Not all entrepreneurs must conceptualize their own ideas and concepts. This is where franchises come in. Franchises are mutually beneficial business operations designed to provide corporate profitability as well as entrepreneurial profitability.
The popular national sub sandwich restaurant chain is an example of a franchise-based operation. This means that the majority of Subway restaurants, if not all of them, are technically owned by a different person or persons who is operating the restaurant under a franchisee license with Subway’s corporate ownership. This method of conducting business has been quite fruitful for Subway, as it is reported as being one of the top performing franchises in the United States, having even won the fifth spot on the “Franchise 500” list for 2016 Entrepreneurs for the most lucrative franchises to consider (Seid 1). Subway has been operating as a franchise for 42 years (Seid 1).
Impressively, Subway has even now successfully surpassed the age-old McDonald’s restaurants in quantity of successful operations, as of 2011; McDonalds had 32,737 restaurant locations spread throughout 117 countries, whereas Subway had 33,749 restaurant locations spread throughout 95 countries (Seid 2). This number has increased, as Subway had grown to a reported 44,000 restaurant locations as of 2017 and has expanded further internationally via now operating in a total of 111 nations (Seid 1).
Delving briefly into Subway’s technical history, the submarine sandwich chain was started in the 1960s by Fred DeLuca and was originally named Pete’s Super Submarines (Seid, 2). The chain had been named after Peter Buck, a nuclear scientist, who loaned Fred the $1,000 he needed to open the restaurant (Seid 2). The name of the restaurant chain was changed to Subway in 1974, which is also the same year that it began franchising (Seid 2). The franchise method of operations took off, with new restaurants opening at record speed. In fact, by 2013, Subway franchisees were collectively opening a reported average of 50 new Subway restaurants per week (Seid 2). The company has discontinued offering international master franchises but does still continue to seek out new franchisees and overall franchise opportunities worldwide (Seid 1). It is hoped to specifically expand via additional franchises in Brazil, the United Arab Emirates, Russia, China, and India (Seid 2).
The decision to open a Subway franchise is a large one, of course, and not to be taken lightly. The decision to franchise with Subway comes with large scale financial investments and decisions. Specifically, as of 2016, it was reported that the initial financial investment needed to open a Subway franchise would run the franchisee anywhere between $116,600 and a staggering $263,150 (Seid 1). Additionally, a franchisee is required to prove a net worth of between $80,000 and $310,000 and provide a liquid cash amount ranging from $30,000 to $90,000 depending on the situation, location, and specifications of the Subway restaurant seeking to be opened (Seid 1). As the decision is not to be taken lightly, Subway offers seminars free of charge for those considering the move to meet corporate representatives of Subway and to learn additional information about franchisee requirements (Seid 3). Subway always wants to be forthcoming with potential franchisees and ensure that they understand exactly what they are entering into. After all, it is in the financial and reputational interests of both parties (franchiser and franchisee) for the franchisee to succeed. This all stated, however, it should be noted that Subway is actually one of the least expensive franchise relationships to enter into, especially in terms of the foodservice sector (Peterson 1).
Franchisees are required to gain approval for their potential physical location prior to their franchisee agreement becoming approved. The location must be vetted and located by the franchisee, but then the floor plan is decided by Subway (“Be Part of a Winning Team With a #1 Franchise” 4). Then, beyond that, the franchisee is required to decorate their location according to Subway décor specifications while utilizing specific materials; there is a specific ordering process for approved materials. This is required to maintain a streamlined look of Subway’s signature brick, clay, and stone stores, which is aimed to communicate an inviting and warm family-friendly atmosphere (“Be Part of a Winning Team With a #1 Franchise” 3).
Franchisees receive ongoing and random evaluations by the franchiser (“Be Part of a Winning Team With a #1 Franchise” 4). Such evaluations are imperative for Subway to ensure that all requirements are being followed and that all Subway stores are being ran in legal and ethical ways up to Subway’s standards. Evaluations ensure uniformity and protect the firm’s brand image. For example, franchisees are required to carry out Subway’s mission, values, and exceptional customer service (“Be Part of a Winning Team With a #1 Franchise” 8).
