Subway sandwich shops are in a slump. More than that; they seem to be in a dangerous decline. The chain is the largest in the world, but it can’t seem to come up with new ways to meet ever-stronger pressure from both traditional and new competitors in its overcrowded niche…
Subway used to be king of the long-bun sandwiches, with 43,945 outlets in 110 countries. It’s the largest fast food chain in the world in, with the greatest number of outlets, and a ‘Fresh’ identity that no competitor could match. But its massive fortunes have suffered heavily over the past year or so, following a series of setbacks and a couple of faux pas.
Subway profits were down 3.3 per cent this time last year, at the end of its 2014 fiscal year, the company’s first decline on the previous 7 years. Results at the end of the 2015 year show another 4.3 per cent decline. Two successive years of falling profits are unprecedented in the company’s history.
Add to this, falling interest in the franchise. Subway opened 911 new locations in the U.S. last year, it closed 877. That a loss of 34, compared to an increase in the previous year.
Why is this happening?
There are many reasons that Subway’s sales are down.
One is their decision to keep prices more or less the same in spite of soaring prices for meat and produce. To offset potential losses the, they elected to start slicing their meats and other ingredients much thinner than they used to. Yes, they point out, you still get the same number of slices of Meat and Cheese on your Subway sandwich. But it’s only half as substantial. Yours truly is just one of – I suspect – many former Subway lovers who’ve turned away from the brand.
Add to this the relatively small sales that the average Subway shop makes. According to a Washington Post analysis last year, Each Subway shop served an average (US)$437,000 worth of sandwiches in 2014 while McDonald’s recorded average sales of (US)$2.4 million per store – five times as much. Even back then, the “Subway Fresh” approach clearly wasn’t working the way it should. Analysts suggest thast the’Fresh’ thing has lost its cachet in the face of moves by competitors to improve their ingredients. And walking about competitors, observers say it appears that newcomers like Panera Bread Co. and Chipotle’s are siphoning upscale customers from Subway in serious numbers.
Subway and the angry inch
Remember last year, when Subway faced a class action suit claiming it was cheating customers because its Footlong’ Sub rolls were often less than 12 inches long? The plaintiffs won and Subway was ordered, by a U.S. Federal Court to have a bread-measuring device on hand in every store, to make sure something like this doesn’t happen again. Subway endured the brunt of much ridicule over the Angry Inch affair as well as outright embarrassment. Some say the taint remains.
Subway Franchisees are not happy
Subway franchises are relatively inexpensive, compared tom McDonald’s packages. But Subway operators have to give 12% or their monthly profits to the head office, regardless of how well or how poorly they’re doing. That’s much more than many other corporations demand of their franchisees.
Not only that, but Subway’s rating as a business opportunity has slid considerably in the past year. FranchiseGrade.com uses its exclusive Franchise Performance Index to rate more than 2,300 franchise opportunities. Last year, Subway barely made the organization’s Top 500, coming in at 468. This year, it doesn’t show up in the Top 500 at all.
And let’s not forget the Jarred Effect
Remember Jarred Fogle? Subway Spokesman for many years after he went public about losing mega weight eating only Subway menu items? Remember when he hit the headlines as the subject of a child pornography investigation in the U.S.? Remember how Subway dropped him like a hot rock soon thereafter? Jarred did a lot for them when he was in favour, and losing him hurt them badly. Again, some business analysis suggest that a taint still lingers on Subway’s reputation.
So, it’s looking grim…
It’s definitely looking grim for Subway, the mega-corp that sold it’s first franchise in 1974 and has made its founders billionaires. Can they come up with something to offset the effects of their shrinking sandwiches and rekindle some love among their franchisees? Only time will tell. We’ll be watching.
~ Maggie J.