Once viewed as a fresh, unique, and healthy dining option, Subway has become a stale and
mismanaged brand in recent years. The numbers have continued to drop year after year since
2015, and things are only getting worse. These are the signs Subway might not be around much longer.
There's no sign more indicative of Subway's imminent demise than the fact that many of
the restaurant's stores have already shut their doors for good. Locations are permanently
closing at an alarming pace. In 2018, Subway closed more than 1,000 stores in the United
States. That dropped the total number of domestic restaurants to 24,798 — the chain's lowest
number of locations since 2011 — and it has continued to drop even lower since then.
Sure, they still have a ton of restaurants, but it's not looking good by Subway's standards.
Since reaching its peak of just over 27,100 restaurants in the U.S. in 2015, Subway's
growth has definitely been on the downturn. Collectively, the restaurant chain has closed
2,305 stores since then.
Subway's total revenue reached $11.9 billion in 2014. That may sound like an impressive
number, but it was actually a decline of three percent from the year before, and that number
has been steadily falling.
This loss of revenue can easily be blamed — at least partially — on the dwindling
number of locations. Unfortunately for Subway, this doesn't tell the whole story because
individual restaurants are performing worse as well. According to Nation's Restaurant
News, estimated unit sales in 2012 were $482,000. In 2016, that number had dropped by 15 percent.
Subway takes in eight percent of each store's gross sales. If a location's sales dry up,
it puts a serious dent in the company's future prospects.
Many of Subway's problems laid down roots years and even decades ago. But the corporate
office has been in a tailspin since founder and co-owner Fred DeLuca passed away in 2015.
Following his death, DeLuca's sister, Suzanne Greco, took over as CEO.
To say Greco's three-year stint running Subway was tumultuous would be putting it lightly.
Sales continued to fall under her watch, and franchisees were revolting. One franchisee
even told Business Insider:
"A lot of people in the industry feel that Suzanne is not qualified to be the CEO of
the company."
In late 2019, Subway brought in several new executives, including its chief marketing
officer. In November, the company named John Chidsey as its new CEO. It only took a month
for Chidsey to oversee even more changes, as three top executives left the company.
It wasn't only the shakeup. Chidsey made his presence known to the rank and file almost
immediately. In February 2020, Subway laid off 300 employees at its Connecticut headquarters.
That was a huge deal: it represented about 25 percent of its workforce.
Just four months later, the company slashed another 150 jobs. Subway chalked up the layoffs
to an attempt to streamline and simplify the business, but if operating the company requires
nearly 500 less people, there's obviously much less business to go around.
Subway isn't the only sandwich shop on the block anymore, which has made things much
more difficult for the company. The restaurant concept originally found success by carving
out a niche in the fast food market. There were few, if any, quick service sandwich restaurants
when the company was founded in 1965. If you wanted a good sub, of course you went to Subway.
They remained the preeminent sub shop for decades with few competitors posing any legitimate
threat.
In recent years, though, that has all changed — a sign that things aren't looking great
for the chain. The past decade has seen numerous sandwich chains flourish and take huge chunks
out of Subway's market share. According to QSR Magazine, five of the 32 largest restaurant
chains in the U.S. serve primarily sandwiches. Even worse for Subway, chains like Jersey
Mike's, Firehouse Subs, and Jimmy John's are taking business away from Subway. Every time
a new sandwich chain experiences success, things get a little more dire for Subway.
"Can we just sit here and enjoy the one thing that makes me a little bit happy? This fresh,
delicious, tasty, meaty, turkey-filled…"
But it's not only in the sandwich arena where Subway faces daunting competition. The chain
was long seen as a healthier option in a fast food world filled with Big Macs and Whoppers.
Several fast casual restaurant chains offering healthy menu options, such as Panera Bread
and Chipotle, have risen through the ranks in recent years, and it's a bad sign for Subway.
Others haven't just caught up to Subway, they've passed them in several categories. That's
in large part because the company has made little to no effort to move forward. In several
categories, it has simply failed to evolve.
As customers' idea of what's healthy has also changed, Subway has been slow to adapt. Organic,
GMO-free, and transparently-sourced ingredients hold more value to consumers than they once
did. Simply slapping some lettuce and tomatoes on cold cuts isn't going to cut it anymore.
