Sandwich giant Subway is exploring a sale, the Wall Street Journal reported on Wednesday, setting up a potentially rare auction for one of the world’s most prolific concepts.
The Journal said that the Milford, Conn.-based sandwich chain has hired advisers and said the company could be valued at $10 billion, which would be one of the most expensive deals for a restaurant chain in history—rivaling the 2014 purchase of Tim Hortons by Burger King for $11 billion and Inspire Brands' 2020 purchase of Dunkin' for $11.3 billion.
“As a privately held company, we don’t comment on ownership structure and business plans,” Subway said in a statement on Wednesday. “We continue to be focused on moving the brand forward with our transformational journey to help our franchisees succeed and be profitable.”
Subway’s timing may not be perfect. Interest rates are rising, increasing the cost of debt and reducing the price potential buyers are willing to pay for restaurant chains—valuations broadly have come down over the past 18 months as a result. At the same time, few chains of Subway’s stature come available very often and there are few restaurant chains with its brand recognition.
That likely could attract a wide range of potential buyers, including private equity firms and strategic acquirers. A stand-alone brand could also consider buying Subway to create a new, large-scale, multi-brand operator. Regardless, a sale likely won't be easy.
Subway was founded in 1965 by Fred DeLuca and Dr. Peter Buck. The company would eventually grow through franchising to become the world’s most prolific chain. The company at one time had more than 27,000 restaurants in the U.S. and more than 40,000 locations worldwide. It also pioneered the concept of preparing food in front of consumers in an assembly line fashion, an idea that would later be adopted by chains such as Chipotle Mexican Grill.
But aggressive expansion overextended the brand and consumers shifted spending toward other sandwich concepts, like Jersey Mike’s and Firehouse Subs.
Compounding issues was the 2015 death of DeLuca, who had been a singular force in the brand’s history and operated as its CEO even as he struggled with cancer. Meanwhile, longtime spokesman Jared Fogle, whose weight loss story was at the center of a years-long campaign making the chain’s sandwiches appear healthy, was imprisoned over child porn charges.
Weak sales led to massive closures, both in the U.S. and internationally. The company’s unit count declined to less than 21,000 in 2021. The number of restaurants outside the U.S. also declined, enough that it lost its status as the world’s largest restaurant chain by unit count to the burger giant McDonald’s.
The chain’s system sales fell below $10 billion in the U.S. in 2021, according to data from Restaurant Business sister company Technomic. Once the nation’s second-largest restaurant chain, it fell to No. 8 last year, behind chains like Dunkin’, Wendy’s and Taco Bell. Conditions aren't much better outside the U.S. Even as other big chains have grown overseas, Subway has declined. Unit count outside the U.S. is down 10% over the past five years, according to Technomic.
Globally, the chain has 37,000 locations, down from 44,600 in 2016. It generated $14.7 billion in system sales in 2021, according to Technomic.
John Chidsey, who guided Burger King until its 2010 sale to the private equity firm 3G Capital in 2010, was named chief executive in 2019. The company overhauled its management, bringing a number of former Burger King executives with him. The company laid off corporate staff and changed its franchise agreement to give the franchisor more power over operators—or charge franchisees higher royalty rates for the right to own Subway locations.
It also began buying out development agents, developers who contracted with the company to sell and oversee franchisees in specific regions of the country—and whose actions were often considered synonymous with the chain’s more aggressive expansion strategies coming out of the great recession in 2009 and 2010. The company is also working to lure larger operators into the brand, hoping they can help stabilize a concept that long relied on smaller franchisees.
Subway also began making big changes to its menu. The company upgraded its bread and other agreements in an “Eat Fresh Refresh” in 2021. It then worked to deemphasize customized subs in 2022 with the addition of its “Subway Series,” a core menu of a dozen subs consumers ordered by name and preferably ordered as-is. Subway is in the process of adding slicers to its restaurants where certain meats are sliced on-site. The company has said that its menu refreshes have helped generate sales for the brand. Its unit volumes hit an eight-year high in 2021.
Buck died in 2021. Subway is currently controlled by his family and the widow of the late DeLuca.
UPDATE: This story has been changed from its original version to add more details.
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