Financing

Subway takes a key step in its franchising strategy

Subway, eager to bring more large-scale operators into the system, announced agreements with five new multi-unit restaurant franchisees. It also grew its international business last year.
Subway franchisees
Subway signed agreements with five multi-unit operators, a key step in its development strategy. / Photo courtesy of Subway

Subway is taking a key step in its bid to shift the makeup of its franchisee base following deals with five new multi-unit operators, the company announced on Monday.

The five groups together consolidated or acquired more than 230 restaurants this year, including two groups new to the Subway system and an existing franchisee that amassed 100 additional stores to bring their total number to more than 140 restaurants. The franchisees are in Texas, Florida, Arizona and the mid-Atlantic region.

The operators have also agreed to remodel and strategically open new restaurants in the coming years, Subway said.

The sandwich giant has been working with new and existing operators to buy up restaurants in a bid to bring more larger, multi-unit operators into the system. The idea is to diversify the size of the franchisee base and bring in operators with more financial wherewithal than the smaller operators that have traditionally owned Subway’s nearly 21,000 U.S. locations.

Among the new operators is EYAS Capital, an investment firm that targets businesses that generate cash flow “without overpaying.” It looks for brands in the hospitality and real estate businesses and its founder, Tim Foley, has owned and operated Truxton’s American Bistro, Wendy’s and Pat & Oscar’s, among other things.

“Subway is an iconic brand that has undeniably refreshed every part of its business over the past few years with the introduction of new menu items, unique guest experiences and operational enhancements,” Foley said in a statement.

Subway did not reveal the identities of the other operators.

The announcement comes as Subway continues to look for buyers. The Miami-based sandwich giant has been courting private equity groups and others in a deal that could value the chain at $10 billion.

Among the company’s hope is that it can convince potential buyers that it did much of the hard work of a turnaround. Subway has closed about 6,000 restaurants since its peak in 2015 in the U.S. and has been closing locations internationally more recently.

The franchise strategy is a key part of that because larger operators may be more able to remodel locations. The company hopes that a combination of remodels and relocations, coupled with some new locations, can help improve operator profitability and the company’s overall market position.

The company said it expects to remodel 3,600 locations in North America this year, which could bring the total number remodeled to 10,000 by this summer.

“A key element of Subway’s multi-year transformation journey is attracting multi-unit owners with the vision, resources, operating expertise and passion for the Subway brand,” Trevor Haynes, Subway’s president of North America, said in a statement.

Another key strategy is rebuilding international growth, and there are signs that is already taking place.

Subway generated $9.8 billion in the U.S. last year and finished the year with 20,810 restaurants, according to data from Restaurant Business sister company Technomic. System sales grew 4% domestically.

But international sales rebounded after recent years of weakness due largely to closing locations. International system sales grew 9.5% to $5.8 billion. The company also grew international unit count, finishing with 67 more restaurants outside the U.S. than it had a year ago. Subway said it opened 145 new restaurants in the first quarter of this year.

Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.

Exclusive Content

Financing

Why the Burgerim settlement exposes flaws in franchise oversight

The Bottom Line: The federal government allowed the chain’s founder to avoid major penalties by simply paying $1,000. What’s the point of regulation in the first place?

Food

Why the Smashed Jack sparked record-smashing demand at Jack in the Box

Behind the Menu: The chain’s newest menu addition aims to break the mold on what a fast-food burger can be, and customers are buying in.

Financing

Why Wingstop isn't afraid of Popeyes' chicken wings

The Bottom Line: The fast-casual wing chain says its sales improve when another brand pushes the product. Here’s why that might be.