Subway has also lagged behind considerably with its store design. It's likely that if
you walk into a Subway restaurant today, it looks almost identical to how it did a decade
or two ago. While many quick serve restaurants opened visually inviting locations with features
like ordering kiosks, Subway stores grew stale. The company only started redesigning its restaurants
in 2017 — for the first time in 20 years — and they were probably at least a decade
too late.
"...cold cut combo! I eat three every day to help keep me strong!"
Subway grew into the largest restaurant chain the world on the backs of its franchise owners.
Collectively, more than 21,000 franchisees own its restaurants. These operators are usually
individuals who risk a great deal opening a restaurant, as opposed to investment firms
that commonly own other fast food chain locations. They've been vocal about their frustrations
with the chain for a while now, and unhappy owners are never a good sign for a company.
Why? For starters, there's the aggressive expansion approach Subway maintained for years,
often opening new locations within walking distance of existing ones. This causes stores
to compete against each other and cannibalize Subway revenue.
Franchisees have also had run-ins with Subway about its business practices. The company
divides its stores into regions, each overseen by development agents, who are often location
operators themselves. These development agents are in charge of inspecting locations to ensure
each is in compliance. But often, they do not act in good faith. According to The New
York Times, many Subway owners feel like this creates a conflict of interest. They say it's
unfair to give development agents the power to close competing stores.
This has led to numerous lawsuits. In 2018, Subway found itself involved in 29 lawsuits
per 1,000 franchisees. For comparison, McDonald's, Dunkin', Pizza Hut, Burger King and Wendy's
combined total just 1.4.
All this leads to unhappy franchisees. As one told A Current Affair:
"They make life hell for us." then to "We want to escape, but they make it impossible
for us to sell."
One or two PR nightmares are par for the course for most national chains, but when those snafus
just keep coming, it's a bad sign for the chain in question.
Several reputation-damaging controversies have embroiled the sandwich conglomerate,
which have done nothing to improve their standing with the American public.
In 2017, the CBC published a report that found the chicken in Subway sandwiches contained
only about 50 percent chicken DNA, saying most of the remaining half was soy. Subway
went on to prove them wrong and sue for defamation, but the damage to their reputation had already
been done.
A few years earlier, social media got on board with promoting a petition calling on Subway
to remove a chemical from its bread. The ingredient, called azodicarbonamide, is commonly used
in the manufacturing of yoga mats and shoe rubber. It was later revealed that the chemical
is frequently used in bread products to help strengthen the dough, though Subway still
removed the ingredient. But they were already associated with scandal.
Known as the place to "Eat Fresh," Subway customers started to think of the chain as
a place that might not be as fresh — or healthy — as it seemed. Just like that,
one of Subway's main distinguishing characteristics is gone — and that's a bad sign for Subway.
Subway has long been known for its $5 Footlong offer, and loyal customers have missed this
amazing deal. Luckily for fans, Subway brought back an iteration of its famous $5 Footlong
with a 2-for-$10 promotion in June 2020. The idea was to help drum up business during an
economic downturn.
But the offer got off to a disastrous start when the overwhelming majority of franchisees
opposed the discount. The North American Association of Subway Franchisees (NAASF) urged operators
to not participate in the promotion. The NAASF wrote in a letter to its members:
"The $5 Footlong was abandoned years ago after countless attempts to make it profitable.
Not since the first iteration of this campaign did the increase in sales from traffic offset
the cost of the trade-down."
Operators have long argued that it is nearly impossible to make money off the $5 Footlong
offer — and doubling it to 2-for-$10 only doubles their losses. Restaurant Business
calculated that it cost about $4.93 to make Subway's cheapest sub. When you add in fixed
costs, owners are losing money each time they sell a $5 Footlong.
In the end, only 71 percent of stores offered the discount. This likely only created confusion
and discontent among customers who went to non-participating restaurants — not a good
look for a business that's already struggling to bring customers in the door. Ultimately,
the offer barely lasted two weeks before it was scaled back to only being available on
digital orders. Subway had planned on holding the $5 Footlong promotion all summer.
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