand out.
The problem was that they weren't alone anymore. Other brands offered healthy
sandwiches of much better quality with lettuce that wasn't a week old.
So, you'd think Subway would update its menu, but it didn't. Instead,
it remained almost unchanged for two decades, with the company only focused on growing.
Sure, it had tens of thousands of stores, but Subway also had an old-fashioned product,
abusive business practices, and was unwilling to change.
So, by 2021, the brand couldn't keep up and had already closed 5,000 locations,
and there were no signs of slowing down.
To make matters worse, Subway lacked leadership. After DeLuca died, rumors spread that his widow
and the cofounder were desperate to cash out, knowing the company wasn't doing well.
Struggling to save itself, Subway has gone through many CEOs. The latest is John Chidsey,
a ruthless former Burger King executive who has made a name for himself. He axed 500 corporate
workers and had clashes with franchisees over his vision for the company. As a result,
there are rumors of a possible sale.
Subway, of course, denies it, but the future is uncertain.