Subway changes its franchising strategy

The company, which has been shedding locations, wants more drive-thrus, nontraditional locations and bigger franchisees.

Subway, on what it calls a “multi-year transformational journey,” detailed a handful of steps on Thursday that it says will overhaul its U.S. development strategy.

The biggest is targeting multi-unit franchise owners. The company said that it hopes to lure these operators into the system through potential acquisitions of existing restaurant portfolios. It believes that a new design, flexible footprint, brand awareness and low startup costs can help lure these operators into the system.

“Historically, Subway has been a system of primarily single-restaurant operators,” Steve Rafferty, SVP of development for the Milford, Conn.-based company, said in a statement. “These operators, often first-time business owners and budding entrepreneurs, have always been integral to our growth strategy.

“At the same time, to ensure we remain competitive for years to come, we’re scaling up with high-caliber multi-unit franchisees who bring operating expertise, development capabilities and capital.”

But the company listed other strategies, including a remodel program that has already refreshed nearly 9,000 locations and a focus on growth that targets locations with drive-thrus or nontraditional locations. Subway has traditionally targeted lower-cost, inline locations for development. But the pandemic has intensified demand for convenience, which has increased the need for drive-thrus or similar points of access.

Subway also says it is focusing on international growth. The company says it has signed eight master franchise deals and development agreements that could add 5,000 locations around the world in years to come.

But it’s the focus on multi-unit franchisees that remains the more notable effort for the brand, whose average operator owns just two locations—most of which are low-volume restaurants. The typical Subway averages about $430,000 in revenues per year, according to data from Restaurant Business sister company Technomic.

The brand’s struggles have led thousands of Subway locations to close. Since the brand peaked at about 27,000 domestic locations in 2014, about 6,000 locations have closed down, most of those in the past three years—including 1,000 last year. The brand has 21,000 U.S. locations and 37,000 globally. 

Subway believes larger-scale franchisees could have more wherewithal, which could enable them to fund remodel projects or expansion.

One problem for the brand is its low unit volumes. While the company’s average unit sales grew 20% in 2021, according to Technomic, they remain 8% below where they were a decade ago.

Subway says most of its units continue to generate sales growth and some franchisees we’ve spoken to back that up. The company says that 75% of the system, featuring more than 15,000 locations, were up an average of 8.2% over 2019 levels in the first three months of 2022.

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