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Financing

Subway works to keep its franchisees afloat

With sales falling amid the coronavirus shock, the sandwich giant is reducing royalties and suspending ad funds.
Photograph courtesy of Subway

Already struggling to stem a string of restaurant closures, Subway is giving its franchisees royalty and ad fund relief as their sales fall in the aftermath of the coronavirus shock.

The company said in an emailed statement that it is reducing royalty payments by 50%. It is also suspending ad funds for the next four weeks.

In addition, the sandwich giant plans to support its operators with rent abatement, reduction and deferral as operators work to get through what is expected to be a two-month period with steep sales declines.

“Supporting our network of franchise-owned businesses during this unique circumstance is a top priority for the entire Subway team, and we will continue to assess and respond to the rapidly changing landscape,” the company said.

Many operators have seen steeply declining sales in recent days, as 29 states have banned dine-in service at restaurants and President Trump urged consumers to stop dining out.

For a chain like Subway, it couldn’t have come at a worse time. The Milford, Conn.-based sandwich giant had overhauled its executive team and cut staff at headquarters while it put together a strategy to recover from a yearslong sales slide.

Entering the year, traffic had fallen every year since 2013, and until 2019, same-store sales had declined annually, too.

As a result, franchisees—who operate all 24,000 of Subway’s U.S. locations—began shutting their doors: 13% of the chain’s units have closed since 2015. That includes more than 2,000 in the past two years alone.

But the company last year named John Chidsey its CEO and since then has instituted a strategy to rebuild traffic and get customers coming back: It offered a buy one, get one Footlong offer for customers who ordered on its mobile app or website, as part of a strategy to build up its digital service.

The company also had plans to unveil a $5 value menu as soon as next month, including at least a couple of Footlong subs.

Sales at many restaurants have plunged in recent days as states and cities take action to restrict gatherings and eliminate dine-in service. That has led many franchise systems, including McDonald’s and Papa Murphy’s owner MTY Group, to consider deferrals on rent or royalties to ease the burden on their operators.

Subway said that the company and many of its franchisees are feeding children home from school and without lunch programs, as well as healthcare workers and first responders.  

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