Subway's Is An Example Of Why People Are Beginning To Avoid Franchising
Once a golden path to wealth, franchisees are the latest victim of corporate greed.
Edit: This is a sneak peek of the content you can find on my newest project and publication, RaggedRiches.com! Coming to Medium and Substack soon!
Recently, a major article slid right underneath our collective noses: an article about Subway. As I’ve reported before, both fast-casual and fast-food franchises are dealing with a massive decline in customers and quality.
Subway is not an exception to that rule, far from it. It sucked before enshittification was even a thing. However, Subway was cheap shitty food with a slick marketing campaign involving a predatory person. It worked for a while.
In recent years, Subway’s sales plummeted. Subway's corporate side held an emergency meeting to discuss waning sales, a drop in profits, and the sudden totally unexpected drop in interest from consumers.
According to a New York Post article covering the event, the meeting invite said, “This conference is essential. Join us … to discuss the state of the industry and an update on our business.”
It’s not surprising to hear that Subway was acquired by an investment firm fairly recently.
Earlier this year, Subway’s corporate group decided to sell itself to Roark Capital for a total of $9 billion. This puts it under the same umbrella as Dunkin and Arby’s—both stores that seem to be doing a little bit better than Subway.
While the Subway bigwigs mentioned they were reviewing new sales, franchisees were not that pleased. As one franchisee in the New York Post put it, “They are doing crazy coupons…Our gross sales are not even at 2012 levels, and profit then was five times what it is today.”
Most of the coupons drop the price of sandwiches from $11 to around $7. At one point, Subway was selling $3 “dipper” sandwiches to absolutely no fanfare. Sales clearly took a nosedive, but it’s hard to tell why it is.
Oh, wait. I did a whole article on this. To sum it up, the juice ain’t worth this squeeze. Most Subway customers aren’t searching for coupons. Even if you are a couponer, the downsized portions and degraded ingredients make it a terrible financial decision.
This is a truth that quants don’t want to see or even actively refuse to see. Quality is king, but the product still has to match the price at which you’re selling it. This is why Buffalo Wild Wings has taken a nosedive, too.
While I have no sympathy for corporate bigwigs or investors, my heart goes out to franchisees.
People often assume that franchise owners are these super-rich individuals with all the money in the world. In most cases, they are not. Most franchise owners started out very small and had to break their backs to get funding to be a franchise owner.
Franchise owners are expected to actually work at their locations to some extent. They have to oversee everything. They take a major risk on their business purchase and hope they can work it well enough to give them money to enter the upper-middle class.
In many cases, a franchise can be a good investment. Franchisees pay themselves a starting salary of $75,000 to $100,000 a year while they work toward profitability. From there, they tend to increase it to a very enviable payout.
It was an investment that was reliable enough to make many individuals look into long-term ownership. Or rather, it used to be a far more reliable investment than it is now.
What many people don’t realize is that franchising has a major double-edged sword.
Franchising means that you get the benefit of national recognition, a built-in system that’s been proven to work, and a built-in fanbase from day one. Those factors can be amazing when you’re first kicking off a business. It’s like working on Easy Mode.
However, there’s a drawback that many franchisees are starting to notice: the lack of control. McDonald’s used to give franchise owners the right to do custom tweaks to their restaurant appearance, but that went by the wayside—much to the dismay of fast food fans.
A franchise means you have no control over your food sources, no control over your food prep operations, and very little (if any) control over the specials your restaurant offers. You also have almost no control over the supplies you use to cook the food.
At first, a lack of control seems like a good thing. For the longest time, it was. Unfortunately for franchisees, corporate greed changed that.
More and more franchises now make money from the franchisees rather than their clients.
Think about what it means to be under the total control of a corporation that may or may not have your best interests in mind. We all know that what works in some areas won’t work in others. What is a minor hiccup in corporate’s books can be a devastating blow to a new franchisee.
In some cases, corporate can decide that it’s more profitable to get money from franchisees than it is to get money from people buying their foods. That’s what happened with Quiznos, which is now considered to be the MLM of fast food.
If corporate tells you to sell food at a loss, you have to do that. If corporate tells you to buy a food slicer that you are going to stop using in two months, you have to do that. The burden of supply pricing became a key reason why Quiznos can’t get franchisees.
Many people already decry the lack of quality in their fast food restaurants. This is not the franchisee’s fault. It’s corporate’s. Corporate dictates who you buy your food from, not franchisees. Franchisees have no choice if their menu item recipes get tweaked—otherwise, they’d do what they can to save their business.
What’s wild about this is that you can still do everything right but lose in the franchise game. Corporate can also decide that they don’t like the way you do business and force you to shutter your business. This is true, even if you pull a profit at your location.
Corporations (and investment firms) would be wise to have a more hands-off approach to franchise control. It could save their brands. But, they won’t. After all, they key marker of a fast food franchise is the predictable uniformity that people enjoy.
In a lot of ways, franchises are a warning that almost all entrepreneurs should heed.
When you own a franchise, you’re putting all your eggs into one basket. You are relying on a platform that is not yours, a “formula” that’s not yours, and a fandom that is also not yours.
While franchising does make you a business owner (literally), it is not your business that you own. It’s corporate’s. And at the end of the day, franchisees are not the ones who make the big decisions that make or break a company’s trajectory.
Franchisees are not the ones who hold the power in their company, though marketing materials might say they are. Realistically, they’re glorified employees with a bigger paycheck that buy into their position.
If you do not own your own brand, your own assets, and the right to make big decisions for the company, you do not truly own your own business. If you are beholden to a corporation that can force you to shutter a profitable business without the opportunity to open up elsewhere, you do not truly own your own business.
That’s an unbelievably high risk when you think about it.
And now that franchisees are starting to see corporate investors turn against their best interest, it’s a risk that’s increasingly not worth taking. After all, why would you bet your money on a company that could destroy your investment in a series of obviously bad decisions?
You shouldn’t. And that’s a reality that would-be franchisees are starting to face more and more often. Some franchises, particularly privately-owned companies that don’t have corporate investors in the vulture capitalist world, might still be worth it.
As for companies that you see traded on the NYSE or Dow? I’d stay away if I were you. But then again, that’s just me.
Great and informative article!
Plus, I would always rather eat at a non-chain. I have to be in pretty desperate straits to walk into any chain restaurant.