Sad reason why Subway is forcing franchises to sell sandwiches at a discounted price
Topics: US News, Business, Food and Drink
Bec Oakes
Featured Image Credit: Michael M. Santiago/Brandon Bell/Getty Images
Topics: US News, Business, Food and Drink
Subway is reportedly being forced to sell discounted sandwiches across its stores, and the move has sounded alarm bells among experts.
After more than 50 years in business, fast food chain Subway put itself up for sale and recently reeled in a buyer in a deal worth a potential $10 billion.
The company agreed to be sold to private equity firm Roark Capital — backers of popular chains Arby's and Dunkin' Donuts — back in August.
And, ahead of the acquisition, the restaurant chain has laid down a policy for all of its locations, according to The New York Post.
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According to the inside source, all 19,000 locations will be required to accept all digital discounts and promotions as of December 28.
Previously, promotions like the renowned $5 footlong deal were optional as each branch was individually responsible for its own costs and profits. But with rising food costs, some opted out of accepting coupons they couldn't afford to honour.
Last year, an Iowa-based Subway manager told WHO 13: "We used to take coupons until about February of this year. Prices of turkey went up, bacon has gone up about 20 per cent since 2020, so every year it keeps climbing."
Despite there being no sign of inflation slowing down anytime soon, struggling franchise owners will be forced to take any and all digital promotions by the end of the year, regardless of how it might impact their business.
But making all promotions mandatory could undercut Subway CEO John Chidsey’s argument that all store operators are independent.
Earlier this year, Chidsey had told CNBC: “The great thing about franchising is franchisees set their own pricing and consumers visit all kinds of quick service restaurant brands.
“They are independent contractors. They hire, they set pricing.”
Now, with Roark Capital reportedly setting the business financial milestones to reach before the deal is finalized, the mandatory coupon acceptance may be part of its efforts to meet said milestones.
But many franchise owners worry about the looming mandate, saying that they already struggle to make ends meet due to profit margins being so small.
One multi-store operator told The New York Post: “It costs me $7 to make a turkey sandwich when you include labor and rent. “So I make a $2 to $3 profit.”
And Subway charges eight percent royalty on all sales, regardless of whether the restaurants make a profit.
Only time will tell whether Subway's initiative is the profit-booster it claims to be or if the chain will end up seeing its fourth consecutive year of mass location closures as franchises go under.
UNILAD has contacted Subway for comment.