Here’s one way to introduce yourself to a new franchise system: Send money to operators.
Subway, which recently named Jonathan Fitzpatrick CEO, plans to send rebates to each franchisee based on sales in the first half of the year, the company confirmed on Monday. In an email to operators last week, the sandwich franchise called it a “one-time reinvestment into your business.”
The rebates would be equivalent to 10% of franchisees’ average weekly sales for the first six months of the year.
“We recognize that it has been a challenging year for you and for the broader restaurant industry as economic pressures persist,” the company told operators in a message, seen by Restaurant Business.
Technomic, a sister company of RB, estimates that Subway’s unit volumes averaged $490,000 per location, suggesting an average weekly sales of about $9,420. Ten percent of that would be $942 per restaurant. One operator estimated to me, however, that franchisees would receive an average of about $700.
Subway has about 19,500 U.S. locations, which would mean the rebates would cost from $13.7 million to $18.4 million, though details of the program remain vague at this point. The funds will be deposited into franchisees’ accounts.
“We have rolled out a special reinvestment program for U.S. franchisees,” a Subway spokesperson said in an email. “Franchisee profitability is a top priority. With a new leadership team in place, we are exploring several initiatives focused on supporting our franchises, creating long-term sustainable growth, and helping to increase profitability.”
The stated reasoning for the rebate is over the company’s recent shift in its beverage contract from Coke to Pepsi.
Under the old program, Coke would send rebate checks to franchisees intended to fund equipment maintenance. Pepsi now owns the soda machines used by Subway and covers those costs. Nearly all of Subway’s restaurants have switched to Pepsi.
But many franchisees worried that the loss of rebates in the Coke contract would cause them cashflow problems. Those rebates have often helped operators during times when business is slow.
“We’ve heard your feedback and understand that the cash flow typically provided in past years is much needed right now,” the company said in its message to franchisees.
The rebates at least in theory are designed to alleviate one of Subway’s biggest challenges: The health of the franchisee base.
Each one of Subway’s locations is owned by a franchisee, and in the U.S. those stores have struggled with weak sales and profits. Operators have closed 7,500 locations over the past decade, more than any other restaurant chain in history. That said, one franchisee told us that the size of the rebates would not likely prevent a struggling location from closing.
The health of that group was a massive hurdle in the chain’s 2023 sale process, which Roark ultimately won with a $9.6 billion bid, one that included a seller’s note based on company performance.
CEO John Chidsey retired in December. The company hired Carrie Walsh as interim CEO, but it didn’t name a permanent chief executive until last month when Fitzpatrick, the former CEO of the auto repair franchise company Driven Brands, was named to the position.
The company has made some other moves, notably the hiring of Greg Lyons as chief marketing officer in April.
Weak franchisee profitability has been a challenge for the brand and its management, leading to resistance to marketing efforts while making it difficult for operators to remodel stores. The company has also lost some of its dominance in the sub sandwich market to competitors like Jersey Mike’s, Jimmy John’s and Firehouse Subs.
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