Can John Chidsey fix Subway?

RB’s The Bottom Line examines Subway’s new CEO, including his tense relationship with Burger King operators and whether the chain could be sold.
Photograph courtesy of Subway

The Bottom Line

Suzanne Greco retired as Subway CEO in May of 2018 amid some controversy with franchisees over a sandwich discount and plans for store closures. The company made Trevor Haynes interim CEO and kept him there until this week, when it surprisingly named former Burger King CEO John Chidsey to the post.

In so doing, Subway brought in an experienced professional executive who had a tense relationship with franchisees at his previous stop, but who also guided Burger King through its sale to 3G Capital in 2010.

That has some wondering whether Chidsey’s surprise hiring is part of a series of moves designed to get Subway’s house in order to prepare it for a sale. Subway recently hired several new executives and started to work more aggressively to stop closures that have plagued the chain in recent years.

Subway is owned by co-founder Peter Buck and the family of Fred DeLuca, who died in 2015.

“It may indicate that Subway is thinking about the future,” said John Gordon, a restaurant consultant out of San Diego who is familiar with the Milford, Conn.-based sandwich giant.

Others are doubtful. Both private-equity groups and strategic buyers have made overtures and have been rebuffed, sources said, because the existing owners want to keep the company, which is a cash cow.

Rather, it might just have taken Subway this long to find a new CEO and determine its direction.

Subway would not make Chidsey available for an interview and said it wouldn’t answer questions beyond the press release sent out Wednesday announcing his hiring.

Subway has been struggling for years, thanks to a host of problems: its shift away from its $5 footlong, the imprisonment of former spokesman Jared Fogle and encroaching competition from other sandwich concepts.

The chain, once the second-largest in the U.S. and a behemoth that helped destroy rivals such as Quiznos, has been in decline for years. It has shrunk by more than 2,300 locations since peaking at 27,000 U.S. restaurants in 2015.

U.S. system sales, which peaked at $12.3 billion in 2013, are on pace to fall below $10 billion this year, according to data from Restaurant Business sister company Technomic. It has some of the lowest unit volumes among major chain restaurants.

There has long been a perception that Subway’s challenges were unique and would take years to fix, which may have made the CEO search more difficult.

Many believe Subway needs to close thousands of locations to help operators’ unit volumes and economics improve. That was clearly the direction of the company under Greco. The company was allowing franchisees to close units as their leases ran out and was working with some franchisees to relocate restaurants in difficult locations.

Subway has clearly shifted that practice with its decision to have operators go before a committee to find a buyer before closing stores. Hiring Chidsey appears to be a signal that it is doubling down on this strategy and may be willing to play hardball in the process.

Chidsey gives Subway a professional executive with experience running an international franchise. The company has more than 41,000 franchise-owned restaurants worldwide.

Yet he hasn’t been an executive with a restaurant company for eight years, though he has been a director on several boards, including Brinker International, a position from which he stepped down on Thursday.

An attorney by training, Chidsey had worked with companies such as PepsiCo and Cendant before he was named president and CFO of Burger King in 2004. Bain Capital was a major investor in the burger chain at the time. Not coincidentally, Bain is an internal consultant for Subway, sources said.

Burger King performed generally well under Chidsey at first, generating consistent same-store sales growth. But those sales hit a wall during the recession, and the company struggled to keep pace with giant rival McDonald’s.

Burger King’s relationship with franchisees during the Chidsey era was tense. The company and franchises traded lawsuits over the brand’s plans for a $1 Double Cheeseburger and over rebates from the company’s soda contract.

That doesn’t necessarily mean that Chidsey will play hardball with Subway operators over remodels or closures or discounts. But at least outwardly, it appears the company is going to take a more aggressive approach as it works to return to dominance.

For Chidsey, Subway represents a unique opportunity. Fixing that chain would be a monumental victory, regardless of whether it remains in the family or gets sold.

Some believe that his first order of business should be to move the company from its Milford headquarters, where it’s more difficult to attract and retain talent.

“A part of their problem is their Connecticut-based headquarters,” Gordon said, noting that Subway has an office in Florida, which is where Chidsey still lives.

There certainly is precedent for chains to move headquarters to set a new tone and direction: Chipotle Mexican Grill moved from Denver to Newport Beach, Calif., and the chain has generated double-digit same-store sales growth since.

It's worth noting that when 3G Capital bought Burger King in 2010, many people laughed at what was seen as a high valuation for the struggling chain, which was in bad need of an overhaul and had angry franchisees without money to spend on things such as remodels. 3G proved doubters wrong by turning around the chain's domestic performance while expanding aggressively overseas.

Chidsey now has the opportunity to do something like that at Subway. 

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