Bill Mathis, a 31-year Subway operator, is the chairman of the North American Association of Subway Franchisees (NAASF). He joined the Restaurant Business podcast “A Deeper Dive” to discuss the association’s views of management and many of its moves, including the company’s discounting strategy and the impact of new slicers.
Here is a transcript of the conversation.
Jonathan Maze: Okay, I am here with Bill Mathis. Bill, welcome to podcast.
Bill Mathis: Well, thank you, Jonathan. It's an honor to be here today.
JM: Alright, so Bill, tell us a little bit about yourself and what it is you do.
BM: Well, I've been in the Subway system since 1992. I worked as a field consultant for a development agent. And in 2001, I had an opportunity to buy my first store. And between that time and 2009, I built two more stores and bought an additional. So I had four stores. Became a member of NAASF in 2002, so like a year within the time I bought my first store.
And probably about five years ago, I started working on some committees, kind of helping them with some stuff. Three years, four years ago, I was elected to the board of directors. And in 2023, I was elected as chair and we just had an election about a week or so ago. And I was reelected as chair. So for those listening, I'm very honored and privileged to serve as chair of NAASF.
JM: Okay, so tell us what NAASF is.
BM: Well, NAASF was formed in 1999. We're one of the largest franchisee associations in the country. And we represent anywhere from 35 to 50% of the restaurants in North America. And now people are going to say, well, why are you being so vague? Well, we have a lot of stores that sell at times and, um, you know, some of those new owners who might buy say a chunk of stores may not hear from us for a few months until we get that information. So, you know, the membership is kind of always ebb and flowing. You know, we have so many objectives at NAASF, but, you know, some of the main ones, if I will, not to turn this into a NAASF infomercial, I don't want to do that, but, you know, we advocate for franchisees. We want to be the voice of our members, and if our members are seeing struggles with operations or have concerns, you know, we want to communicate that with the Subway leadership team.
We share best practices among each other and we provide educational seminars that may range from how do you fill out this specific waiver form to all the way to what are my rights under this or we do a review every year with our council that talks about the changes in the FDD. So people who are looking to buy a new franchise, you know, they'll be aware of what's happening.
JM: So now, NAASF, and I've covered Subway for a while, and you know, NAASF has, I think in 17 years, I think of covering Subway. I can remember one time NAASF said anything about anything. And that makes this particular conversation pretty notable. Why is Nassif now deciding to talk?
BM: Well, we think that our voice needs to be heard and we have a story to tell. We've tried to communicate with Subway leadership over the last number of years. And quite frankly, it would be unfair of me to say that they don't respond at all. Sometimes they don't respond at all. Sometimes they respond and say that they want to work with individual restaurants or individual owners and essentially don't recognize this as an association.
And so we've been ignored and I think we have a story to tell.
JM: So what's what is your biggest overarching concern right now with Subway manager?
BM: I think from a NAASF side it would be communication and collaboration. As I just kind of mentioned, it would be unfair to say they don't want to communicate because at times they do respond, as I mentioned. But they don't want to work together with the association. And we represent, like I said, nearly 50% of the restaurants in North America.
JM: So one of the one of the issues right now is the subject of remodels. Can you talk a little bit about that?
BM: Yeah, so we sent them a letter, which we did receive a very brief reply to, but we sent them a letter this spring that talked about stores that are remodeling or required to remodel, but they may only have three years, four years, or five years left on their franchise agreement. And it's difficult for them as a franchisee to go to the bank and say, hey, I need 60, 80, 100,000. That's what these remodels are costing some of them, if you are over 100,000.
And you know, the bank's going to want to say, well, how do we amortize this? And how are you going to get a return on your investment when you may not have a store here in three, four or five years, you could be out of your franchise agreement. And we made a proposal to them that say, hey, look, I know you're not going to extend this franchise agreement for nothing. So why don't we talk about some numbers where people could extend their franchise agreements so that the bank could give them the loans to get these remodels done.
You know, nobody at NAASF is saying our stores don't need to be upgraded. I think the last number I heard is about 50% of it been upgraded. They look great. And you just can't, as you know, Jonathan, you just can't continue in this restaurant world and have stores that look like they're 20 years old. People will stop coming. So we advocate for the stores being remodeled, but we want to make sure our franchisees have an opportunity to get that return on investment, at least have time to pay off that loan for the remodeled.
