Subway pushes its franchisees to remodel their restaurants

CEO John Chidsey told operators this week that they should remodel their locations or get out of the system. And he recruited help from franchisees who have upgraded their restaurants.
Subway remodel
About half of Subway's 20,000 U.S. locations are remodeled. | Photo courtesy of Subway.

Subway wants franchisees to remodel locations so much that it’s seeking help from other franchisees to get the job done.

At a company convention this week, Subway CEO John Chidsey told operators slow on remodels to either fix up their stores or get out of the system, according to several franchisees who attended the event.

He also told franchisees who have remodeled their stores to pressure those who haven’t to do so, arguing that operators who have dated restaurants are hurting the entire system.

“His message was clear,” one operator said. “Get on board with their plan or go away.”

Other operators defended Chidsey’s comments, however, and argued that the company is simply trying to get franchisees to share the benefits of remodels with those who haven’t remodeled their stores.

And they said that the company is trying to fix what many see as a difficult problem: Getting more franchisees to invest in the brand.

That’s easier said than done, particularly for a brand like Subway. Cashflow remains a challenge for many operators, and the cost of debt is more expensive than it’s been in years.

The company has made numerous changes under Chidsey in recent years that have ended a nearly decade-long string of declines in average unit volumes that fueled massive store closures. Subway's U.S. unit count has declined by about 7,000 restaurants since the company peaked at 27,000 in 2014.

The brand has made several menu changes, including several ingredient upgrades, company-paid slicers designed to improve the perception of quality, and massive changes at the corporate level. It created a line of subs, called “Subway Series,” designed to cater more to digital customers and remove its reliance on customized subs.

More recently, it added a line of footlong snack items, including footlong churros, pretzels and the chain’s chocolate chip cookie, that have proven popular with customers. The cookie in particular has sold so well that franchisees are struggling to keep them in stock.

The company said recently that it sold 3.5 million of its “Sidekicks” in their first two weeks on the market.

Subway said its same-store sales rose 5.9% in North America in 2023, continuing a run of sales growth coming out of the pandemic.

But the brand believes that remodels are key to further growth. About half of the chain’s 20,000 U.S. locations are remodeled, company executives told franchisees this week.

There’s a belief that the inconsistent look of the stores could hurt the brand’s overall reputation and may keep customers from visiting Subway locations at all. Because remodels typically lead to improved sales, meanwhile, the non-remodeled stores could hold back the brand’s overall growth.

Indeed, the company’s sales release for 2023 notes that the top three-quarters of North American locations generated 10.1% same-store sales growth, which infers that a quarter of the chain’s locations suffered steep declines.

Many franchisees agree that stores need to be remodeled.  

“You can’t continue in this restaurant world and have stores look like they’re 20 years old,” Bill Mathis, chairman of the North American Association of Subway Franchisees (NAASF), said on an episode of the Restaurant Business podcast A Deeper Dive earlier this year. “People will stop coming.”

Subway would not comment for this story.

The cost of a remodel runs $60,000 to $80,000 or above, which is substantial for a Subway, whose unit volumes average less than $500,000 per location. NAASF asked Subway to give franchisees with just a few years left on their franchise agreements an extension to their franchise agreements so those operators could get bank loans, pay them off and get a return on investment before those agreements run out.

Still, for operators the comments on remodels added to a series of moves that have frustrated many franchisees.

That includes a recent requirement that operators accept all offers on the company’s digital app. Many franchisees, who have long been concerned about Subway’s reliance on discounts to get people in the door, have either cherry-picked discounts or didn’t accept them altogether, which prompted the company to make that move.

But the brand believed that operators' refusal to accept digital offers also hurt Subway's consistency and frustrated customers.

It all comes as Subway remains waiting for word on the sale of the brand to the private equity firm Roark Capital, which agreed to buy the chain last year. The FTC is investigating the deal, largely out of concern for Roark’s level of ownership of Subway.

Whenever that sale does go through, existing management may well stay. According to operators at the meeting this week, Chidsey also said that Subway’s management team will remain with the company for a while.

UPDATE: This story has been updated to add additional perspective from other franchisees.

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