Buying a Subway Franchise? Why You May Want to Reconsider

SubwayIn 2010, Subway overtook McDonald’s to become the world’s largest fast-food franchise chain. Subway now has around 25,000 locations worldwide, about 10,000 more than its closest competitor McDonald’s. So being the number one fast food chain in the world, and the fact that they are well-branded and make good, healthy food, why wouldn’t you want to buy a Subway franchise?

Here’s the problem. Being number one can be a double-edged sword. Yes, they are the best-known sandwich shop in the world and most locations are busy during a typical day, but to become #1, they have bordered on cannibalizing themselves. Here is an example of what I mean.

In the town close to where I live, there is a population of roughly 25,000 people. In that town, they have four Subways. And in one particular area, there is a Subway inside of a Walmart, and another standalone Subway just down the street. This type of situation is typical – most medium-sized towns have multiple Subway locations, more than is needed to support the demand.

Market Competition Eating Away at Margins

Another problem when you are the world’s #1 fast food chain is everyone is gunning for you. Subway really came into their own in the late 1980s, and from that time until just a few years ago, they had expanded rapidly. However, for the first time in years, the number of Subway locations declined in 2016.

One of the major problems Subway is having is heavy competition from the likes of Jimmy John’s, Jersey Mike’s, Firehouse Subs, and Which Which. Because consumers have so many other choices out there, Subway has seen customer traffic plummet by 25% over the past five years. This, combined with rising minimum wages in many areas of the country has resulted in much slimmer profit margins.

How bad is the problem for Subway? Just the other day, the New York Post reported that Subway is in the midst of a franchisee revolt over their upcoming $5 foot-long promotion. For the past several years, Subway has run their $5 foot-long promotion for the first two months of the year. The company believes they need to keep this promotion going to compete with McDonald’s, which has its own 2-items for $5 menu, and even a 2-items for $3 menu.

Many franchisees, however, do not see it that way. More than 400 Subway franchisees signed a petition protesting the $5 foot-long deal that is scheduled to start in January. They contend that the national promotion has “decimated” franchisees and left many of them “unprofitable and even insolvent.”

So what is the solution to Subway’s woes? Many franchisees say they need to be much bolder with their menu. As a consumer and occasional Subway customer, I tend to agree with this. Subway is way too conservative with its menu offerings, and they haven’t done nearly enough to introduce newer and more exciting food choices in recent years. This, I believe, has earned them a reputation of being kind of bland. Yes, Subway is a “safe” choice for lunch or dinner, but they don’t really have much on the menu that makes people want to come in and give them a try.

Should You Buy a Subway Franchise?

So is it a good idea to get into a Subway franchise? Well, maybe. They are still a very well-established brand, and a lot of their locations are profitable. If you have the capital to invest, they might be worth the risk with the thinking that the company will “right the ship” in the near future and profits will rise again. In fact, if you believe this and you have the money, now might be a great time to grab a franchise or three at a bargain price. There are, however, many potentially better ways to direct your capital.

These days, there are numerous franchise opportunities not just for fast food, but in many other industries as well. And some have great profit potential with much lower barriers to entry. For example, you could start a senior care or cleaning franchise for far less capital than a food franchise, with the same (or better) profit potential.

Which franchise is right for you? The answer to this question is different for everybody. For some, a Subway franchise might be the right fight. Others might want to get into automotive, children’s services, or something else. The important thing is to find out what type of business you think you would like to be in and speak with someone who can help you find what you are looking for.

At National Franchise Business Solutions, we have access to over 600 franchise brands across a wide range of industries. Through a multi-step process, we provide free, unlimited consulting to match candidates with the business model that best suits your passion, skills, and budget. If you are looking for a franchise business to get into in the New Year, we invite you to contact us and let us help you find the business that fits you best.

 

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