Financing

As it nears a sale, Subway touts its international recovery

The sandwich giant over the past two years has signed deals that would add more than 9,000 restaurants internationally, turning around a business that was surprisingly weak.
Subway international
Subway's recent agreements are reversing a five-year decline in international unit count. | Photo: Shutterstock.

For all of Subway’s challenges domestically over the past decade, one under-the-radar problem has been its lack of success outside the U.S. And arguably the chain’s biggest victory over the past two years has been its efforts to reverse that trend.

The Miami-based sandwich giant this week said that it just signed its 15th new international master franchise agreement since 2021, with the Wissol Group in Georgia. Recent signings in Europe, Asia and Latin America will add 4,000 restaurants to its global footprint. And the 15 agreements signed over the past two years will add 9,000.

To be sure, many of these are long-term goals. Its 4,000-unit China deal announced earlier this month spans 20 years, for instance. And a lot can happen in two decades.

Yet they represent notable milestones for a chain that was shrinking internationally until recently. Subway’s international unit count peaked at 18,004 in 2017 and then it began shrinking. By 2021 the chain had shed some 2,000 restaurants outside the U.S. By comparison, Subway CEO John Chidsey’s former chain Burger King added about 4,000 international restaurants over that span.

The brand added international locations for the first time in several years in 2022, however, adding a net of 67 restaurants. The development agreements, meanwhile, give the brand a set of operators with every incentive to add new restaurants in the coming years.

“There is significant opportunity for Subway to expand its presence around the world and the new master franchise agreements are a reflection of the confidence that operators have in Subway and our transformation journey,” Chidsey said in a statement.

Chidsey has used brands such as McDonald’s, Burger King, Domino’s and KFC as examples of Subway’s potential in international markets. Those brands, he said, each operate about twice as many restaurants outside the U.S. as they do inside. “We have 20,000 restaurants in the U.S.,” he said in February. “That implies 40,000 outside the U.S.” It means the brand can add another 24,000 locations.

That is key for any potential buyer. Subway is apparently near the end of its sale process, with a small handful of private equity firms considering a purchase.

Subway has little room for growth in the U.S., at least from a unit count perspective. U.S. franchisees closed another 600 restaurants last year, more than any other company, and Chidsey has said the brand likely will keep a stable if slightly declining domestic store count for the foreseeable future. In such case, it will need to convince customers to come to its existing stores more often to generate revenue growth in its largest market.

Buyers would have to be convinced that the brand’s international potential is real. Any buyer will need to generate revenue and earnings growth to see a return on their investment and pay off the debt—while potentially setting up for a sale or an IPO in a few years.

One such potential buyer that could help realize that potential is TDR Capital, one of the reported finalists for the chain that owns EG Group, which operates numerous Subway locations along with a global network of convenience stores.

In the meantime, Subway keeps signing deals. It signed a recent deal with Wissol to expand the brand’s presence in Georgia. It also recently signed a deal with Food Innovation Company to open locations in Bahrain. That country was the location of the first international Subway location in 1984. That deal represents an opportunity to reestablish its presence there.

The company has also signed deals recently in China with a consortium of investors and in Latin America with Grupo Vierci.

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