JM: So you're not arguing against remodels. What you're saying is you have a situation in which a restaurant has a limited time left in their franchise agreement, and Subway wants them to remodel their locations. But a $60,000 to $80,000 remodel cost, by the way, for a Subway franchise, is actually quite substantial, if I am not mistaken.
BM: Absolutely.
JM: And you just want some sort of, you want to work with Subway to at least ensure that franchise agreement is going to be renewed.
BM: Well, if not renewed, at least extend it to a period of time where they can pay off the loan and hopefully get some kind of return on investment on it.
JM: Why wouldn't they extend it or renew it early?
BM: I don't know. Well, first of all, they don't have to. They may, as you may know, and I don't want to get off too off topic here of what you're talking about on the remodels, but the franchise agreement changes and it significantly changed a few years ago. So that gives the franchisor a little bit, you know, reason to, they could change the franchise agreement in that time. I don't know what their thinking is. You'd have to ask them on why they don't want to extend these franchise agreements even a few more years.
JM: Yeah. But it's but I mean, couldn't they just like hold off on the remodel until the franchise agreement comes up?
BM: Well, they could, but then you might be sitting on a remodel that or a store that's not remodeled for three, four or five years, whatever that might be.
JM: Mm-hmm. Yeah. Right. So, um, I guess another question is the thing of slicers. One of the big moves that Subway has made, the very big move that Subway made was the addition of all of these slicers to the restaurants. How's that going?
BM: Yeah, well, there's mixed thoughts on this. The first thing I can say, if we're just going to talk about data, we haven't seen any data that says these slicers have driven sales, driven customer accounts or profitability. All I can speak to is what our members have discussed. And it ranges.
It has a wide range of opinion on this, but I think the bottom line here is that nobody is saying this is the greatest thing, if I may say, since sliced bread or since sliced meats. People are struggling with it, but not everybody. People have had to spend more labor hours into it. It takes a little bit more time to slice it than it does how we did it before. You've got to clean the slicer, and we want these slicers to be cleaned.
Nobody's saying, hey, just go ahead and skip that, save on the labor. My gosh, no. So it takes time to do that. There's waste involved because of the end cuts. Sometimes people, because we have to slice so much at a time, lower volume stores may have to throw away product before the shelf life is up, which we encourage everybody to do because we want to serve the best product available. In terms of... you know, again, no data on what the consumer perception is on this or how they react to it, but just listening to our members, it's really a mixed bag where some people really don't care. It really doesn't matter to them. To a few people saying, you know, you're trying to be somebody else, another competitor, but you're really not there. So nice try.
JM: I thought it was supposed to save on food costs and give you a quality halo.
BM: Well, that not that we've seen. And I think the one thing that hasn't been taken into account is the waste factor. Some stores are reporting that they might be wasting four or six ounces a day. Some people are reporting that they're wasting pounds in a week. Well over five to 10 pounds. You know, that may be a situation where they've had to discard the product. But back back, you know, to say a year, two years ago, I mean, we were taking it out of packages that would come to us and you know the labor involved there is really nothing and the waste is little to nothing literally.
JM: Mm-hmm. And like how many, you know, a typical Subway, how many on a typical shift, how many people do you usually have on staff at any?
BM: Well, I would say that for the average store, you usually have one person to open the store and then you maybe you'll have three over lunch. You'll have anywhere from one to two in the middle of the afternoon, two to three over dinner. And then depending upon the restaurant location after dinner is where some stores see a real increased labor because a lot of our closers, as we title them, the people who close up the store don't want to work by themselves in different areas. In my area it's not a problem up in north central Minnesota, but in other areas it is. And so those people don't want to close by themselves, so now we've got two people on. So it's going to range after 7, 7.30, it's going to range from anywhere.
JM: Mm-hmm. So, I mean, how much say do franchisees get into this? Because there's another issue involving some equipment and things like that where it seems like franchisees didn't get that a lot of these things are being implemented without that much say from the franchisee base.
