Top 200 Franchise by Entrepreneur – Rank no.2 – Subway – US
Products & Services: Submarine sandwiches & salads
Number of Locations: 39,767
Total Investment: $85.69K – 262.85K
Began Franchising: 1974
Company logo since 2002
|Type||Privately held company|
|Founded||Bridgeport, Connecticut, U.S. (August 28, 1965)|
|Founder(s)||Fred DeLuca and Peter Buck|
|Headquarters||Milford, Connecticut, U.S.|
|Number of locations||40,229 restaurants in 102 countries|
|Key people||Fred DeLuca (President)
Millie Shinn (EVP)
David Worroll (Controller)
Don Fertman (CDO)
Pizzas (some locations)
|Owner(s)||Doctor’s Associates, Inc.|
In 1965, 17-year-old Fred DeLuca and family friend Peter Buck opened Pete’s Super Submarines in Bridgeport, Connecticut. With a loan from Buck for only $1,000, DeLuca hoped the tiny sandwich shop would earn enough to put him through college. After struggling through the first few years, the founders changed the company’s name to Subway and began franchising in 1974. Offering a fresh, healthy alternative to fast-food restaurants, Subway has franchises throughout the United States and in 98 countries, with locations in traditional and nontraditional sites alike.
Startup Costs, Ongoing Fees and Financing
Franchise Fee: $15,000
Ongoing Royalty Fee: 8%
Term of Franchise Agreement: 20 years, renewable
Net Worth: $80,000 – $310,000
Liquid Cash Available: $30,000 – $90,000
Number of employees needed to run franchised unit: 8 – 12. Absentee ownership of franchise is allowed. (100% of current franchisees are owner/operators).
|FINANCING TYPE||IN-HOUSE||THIRD PARTY|
How This Franchise Supports Franchisees
Franchise Ranking History
Subway is an American fast food restaurant franchise that primarily sells submarine sandwiches (subs) and salads. It is owned and operated by Doctor’s Associates, Inc. Subway is one of the fastest growing franchises in the world with 40,229 restaurants in 102 countries and territories as of 11 September 2013. It is the largest single-brand restaurant chain and the largest restaurant operator globally.
Subway’s main operations office is in Milford, Connecticut; five regional centers support Subway’s growing international operations. The regional offices for European franchises are located in Amsterdam, Netherlands; the Australia and New Zealand locations are supported from Brisbane, Australia; the Asian locations are supported from offices located in Beirut, Lebanon, and Singapore; and the Latin America support center is in Miami, Florida.
In 1965, Fred DeLuca borrowed $1,000 from friend Peter Buck to start “Pete’s Super Submarines" in Bridgeport, Connecticut, and in the following year they formed Doctor’s Associates Inc to oversee operations of the restaurants as the franchise expanded. The holding company derives its name from Fred DeLuca’s goal to earn enough from the business to pay tuition for medical school, as well as Peter Buck’s having a doctorate in physics. Doctor’s Associates is not affiliated with, nor endorsed by, any medical organization. In 1968, the sandwich shop began using the name “Subway" for the first time.
The first Subway on the West Coast was opened in Fresno, California in 1978.  The first Subway outside of North America opened inBahrain, in December 1984.In 2004, Subway began opening stores in Walmart supercenters, and surpassed the number ofMcDonald’s locations inside US Walmart stores in 2007.
Since 2007, Subway has consistently ranked in Entrepreneur magazine’s Top 500 Franchises list. It ranked #2 in 2012. It also ranked #2 on the “Fastest Growing Franchise" and “Global Franchise" lists. At the end of 2010, Subway became the largest fast food chain worldwide, with 33,749 restaurants – 1,012 more than McDonald’s. In terms of revenue, McDonald’s still led Subway.
Subway’s core product is the submarine sandwich (or “sub"). In addition to these, the chain also sells wraps, salad and baked goods (including cookies, doughnuts and muffins). While some menu items vary between countries and markets, Subway’s worldwide signature sub varieties include:
- Italian B.M.T.
- Roasted Chicken
- Subway Club
- Meatball Marinara
- Subway Melt
- Chicken Teriyaki
- Steak & Cheese
Subway also sells breakfast sandwiches, English muffins and flatbreads. In 2006, “personal pizzas" debuted in some US markets. These are made to order (like their subs) and heated for 85 seconds. Breakfast and pizza items are only available in some stores. In November 2009, Subway signed a deal to exclusively serve Seattle’s Best Coffee coffee as part of their breakfast menu in the US.
