Why should someone buy Subway?
That was the question posed to CEO John Chidsey on Wednesday at the Restaurant Leadership Conference as the chain works its way through a bidding process that has captured the industry's attention.
Chidsey’s pitch was this: The 37,000-unit sandwich giant has seen sales improve significantly in recent years, and it still has a lot of growth ahead of it, particularly overseas.
He said it also happens to be a “perfect time” to sell because there are few other deals to be had and private-equity firms are sitting on a lot of capital.
“They have to put it to work,” he said, and a franchised restaurant chain is a good investment. “It’s really hard to lose your money in a franchise business.”
The Milford, Conn.-based chain is seeking a price of at least $10 billion, according to a Wall Street Journal report last week that Chidsey said was “very accurate.” He dismissed an April 9 New York Post story that said the price had been cut to $7 billion amid "lackluster interest" from buyers.
Justifying the higher asking price, Chidsey said, is the chain’s transition from a turnaround story to a growth story under his leadership.
The brand is in the midst of 10 straight quarters of average unit volume increases that have brought AUVs back to 2012 levels. Global same-store sales rose 9.2% last year. And Subway is just scratching the surface of growth areas like digital and catering, Chidsey said. Online orders made up 3% of the chain’s overall sales when Chidsey took over in 2019; they’re now up to 15.5%. “That can continue to grow,” he said.
It’s also bringing in bigger, experienced operators to run more of its restaurants, it has a new loyalty program, and it has made major changes to its menu. That includes adding meat slicers to all of its U.S. restaurants, which Chidsey said will improve guests’ impression of the brand.
“We have lots of levers to pull to continue to drive AUVs,” he said.
But perhaps Subway’s biggest opportunity is internationally, where it has fewer restaurants than in the U.S., unlike other brands of its size. It currently has 16,500 stores overseas, but Chidsey believes it should have 40,000 or even 60,000.
The franchisor is making progress toward that goal. It has signed deals that will add 9,000 restaurants outside the U.S., Chidsey said, with as many as 5,000 more to come soon.
“I think the international growth piece is a layup,” he said, adding that there is little sandwich competition internationally. “We have a clean running field outside the U.S.”
Much of Subway’s recent success has involved righting past wrongs, issues that Chidsey discussed openly during an interview with Restaurant Business Editor-in-Chief Jonathan Maze at the annual event in Scottsdale, Ariz.
Fred DeLuca, the chain’s late co-founder and president, “like all founders, was a bit of a control freak,” Chidsey said. That caused the franchise to stagnate in the later years of his leadership.
DeLuca, who died of cancer in 2015, also “whiffed” on a succession plan that put his sister Suzanne Greco in charge of the brand, Chidsey said. The chain then suffered years of sales declines, in part because it depended too heavily on its $5 Footlong sub deal.
“We did so many things wrong for so long,” Chidsey said. And the mistakes continue to reverberate at Subway, which has seen its domestic footprint shrink by nearly 20% since 2017. It will close another 300 to 400 U.S. stores this year even as it opens about 200 new ones, Chidsey said.
The former Burger King CEO hinted that he was on the fence about even taking the Subway job. But the belief that he could fix it drew him in.
“If something’s broken, you can’t look bad,” he said. “If it’s broken they can’t really blame you. It’s a low-risk proposition.”
Chidsey also felt he could help Subway’s owners—the DeLucas and the family of co-founder Peter Buck—eventually sell the brand. They didn’t want to at first, he said, but over the past three years, he was able to persuade them.
That process is now “well underway.”
“We’ll have it signed sometime the end of May/beginning of June,” Chidsey said.
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