BM: Maybe you're referencing something that, well I don't remember, it happened last spring I believe, where we were mandated to replace certain ovens and toaster ovens and what's crazy about that is, first let me say that, NASF and including myself isn't advocating for let's have old equipment that doesn't function properly and do the job it's supposed to. Nobody's saying that. But what's ironic is shortly before this this mandate and this requirement of replacing certain ovens and toaster ovens, they had an independent company come out and look at all of our toaster ovens and ovens. And people who passed their inspection shortly after learned that they had to replace them even after getting a passing grade. So I think that was a real frustration for a lot of people because some people put a lot of money into their equipment to maintain it and make sure it's functioning still as if it was new, where the temperatures are the same as it was when it came in, when they bought it. It might have been only 10 years ago. So I think that was definitely a real frustration for membership.
JM: Yeah. So did you have a lot of say in the slicers?
BM: No, we had franchisees. Certainly, NAASF didn't. We didn't have any say in it. I know that another group that is the IPC, they were aware of this task. They had some participation in it and some knowledge of it. But it rolled out really quickly in terms of, here's an idea. We went to convention, and this idea is coming to a story near you very soon.
JM: Mm-hmm. One of the big issues right now, and probably arguably the biggest issue in the system, well, maybe one of two big issues in the system right now, is this issue of coupons and digital coupons. And correct me on some of the details, but at the end of last year, they started requiring you to accept digital coupons, something they didn't do in the past, which are created, as I recall, a fair bit of consternation among the franchisee base. Can you talk a little bit about that? What's going on?
BM: Yeah, so I've got to make sure I'm in the right years because you said last year, which is only what 12, 12 days ago. So in September of 2023, we were notified that effective December 28th at all stores were going to be mandated to honor all digital discounts. Uh, and you know, I feel like that is a way to circumvent the franchise agreement. And what they did is we have to follow the operations manual. They simply change the operations manual to make this a requirement. Well, that fundamentally changes what we agreed to and what we should expect for profitability. Now, it's too early on to say whether this is a good thing or bad thing in terms of profit, sales, customer counts, any of that, because there was a fair number of stores who weren't participating in this, which is why I think they had to do this mandate. I certainly don't have numbers of how many stores weren't participating, so didn't want to throw that out there, but it was substantial, enough that I think they had to make this policy change.
JM: Yeah. I mean, generally speaking to me, I've, I've always preferred discounts that are tied to a loyalty program. Like if you ask me, you know, where I would like to see a brand give out discounts, it would be with the loyalty program. And I think the issue with Subway here is that they're advertising this very heavily. They've advertised their, their discounts quite heavily. And some of these disc is some, you know, in a Subway, by the way, in a Subway, buy one, get one free, uh, offer, which is they've off run on from time to time. You know, that's like $13, $14 that you're getting.
BM: It is. Yeah. So some of the, um, I think some of the ramifications that they didn't see coming, which are, are happening. And this is where I wish they would, we'd talk to the organ our organization massive so we could give them this kind of feedback. Like, here's what we think these members and franchisees are going to, how they're going to react to this. Um, so we have the buy one, get one free foot long right now. And that goes on for a whopping 26 days.
And that in itself is frustrating. But what some franchisees have done is, and we're not advocating for any of this, but this is just what some of the members have done, is they've raised their prices to offset for the coupon, so if a sandwich should be $10, maybe it's now 12. And so the regular customer, our everyday customer who's not using any discounts is kind of subsidizing that. Others have taken the...the high price sandwiches off the remote orders. So you can't take advantage of the buy one, get one free with that. Some stores have even gone on to closing their store on the remote order during busier times, so they don't get those orders. None of this is good for our consumer, none of it. And I just wish we could be more consistent. I think their goal was to get everybody consistent, but these are all independent business owners that are our members, and they're gonna think for themselves many times and try to figure out ways to best make a profit for themselves.
JM: Mm-hmm. What would you say is the condition of a typical Subway franchisee right now? Financially.
BM: Well, what do you mean a condition?
JM: Like financial conditions. What's your, what do you think, how, like, what's, what are the biggest, hmm, what is, like, how are franchisees, how are Subway franchisees doing financially right now, from your perspective? I mean, are they generally doing pretty well? Are they kind of surviving? Cause Subway, you know, is closed an awful lot of restaurants since even, you know, we don't, I don't have the 2023 numbers right now, but like even, you know, when if we remember in 2022, when they closed a few hundred restaurants, which was good for them, you know, but still more than any other restaurant brand did that same year. You know, what's the condition of Subway operators?