Training occurs for franchisees once a franchisee is approved, payment has been administered, and the site selection process has begun. Training isn’t free; it is part of the initial franchisee fee, as are many of the other franchisee requirements seemingly provided by Subway (“Be Part of a Winning Team With a #1 Franchise” 8). Subway’s training is provided to not only the franchisee him/herself, but to the designated store manager chosen by the franchisee (“Be Part of a Winning Team With a #1 Franchise” 5). The training is only two weeks long, but it is described as being in-depth and quite intense (“Be Part of a Winning Team With a #1 Franchise” 5). After training is complete, a franchise coordinator is assigned to the franchisee by Subway (“Be Part of a Winning Team With a #1 Franchise” 5). The franchise coordinator is continually available to the franchisee for phone and email support throughout the duration of the franchisee’s relationship with the franchiser. Additionally, continued education is almost always available from Subway, ranging from regularly occurring company newsletters, educational/informative emails, DVDs, and other miscellaneous learning tools (“Be Part of a Winning Team With a #1 Franchise” 5).
The franchisee will have a financial obligation to the franchiser for the duration of the franchisee’s time in business. This is a given, of course, as it is the manner by which Subway as a corporation actually profits from the sale of its products and overall brand. In the case of Subway, franchisees must pay an 8% royalty to Subway of all sales conducted through their store under the Subway name (“Be Part of a Winning Team With a #1 Franchise” 4). In addition to the 8% royalty fee, franchisees must pay in to the company’s overall advertising fund; they must pay the equivalent of 4.5% of all sales from their location into the advertising fund. (“Be Part of a Winning Team With a #1 Franchise” 4). The concept beyond an advertising fund is that the franchiser handles all of the Subway advertising from which the franchisee received financial benefit through sales, thus, it is only logical and fair that the franchisees should provide investment to their own financial successes. This means, though, that 12.5% of all of a franchisee’s sales are paid to Subway (Peterson 2).
Subway is one of the least profitable restaurant franchise opportunities, which is why it is also one of the least expensive franchise opportunities to enter into. According to Peterson, “A Subway restaurant, on average, generates $490,000 in sales annually, compared to $2.5 million in average annual revenue for McDonald’s restaurants […]” (Peterson 2). This means that, on average, franchisees $61,250 in fees paid back to Subway, as such an amount would equate to 12.5% of $490,000. The actual salary pulled by a franchisee is, of course, dependent on his/her inventory management practices, staffing practices, and overall business management techniques.
Opportunities abound for entrepreneurs to become franchisees within the fast food industry. For example, one could decide to franchise with Jimmy Johns instead of Subway if they are specifically interested in serving submarine sandwiches. Other franchise opportunities include McDonalds, Pizza Hut, Dunkin Donuts, Hardees, Jack In The Box, and Taco Bell, just to name a few.
A customer service representative, Sherry, from Subway’s corporate office was interviewed to answer some of the basic questions of becoming a franchisee. Sherry advised, “The application to become a franchisee is provided right on Subway’s website.” She also said, “Not all franchisee applicants need to find and vet their own location; they may also sift through current Subway locations that may be for sale and seek to purchase one of those instead.” Another interesting piece of information provided by Sherry was when she said, “Some franchisee locations can be opened as quickly as two months from the time the franchisee relationship is approved.” Additional excerpts from Sherry’s interview are available upon request.
Subway is a perfect franchise opportunity for the less seasoned entrepreneur given its low startup costs in relation to the rest of the market. The low-end start-up cost denotes a lesser degree of risk than other franchise choices. Additionally, it also means a decreased profitability. For these reasons, it is recommended that an entrepreneur franchise with Subway as a way of testing his/her abilities to gain experience, prior to moving on to additional more lucrative opportunities.
“Be Part of a Winning Team With a #1 Franchise”. Subway, www.subway.com/en-us/ownafranchise/franchisingfaqs. Accessed 22 April 2018.
Peterson, Hayley. “Here's What It Costs to Open a Subway Restaurant.” Business Insider, Business Insider, 19 Mar. 2015, www.businessinsider.com/what-it-costs-to-open-a-subway-2015-3. Accessed 22 April 2018.
Seid, Michael. “What Is a Franchise?” The Balance Small Business, www.thebalancesmb.com/what-is-a-franchise-1350097. Accessed 22 April 2018.