Subway franchisees overwhelmingly oppose a new Footlong offer

Three-quarters of operators in a survey said they don’t like the proposed promotion as tensions between the company and franchisees intensify.
Photograph: Shutterstock

Subway franchisees overwhelmingly oppose a planned new Footlong offer and have grown increasingly vocal about their frustrations, intensifying a debate with the franchisor over its marketing direction.

Three-quarters of franchisees in a recent survey by the North American Association of Subway Franchisees (NAASF) said they opposed the promotion, a 2-for-$10 Footlong offer proposed to start this month. Restaurant Business has obtained a copy of the survey.

Those results come as the association has vocally opposed the promotion and recommended that its operators opt-out.

Opposition from franchisees to the promotion has grown more intense in recent days, with at least one operator saying privately that the system is “ready to explode” and another saying it’s “reaching a boiling point.”

“We have had a very strong response against this offer from the franchisee community,” NAASF Executive Director Illya Berecz said in a statement emailed to Restaurant Business on Wednesday. “We continue to communicate with the corporate office on behalf of the franchisee-investors and to advocate on their behalf.”

Subway did not respond to requests for comment on Wednesday.

The Milford, Conn.-based sandwich giant has made the 2-for-$10 offer the centerpiece of its summer marketing, with plans to keep the offer in place for 11 weeks, sources said. To get franchisees on board, the franchisor is offering participating franchisees $2,100 in rebates from its beverage vendor, Coca-Cola.

As Restaurant Business reported last week, NAASF came out against the offer, recommending operators opt-out of any promotion of a Footlong sub priced at $5 that is not targeted to online customers or is not part of a bundled offer.

Subway responded with a video from its North America president, Trevor Haynes, that multiple franchisees tell Restaurant Business was not received well by operators.

John Chidsey, named CEO late last year, has not made a presentation to the broad group of Subway franchisees.

A marketing call with franchisees scheduled for Thursday has been canceled, one source said.

The NAASF survey featured 3,000 franchisees representing nearly 11,000 restaurants, or close to half of the system, providing the association with a remarkably broad cross-section of operators and locations.

That alone suggests that at least a third of the company’s nearly 24,000 locations do not plan to go along with the promotion.

The dispute within the system highlights one of the system’s primary challenges. The company has long felt a need to provide some sort of value—and Chidsey has said value will be necessary to get customers in the door.

Subway’s most well-known value play has been that $5 Footlong, which worked during the Great Recession to generate sales and help the company grow. The 2-for-$10 is another iteration, designed to bring customers in more often and generate more chips and drinks sales.

Yet franchisees have also been struggling for years with low sales volumes and weak profits. More than 3,000 locations have closed in the last three years alone. While sales have improved in recent weeks, many remain well below their prior-year levels.

They argue that it is difficult, if not impossible, to make money pricing subs at $5 after years of labor and food cost increases, and 2-for-$10 simply doubles their losses. Franchisees also say the company has done little to make its case to operators for why the offer is necessary and whether they can make money off of it.

Franchisees are “broke and frustrated that they don’t think they have a voice,” one operator said.

The debate within the system presents a major challenge for Chidsey, who was hired after a long search to turn around the world’s largest chain by unit count. Chidsey has overhauled executive staff, bringing in many former Burger King executives with him.

The company has also laid off 450 workers at its Milford headquarters. The first round of layoffs, in February, were designed in part to give employees a sense of urgency for turning the company around.

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