BM: Well, I'd be super speculative to say that. I mean, because some people are probably doing very well and some people are wondering, geez, can I make payroll next month? It's, it's so wide ranging and some of it, you know, all of it comes down to what are the conditions that you have in inside your building? What's your rent? Do you have a loan on that remodel still? Where's that at? Um, you know, I, I would be not serving our association properly or our members by giving you a specific even generality. It's going to range.
JM: Mm-hmm. All right. So, are you still getting, is somebody giving you pressure on pricing right now?
BM: Uh, no, you know, there's a little bit of pressure on pricing and I think it's coming more from the local people, which would be the business developers who are agents of Subway and then their own employees are called SMOs or Subway Market Operation people. Yeah, they, um, I've seen reports that we're franchisees are on this list and if they're inside or outside five or 10 cents of the recommended pricing, it's frowned upon. Now, I'm not saying that somebody's sending letters or threatening letters or anything like that, but certainly, you know, when you show up on a report that's not a negative report, many people take that to heart and most people are very, want to be cooperative and be part of the family, if you will, and comply. So they don't want to see them on that list. So if direct pressure, no, but...maybe some indirect pressure, I would call it. I've never seen anything like that in, even since I've been around in 92 where, you better be in this price, you're gonna end up on some list or somebody's gonna talk to you.
JM: Now they also wanted you to be open a certain number of hours per week, yeah? It's 91.
BM: Yeah, well that's always been a requirement and we certainly think that stores should be open as often as they can, serve the customer but also at the same time make a profit. So the hours right now that are required are 91 hours and I believe in most cases that, I shouldn't say in most, in many cases stores are open when they don't need to be open, when they're not making any money.
And one of the ways to get around that is to apply for a waiver. And that goes through either the BD or the SMO. But I've been told that process is going to get much more stringent and they're going to be much tougher on people to get waivers. You know, so our thing is they want, I think their, their mindset is we want to be open and available most often for the customer. So they see we as a place, Subway that we can go and be relied upon.
And as I said, we want to make some money. But if we're open and we do $15 in that hour, well, we lose money because that barely just covers our labor, if anything. But what's interesting is if we did $15 in that one hour and every store did that in an extra hour that was open, I can't blame Subway for wanting to be open longer because they're going to take in over $8 million in royalties over the stores on 362 days. So I kind of get it from their end, but from our end as franchisees, we need to make money when we're open.
JM: Right, right. How are, what's your, well, let me, let me ask this. So, now has Subway traditionally been really cooperative and with you guys, I mean, is they, have your traditional relationship going back however long been generally pretty good?
BM: Well, I can't speak before I was on the board. I can only speak to the point where here was that I came out and the board was 2020. And shortly before that, Mr. Chindy took over the leadership role at Subway. And since then, we've had very little communication and no collaboration in terms of working together.
JM: Mm-hmm. And so why, and I guess what's the incentive for Subway to work with you? Why should they work more closely with the association?
BM: That's a great question because we represent so many of the stores in North America and people, I believe people are more free to speak to us than they are to say to go to a leadership person but we can gather all this input together as an association and work with them to come up with the best ideas possible. You know I mentioned before about this BOGO discount and the mandating discounts.
If they were to sit down with us and talk about this, they could show us, hey, why this is a good idea. We could even possibly, I'm not saying we would, but get behind something that where they show us the data, it says, we look at it and go, this is great. And then we can talk to them about what the downsides are of mandating this discount. And the biggest thing is, on this end of things, is frustrating the consumer. We certainly don't want to see consumers frustrated from seeing stores doing all these kinds of different things to try to find a workaround on it. It would just be beneficial if they would talk to us, we work together. Look, we all love this brand. I love this brand and it probably got, some people might call me crazy that I'm still in it, you know, being in it this long, but there's just something about it. I love it and I think this brand has a lot of growth still to go. But we're gonna need to work together to do it.
JM: Um, so, uh, right now Subway is sort of in a limbo mode, uh, with its sale to Rora capital, um, which, uh, is apparently being eyed, uh, by federal regulators. What is your, what is the, the thoughts of the franchisee base, uh, on that particular situation? My perspective from what I've heard a few times is that franchisees would really like to see the deal get done. Without any question. What's what's does NASA have a point of view?