A 2009 Zagat survey named Subway the best provider of “Healthy Options" (in the “Mega Chain" category). Subway was also first in “Top Service" and “Most Popular" rankings. It placed second in “Top Overall", behind Wendy’s.
Subway’s menu varies between countries, most significantly where there are religious requirements relating to the meats served.
In 2006, the first kosher Subway restaurant in the United States opened, in a suburb of Cleveland, Ohio. Subway spokesman Jared Fogle attended the opening. A press release stated, “With slight modifications, such as no pork-based products, and the use of soy-based cheese product, the menu is virtually identical to that of any other Subway restaurant." At their peak, 12 kosher Subway locations were open in the U.S, including Kansas City and 5 in New York. As of 2011, only five remain: Cleveland,Miami, Los Angeles and two stores in Maryland. Franchisees who failed noted a lack of support from the parent location in advertising, higher costs of kosher food and supervision, the inability to remain open on Saturdays, and that customers who do not keep kosher prefer the original menu and prices.
Subway opened its first restaurant in India in 2001 in New Delhi. Subway restaurants in India do not servebeef and pork products in deference to Hindu and Muslim beliefs respectively, and sell an extended vegetarian range due to the large number of vegetarians in the country. There are 324 Subway restaurants in 65 cities of India as of January 2013. On September 4, 2012, Subway opened its first all-vegetarian outlet on the campus of Lovely Professional University (LPU) in Jalandhar, Punjab.
In the UK and Ireland, Subway has reduced salt content across its entire range by 33% and has committed to further reductions, in line with government targets. Subway’s range of “Low Fat" subs is endorsed by the charity Heart Research UK.
Subway uses the advertising slogan “Eat Fresh", and focuses on how their sandwiches are made from freshly baked bread and fresh ingredients, in front of customers to their exact specifications, by employees whom Subway calls “Subway Sandwich Artists".
In November 2007, Subway’s US commercials featured the cartoon character Peter Griffin (from Family Guy) promoting its new Subway Feast sandwich. Subway has also used “instant win" games, based on the game Scrabble.
Subway has run a product placement campaign in the US TV series Chuck since its first season. As ratings dwindled in the second season, a campaign to “save Chuck" was launched for fans, encouraging them to purchase a footlong sub from Subway on April 27, 2009, the date of the season finale. Tony Pace, Subway’s marketing officer, called it the best product placement the restaurant chain has done “in several years."
In 2008, Subway began to offer all foot-long submarine sandwiches (excluding premium and double-meat varieties) for five dollars, in the continental United States and Canada, as a “limited time only" promotion. “Five Dollar Footlongs" quickly became the company’s most successful promotion ever. Upon the initial promotion’s completion, customer response prompted Subway to create a permanent “$5 Footlong Everyday Value Menu" that offered some footlong sandwiches for $5. As of 2011, there has been a monthly rotating $5 footlong. Which subs are permanently priced at $5 varies by market.
In October 2011, a similar promotion was launched in the United Kingdom. Customers can buy one of nine subs and any drink for £3 (for a six-inch sub) or £5 (for a footlong).
In early June 2005, Subway announced its customer reward program would be phased out due to counterfeiting. The “Sub Club" program was discontinued in the US and Canada by Doctor’s Associates.
All stores in the United Kingdom and Ireland participate in the Subcard system, offering customers points with each purchase at a Subway store, which are redeemable for subs and snacks. Unlike in the US system, these cards cannot be used to store cash. The program will be rolled out in Germany and other parts of the EU from 2012.
Participating Subway restaurants in the U.S. and Canada offer a “Subway Card" to customers, which functions as a stored-value cash card. In some states and provinces, the card also functions as a “Subway Rewards Card", allowing customers to earn points for free food and sandwiches. Unlike in the “Sub Club" program, no other purchase is needed when redeeming points, and registered cards can be replaced if lost or stolen. Subway runs periodic promotions in which it gives away free subs to customers who preload a Subway Card with certain dollar amounts, usually listed at mysubwaycard.com.
