Some Subway franchisees have started filing complaints with the Federal Trade Commission on the eve of a new 2-for-$10 Footlong promotion, saying they are being “bullied into honoring a promotion that is unprofitable to them.”
The offer, “$5 Footlongs When You Buy Two,” is set to start on Tuesday. Large swaths of the franchisee base say they will not honor the offer, and many operators are pushing back, arguing that they will lose too much money.
Some operators have started filing complaints with the FTC, the federal agency that oversees franchising.
The commission typically leaves enforcement up to individual states and it’s unclear exactly what the effort could accomplish. Yet it suggests that at least some operators are stepping up their campaign to convince Subway to change the offer in some fashion.
Ron Gardner, an attorney for the North American Association of Subway Franchisees (NAASF), told Restaurant Business that the organization is not behind the FTC complaints and that it still hopes to work out an agreement with the franchisor.
Subway would not comment on the FTC complaint but did provide a comment from Alex Merturi, a Connecticut-based franchisee, and Rohit Marwaha, a Subway development agent in California.
“On behalf of so many of our fellow franchise owners and development agents, we are excited to welcome guests and the $5 Footlong back to our restaurants and are proud to be a brand our fans can trust to provide value and safety during this time,” they said. “We can’t think of a better way to say thank you to our communities and our guests for everything they’ve done to support small businesses like ours throughout the pandemic.”
The dispute is the most intense in recent history involving the Milford, Conn.-based brand, which has been working to reinvigorate sales after years of declines. Thousands of the chain’s restaurants have closed in recent years as a result, prompting the company to overhaul management and bring in former Burger King CEO John Chidsey to lead the chain—he is the first outsider to lead a company whose only chief executives in its history were founder Fred DeLuca and his sister, Suzanne Greco.
The Footlong offer is designed to remind customers of the chain’s $5 Any Footlong promotion that started in 2007 and was one of the most successful price promotions in the company’s history.
Subway is hoping to generate traffic during the summer, following a spring in which sales growth has come exclusively through average check, while traffic remains down in the 15% range. The $5 Footlong remains the company’s most famous marketing strategy, and the company is convinced that the deal will help drive traffic to its restaurants and help operators generate stronger sales.
To convince operators to go along with the deal the company is offering $2,100 in cash per store, or about $700 a month.
Operators say rising food and labor costs have made the $5 Footlong too much of a money loser to do it broadly, and for as long as the new promotion is slated to run. They also argue that the cash the company is offering comes through rebates from Coca-Cola, its beverage vendor. Franchisees typically pay for such rebates through higher prices.
Three-quarters of the surveyed franchisees told NAASF that they would not go along with the offer. The 3,000 respondents represent less than half of the chain’s restaurants.
The results suggest that a big percentage of the chain’s locations won’t honor the promotion, though some operators speculated that some will opt into the program on a short-term basis. Subway has been working to convince operators in recent days to go along with it, using videos from development agents, some of whom urge franchisees to try the promotion for at least a short time.
Franchisees’ FTC complaints request that the agency investigate “claims of unfair or deceptive acts by the company and its development agents, master franchisees that themselves sell franchises and collect royalties.
The complaint notes that if a significant number of franchisees opt out of the promotion, it could be viewed as false advertising while confusing customers. Operators won’t be allowed to put up signs saying they don’t accept the promotion, meaning workers will be the ones left with the task, and customers using the Subway app won’t find out the store they are ordering from doesn’t accept the offer until they see their order total.
The complaint also says that many franchisees feel pressure to honor the promotion. “Because of false information … and pressure by the local development agents, many franchisees feel forced to honor this promotion, or be subject to retaliation,” the complaint says.