Overtook McDonald’s in the number of restaurants in the world, but lost the lead due to the growing crisis

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The fast-food chain has been developing a franchise for 50 years – one of the founders was obsessed with opening establishments, sometimes at the company’s expense. She has faced media problems and falling sales in the past few years but has hired a new leader and hopes to get out of the crisis.

Future Subway co-founder Fred De Luca was born in 1947 in Brooklyn, New York. The family did not live well: the father was a worker, and the mother was engaged.

They later moved to Connecticut. De Luca graduated from Bridgeport High School in 1965 and worked part-time in a hardware store. But did not know where to get the money for his studies. When he turned 17, his parents sent him on summer vacations to a family friend, Peter Baku.

  The entrepreneurs decided to take the best from the competition.

Buck gave De Luc $ 1000 to start the business. He found a small space for $ 165 a month after the hardware store where he worked. He handed out flyers to drivers when they stood at a red traffic light to advertise the opening.

On August 28, 1965, about two months after the idea was born, De Luca and Buck opened the first diner. Their sandwiches cost between 49 and 69 cents. On the first day, they sold 312 subs, and by 6 pm, they had no ingredients left.

A year later, De Luca and Buck formed the holding company Doctor’s Associates to oversee the development of the business. The name stems from De Luca’s desire to make enough money to pay for medical college tuition.

The entrepreneurs also had to rename the company from “Pete’s Submarines” to “Pete’s Subs” because, in the radio advertisements, the quick pronunciation of the name sounded like “Pizza Marines” – and people came to them for pizza. In 1968 he appeared “Subway” – the word means “Taste is better than the other” on the manadrinskom dialect of the Chinese language.

Franchise network

In 1965, De Luca and Buck set themselves the goal of opening 32 restaurants within ten years. But after the successful launch of the first eatery, sales began to plummet.

“On Mondays, we had employee meetings where we discussed our successes and drew a sales schedule. And this indicator went down. Every week we sold fewer and fewer sandwiches,” said De Luca.

The founders realized they were losing money. At some point, they only had $ 6 left and had nothing to pay their employees. Despite this, they decided to open a second restaurant. When the partners found premises, made renovations, and spread, sales began to grow in both locations by the summer. The founders realized that earnings varied depending on the season.

For several years, a trend was established at Subway: in winter, De Luca and Buck earned almost no money, and in summer, sales grew, and partners opened one or more restaurants.

By 1973, De Luca and Buck had opened 16 restaurants. Then the founders decided to sell franchises. De Luca’s friend Brian Dixon became the first franchisee. He opened a restaurant in Wallingford, Connecticut.

Advertising campaigns

Subway sandwiches have always had an image of a healthy snack compared to food from other fast-food restaurants, Business Insider writes. This was reflected in the slogan “Eat fresh” and in the brand’s advertising campaigns.

In 1997, Subway launched a campaign that advertised seven low-fat sandwiches and compared them to hamburgers and tacos from other fast-food chains. And in 2000, the network first introduced an ad featuring Jared Fogle.

During his student years, Fogle weighed 193 kg and suffered from sleep apnea. In his last year, he decided to change his eating habits. Since Subway was near his home, McDonald’s came up with his sandwich diet: a 15 cm turkey sub for lunch and a 30 cm vegetarian sub for dinner, both meals with a bag of baked chips and diet soda.

Fogle said he never got bored of eating at Subway but admitted that he wanted pizza and burgers. “At first, I had to literally hold onto the edge of the chair, because if I got up, I would go for a burger,” he told the Daily News.

Fogle lost 111 kg in a year. After an article about his weight loss was published in the student newspaper, and the local media drew attention to this story, Subway invited Foglu to star in an advertisement. The campaign was so successful that after the release of the first commercial, network sales grew by 20%.

Subway Crisis

The Subway franchise cost has always been lower than the competition. According to data for 2019, the average investment for the launch of a Subway restaurant was approximately $ 140-342 thousand. This is less than most franchises in American food service: it costs $ 1.3-2.2 million to open a McDonald’s restaurant.

With a cheap franchise, Subway encouraged franchisees, mostly recent immigrants, to open new locations. Restaurants appeared at gas stations, truck stops, and even churches. In 2010, the chain overtook McDonald’s in the number of restaurants in the world.

Rather than focus on the location, Subway did focus on the number of points. As a result, they opened up next to each other, creating competition within the company. According to one franchisee who owns two locations, De Luca was obsessed with having as many restaurants as possible.

  But proved to be unprofitable for many franchisees. Along with the rise in rental costs, labor and food prices, and increased competition, the promotion “$ 5 per foot sub” has become unprofitable for them. As a result, the company refused to offer it in 2012, and the price for such sandwiches again became $ 6.

Subway into a pandemic

In November 2019, John Chidsey, who previously headed Burger King, became the CEO of Subway.

Due to the Covid-19 pandemic, the entire restaurant industry has suffered from restaurant closings and lockdowns. Subway adapted and began selling food in over 250 restaurants in the United States. But the company had fewer points of access by car than its competitors. For example, McDonald’s had 13,000, while Subway had only 600. This made it difficult to serve customers who wanted to keep their distance.

The advantages of the network can include the fact that the company has focused on the delivery of application development in recent years, which helped sales in quarantine. In addition, Subway restaurants tend to be much smaller than the competition and require fewer employees.

Further changes

Since taking over as CEO, Chidsey began a gradual change at Subway. He changed the management of the company, hiring 75% of new people.

In January 2020, Chidsey relaunched the $ 5 per foot sub, this time in a $ 10 for 2 feet offer. Under his leadership, a similar action took place at Burger King during the economic crisis in 2009. The chain offered a $ 1 double cheeseburger in response to a similar promo at McDonald’s.

The offer proved to be popular. This time around, Subway did not force the franchisee to participate, but many felt the pressure as the contract stipulates. As a result, the Subway franchisee association spoke negatively about the action. Under pressure from outlet owners, the company moved the offer online to orders through the website or mobile application.


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