BM: Well, here's our point of view is this, is Mr. Chinzi and his leadership team have done some really good things. We have some disagreements on some things certainly that we've talked about today, but they've done some good things. Our series subs are excellent. I love them. I think customers love them. I'm sure you've probably tried one. I think they're pretty darn good. Our advertising is really good. And so he's done some really good things since he's taken over.
But I think we can do some better things. And if the company doesn't sell, then we look forward to trying to work with the current leadership team. If it does, we're excited to work with Roke Capital and their leadership team as well. Regarding what most franchisees think, I don't know specifically what they think. I know there's a lot of chatter out there and I know it's a big talker in the restaurant world. I wasn't shocked that you asked the question today.
JM: Yeah, yeah. There were, I mean, I guess there's some of the, there were some real concerns. Well, I think that the, the FTC's issue is that they have concerns about the amount of restaurants that, that Roark would own. My perspective, at least from the franchisee's base is that the only real concern is if, you know, is if that the brand moved to take over the supply chain, which would be a significant, would, would be a significant move something that the franchisee base would definitely not like. That in some form or fashion that in that process that Rort would perhaps move to take over the supply chain. I don't know if they would necessarily do that or not, but I know that that's at least the fear that I've heard from some franchisees.
BM: Well, we received assurances that is not going to happen. And, you know, I believe that if the deal does go through and Rorke ends up buying Subway, as long as they operate it as an independent business and they're not sharing our information with Jimmy Johns, Jimmy Johns isn't going to want, you know, them to share their information with Subway either. So if you run them as independent businesses, then, you know, I don't see an issue with it.
JM: Do you consider Jimmy John's a competitor? Yeah, of course they're a competitor. Yeah, they're... I think that there was, I saw some argument, and I'm sorry, but it didn't work, is that like, I think Rorick was making the argument that Jimmy John's in some way aren't really good. Yeah, they are. Yeah, they're complete competitors. I eat a lot of sandwiches. I eat probably more sandwiches than I frankly should. And...
BM: Absolutely. Do you sell sandwiches? You're a competitor.
Yes, sir.
JM: The choice is frequently between, you know, Jimmy John's Subway and Jersey mics on a pretty regular basis. Those are the three closest to my house. And, you know, and I know a lot of other people are the same way. It's, it's, they're, they're roughly similar. I mean, you know, they have their strengths, they have their weaknesses like everything else, and I like subs, all three chains. So they're competitors. Um, one last, I guess question is, uh, um,
Just generally speaking is from the franchisee standpoint, like how there were really the past couple of years for a lot of franchisees, not just in the Subway sector, not just in Subway, but in any fast food business or food business period, is that you had a real rising labor cost, rising food costs in a difficult time matching offsetting that with prices. Is that still a concern in the Subway system, or you see things getting better from your standpoint?
BM: Well, in the labor market, I think, you know, I always, when people ask me, how's your staffing going? I always got a knock on wood because at any moment you could all of a sudden be like, oh my goodness, now we've got people into overtime and such. I think the labor market's gotten a little bit better.
Our food costs have steady. Now when we get into these mandated discounts as we continue through this, as long as it's mandated, we may see that change. But I think the food costs and labor costs have kind of leveled out a little bit. I know from Minnesota and other states, they've changed the laws on what they call PTO time in Minnesota, it's ESST I think. And so those are driving some of the labor costs as well. But I think they've flattened out.
So I think that's been a good thing. I mean, people have been able to kind of say, okay, I'm kind of above water here in most cases and I can see land. Where they go from there and how they get to land is the next step. So maybe that's a terrible example.
JM: Alright.
That's fantastic. What's your favorite sub?
BM: My favorite sub is the Philly cheesesteak. I'm in terms of like the Siri subs, but if I had truth be told, I'm gonna get a tuna sub with Baja Chipotle sauce on it, jalapenos and pickles. And I'm gonna get that on white bread. Pepper Jack cheese.
JM: All right, Bill, this was, oh, well, gotta, don't forget the cheese. Bill, this was fantastic. Really appreciate you joining me this week on the podcast.
BM: Alright, thanks Jonathan.