Subway, Episode V: The Franchisees Strike Back [Updated]

Update, June 17, 2020: Subway franchisees are mad as hell, and they’re not going to take it anymore! Industry publication Restaurant Business has reported that in response to Subway’s financially untenable two-for-$10 footlong promotion, some franchisees have begun filing complaints with the Federal Trade Commission, saying they are being “bullied into honoring a promotion that is unprofitable to them.” The federal agency normally doesn’t intervene in complaints such as these, leaving it up to states to work these things out amongst themselves. Still, it’s worth a shot.

The complaint requests that the FTC launch an investigation into “claims of unfair or deceptive acts by the company and its development agents, master franchisees that themselves sell franchises and collect royalties.” It also notes that if a significant number of franchisees choose not to participate in the promotion, the ads that Subway is currently running are tantamount to false advertising. Franchisees, who are allowed to opt out of promotions, are not allowed to display signs notifying customers that the offer is not good at that particular location, and that information is not displayed on the Subway app. This means the responsibility of informing customers that they can’t get two footlongs for $10 falls squarely on the shoulders of the cashiers, which, you know, isn’t awesome for them.

The complaint also notes that franchisees feel they are being pressured to accept 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.

Ron Gardner, an attorney who represents the North American Association of Subway Franchisees (NAASF), told Restaurant Business that the NAASF is not behind the complaints, and still holds out hope that Subway will actually listen to the people who own and operate its restaurants.

When reached for comment, reps for Subway would not go on the record about the complaints. The company did, however, provide a comment from Alex Merturi, a Connecticut-based franchisee, and Rohit Marwaha, a Subway development agent:

“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,” the statement read. “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.”

As Subway continues to systematically destroy its business from within, please remember: If you eat at Subway, think twice before using the coupons and be nice to the staff.

Original post, June 15, 2020: While it’s true that Subway is a multibillion-dollar corporation, it’s also true that in some ways it’s more like a mom-and-pop shop. Subway operates on a franchise model that independent restauranteurs can buy into much more easily than other fast food chains, requiring a relatively small upfront payment to open a location and then paying Subway a percentage of sales. Way back in 1998 it was estimated that 50% of Subway owners were immigrants, and immigrants remain a pillar of the company’s U.S. business. Yet Subway has a history of disrespect for its franchisees; this 2019 expose from the New York Times is a must-read.

We’ve already discussed how Subway franchisees had to fight to discontinue the long-running and bad-for-business $5 footlong promotion, which cost franchise owners millions and led some to lose their businesses. Earlier this year, Subway’s corporate overlords once again forced franchisees to foot an enormous promotional bill, this time a “buy one, get one free” deal to promote the Subway mobile app. Now, Subway has combined both disastrous promotions into a “Buy two footlongs for $10” deal launching tomorrow. Franchisees, though, have learned plenty, which is why there’s a good chance that you won’t actually be able to get two sandwiches by dropping a Hamilton.

The New York Post reports that franchisees are not required to take part in this promotion, and according to polling conducted by the North American Association of Subway Franchisees—a group that represents the restaurant owners—a whopping 75% are not planning on offering it. Meanwhile, Subway has hired pop singer Charlie Puth to be the face of the promotion’s new ad campaign.

In an internal video obtained by the Post, a Subway territory manager points to massive sales declines in the wake of the coronavirus pandemic as the reason for the “Hail Mary” promotion. To help convince apprehensive franchisees to take part, Subway has gotten beverage supplier Coca-Cola to give $200 a week to every participating store. Yet even with that generous offer, franchisees can expect to take a financial hit: a spreadsheet Subway gave to its franchisees showed that if they sell the $10-for-2 deal 100 times a week, after costs, they will make $245. (That number includes the $200 Coke is throwing in.) But franchisees are saying that even that number is inflated: store operator and franchisee advocate Keith Miller ran numbers from his own stores and found that if 150 customers ordered the deal in a week, he would lose $847.

While it might seem inconceivable that a company would be willing to sustain such losses, know that Subway, as a corporation, would be benefiting, as it makes its money from a monthly royalty payment that is calculated before costs.