On February 2, 2007, KNXV-TV (with the help of the Arizona Department of Weights and Measures) reported that three of Subway’s “Giant Sub" sandwiches, nominally each 3-foot (91 cm) long, were actually 2 feet 8 inches (81 cm), 2 feet 8 1⁄4 inches (81.9 cm), and 2 feet 8 1⁄2 inches (82.6 cm) long. The maximum variance in length allowed in Arizona is 3% (1.08 inches (2.7 cm), for a three-foot sub). The report also showed the boxes designed to store these sandwiches were 2 feet 10 3⁄4 inches (88.3 cm) in length; shorter than the maximum allowable variance. In response to the report, Subway stated they were reevaluating their advertising, training and packaging materials with regard to the specific or implied length of Giant Subs, and were advising their franchisees to only discuss with customers the approximate number of expected servings and not a specific length of measurement.
In January 2013, an Australian teen, Matt Corby, complained on Facebook that Subway’s “footlong" sandwich was only 11 inches (28 cm) long. Subway responded by saying, “With regards to the size of the bread and calling it a footlong, ‘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."It is also noted that in most metricated countries such as Australia, the foot is no longer a legal unit of measurement. The story was picked up by the New York Post who found similar cases in their investigation. Two New Jersey men are suing the company. A man from Chicago has also filed a suit. Both suits were filed on January 22, 2013. A different New Jersey man filed a federal class action lawsuit with the same allegations in 2013.
In 1995, Subway Sandwich Shops, Fred DeLuca, Peter Buck, and Doctor’s Associates, Inc. were held liable for breach of contract. An Illinois jury awarded more than $10 million in damages to Nicholas and Victoria Jannotta after finding lease and contract violations. The plaintiffs claimed the defendants had misrepresented the asset value of Subway Sandwich Shops (a leasing company used by Doctor’s Associates for franchising purposes) while negotiating a 1985 lease agreement.
The U.S. House of Representatives’ small business committee studied the franchise industry from 1992 to 1998. Dean Sagar noted, “Subway is the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of." In 1989, the U.S. Small Business Administration refused small business loans to Subway franchise owners until Subway removed a contract clause which gave it power to seize and purchase any franchise without cause. The Dallas Morning News reported Subway had seized American soldier Leon Batie Jr.’s Subway stores in 2006, while he was serving in Afghanistan. He had been deployed to support Operation Enduring Freedom in March 2005, three years after buying his first restaurant. Batie alleged Subway had violated the U.S. Servicemembers Civil Relief Act. He filed a federal lawsuit against Subway, which was dismissed. He then filed suit in state court, in Dallas County, Texas. Both parties settled on “mutually agreeable" and confidential terms in January 2010.
UK VAT treatment
In October 2010, Subway franchisees in the UK lost a high court appeal against paying standard VAT on all toasted subs, as required by HM Revenue and Customs. Thus, in the UK, a toasted sub attracts VAT, whereas a cold sub, eaten off the premises, does not. Competitors such as Quiznos and McDonald’s do not pay VAT on similar food.
In his March 2012 budget, chancellor George Osborne announced plans to close the loophole that allows Subway competitors to offer hot food without paying VAT. This legislation was expected to come into force from October 2012 onward, but the government withdrew plans to charge VAT on originally hot food being allowed to cool naturally on 28 May 2012.
In June 2012, Subway launched the “Toast the Tax" campaign to put pressure on the UK government to drop VAT on toasted sandwiches, as it has done for hot savouries.
Casey’s trademark case against Subway
On January 31, 2011, Subway lawyer, Valerie Pochron, wrote to Casey’s General Stores, a chain of Iowa-based convenience stores, demanding the small chain to cease using the term “footlong" in advertisements for its 12-inch sandwiches. Subway threatened to sue. Consequently, in February 2011, Casey’s General Stores Inc. filed a petition in a U.S. District Court in Des Moines, seeking a legal declaration that the word “footlong" does not violate Subway’s rights. Casey’s further sought a declaration that the word “footlong’ is a generic description of a sandwich measuring one foot. Before serving its complaint on Subway, Casey’s voluntarily dismissed its action, ending the litigation.
Subway’s trademark application for “footlong" has yet to be approved by the federal government. Subway has attempted to register it with the United States Patent and Trademark Office twice. They filed on November 8, 2007 and June 4, 2009. A&W, Pizza Hut, Kentucky Fried Chicken, Taco Bell, Long John Silver’s (all Yum Brands restaurants) and other restaurants are opposing that application.