With its green and yellow logo, “five-dollar foot-long” jingle, and “Eat fresh” tagline, Subway immediately rises to the top as one of the most recognizable franchises in the country. In fact, the iconic sandwich shop is one of the largest in the world, with nearly 44,000 locations world-wide, according to the Franchise Disclosure Document. Boasting strong brand recognition and penetration, Subway’s sandwiches and salads can be found in restaurants, convenience stores, airports, and ballparks, with plenty of open territories still available--making it an attractive franchise option for operators. However, it’s important to recognize that fierce competition, changes in leadership, and recent scandals have created waves among franchisees. Here’s what you should know about investing in a Subway franchise.
More than 50 years ago, Dr. Peter Buck gave college freshman Fred DeLuca, the founder of Subway, the idea to open a submarine sandwich shop as a way to help pay tuition. DeLuca’s first two attempts did not immediately spell success, according to a New York Times article. Originally named Pete’s Submarines (after his friend Dr. Peter Buck), the name had to change because it did not translate well over radio advertising. However, Buck’s initial investment of $1,000 did pay off. By 1974, the two men owned and operated 16 sandwich shops in its birthplace of Connecticut under Doctor’s Associates, Inc. The name derived from the idea that DeLuca hoped to earn enough money in the sandwich business to eventually become a doctor.
Subway franchises experienced a tremendous growth trajectory throughout the 1980s and 1990s and peaked about four years ago. Subway listed more than 25,908 open locations in 2017, down from 27,129 in 2015, according to its Franchise Disclosure document. A privately held company with headquarters in Milford, Conn., and regional offices around the globe, Subway does not publicly report financial results, but Forbes said it had $17 billion in sales in 2017, when it was listed as #92 on Forbes’ List of the World’s Most Valuable Brands. Back in 2015, Forbes listed DeLuca, the former president, and his co-founder and partner, Buck, as the 259th-richest Americans, each with about $3.5 billion. Subway actually dropped off the list in 2018.
The death of Deluca in 2015 marked a turning point in the franchise’s leadership. A hands-on executive, according to The New York Times, DeLuca ran the operations for decades, personally signed company checks, traveled across the country stopping at Subway restaurants incognito to sample the food and service and talk with franchise owners and customers. The company was then led by his sister Suzanne Greco, who retired in 2018 after spending 45 years with the company, according to Business Insider. Trevor Haynes, who joined the company in 2006, currently oversees the day-to-day operations of the company as interim CEO.
As a Subway franchisee, you are required to sell six-inch and foot-long specialty sandwiches, salads, wraps and other food items. You must also offer a breakfast menu that offers egg sandwiches, bacon, sausage, muffins, coffee and juice if you operate your franchise in the United States, according to Subway’s Franchise Disclosure Document.
In addition to a menu that broadly appeals to most people looking for a quick service meal, Subway is one of the most valuable brands in the United States, third only to McDonalds and Starbucks, according to Business Insider. It’s brand value is in the millions worldwide: $18,766 according to Statista. (Starbucks is valued at $44,503 million and KFC trails Subway at $15,131.)
Subway franchises don’t only exist in stand-alone restaurants. The chain allows franchises to operate traditional stores, but franchisees also may open locations in gas stations, rest stops, hospitals, theme parks, and business complexes. In addition, Subway allows franchisees to operate school lunch programs and provide food for community development programs—which have a different set of rules and lower entry fees. And while the company requires most restaurants to stick to a core menu, it does allow for franchisees to offer additional menu items—even alcohol, according to the Subway Franchise Disclosure Document.
Under fire for not keeping up with public trends and tastes, Subway has made recent changes to appeal to millennials via “uplifted” stores, customer loyalty programs, self-order kiosks, and relationships with food delivery services like Uber Eats, GrubHub, and Postmates, for example. The store even developed a mobile app for customers to access Express Pickup, get digital coupons, earn on purchases, scan to pay and more. The restaurant’s objective: to make it as easy as possible for customers to get food, according to a recent Forbes article.
New menu items, bright menu boards and kiosks round out Subway’s new “Fresh Forward” design, according to QSR Magazine. In addition, Subway invested more than $80 million in its Fresh Now program, which encourages customization with new sauces, toppings, and beverage options, the magazine said.
Thanks to a strong brand and familiar food, Subway franchisees can count on ample support and marketing from the corporate office. The Subway franchise has distinct specifications related to store set-up, menu, and marketing programs and regional development agents who run those programs and conduct inspections. The corporate office helps franchisees navigate:
Site selection/ grand opening
Financing, offered in-house
Equipment sales/ leasing
Regional advertising and national media
While franchisees benefit from a prescribed menu of products and services from the home office, some have experienced frustration related to pricing, store reputation, and saturation in the marketplace.
Subway is one of the cheapest restaurant franchises to enter. Total initial investment can run between $150,000 and $328,000 for a traditional location (and $89,550 to $209,400 for a non-traditional location), assuming you lease your equipment from Subway, according to the Franchise Disclosure Document. As a comparison, McDonald's charges a franchise fee of $45,000 and startup expenses can cost up to $2.2 million, according to the McDonald’s Franchise Disclosure Document. A Subway restaurant, on average, generates $422,000 in sales annually, compared to $2.6 million in average annual revenue for McDonald's restaurants, according to QSR magazine.
Subway franchisees are required to contribute 12.5% in gross total sales each week to cover the costs of royalties (8.5%) and advertising (4.5%).
Initial franchise fee: $15,000
Reduced franchise fee for affiliates or veterans: $7,500
Satellite franchise fee: $5,000
School lunch or community development location fee: $0
Royalty: 8% of gross total sales plus 4.5 percent of gross total sales for advertising (12.5% paid weekly)
Grand opening advertising: $2,000
Location rent/ license fee: $1,000 to $6,000 per month
Net worth: $80,000-$310,000
Liquid assets: $30,000-$90,000
There are no company-owned Subway franchises. Like the original owners, you don’t have to be a sandwich artist or have owned a restaurant to become a Subway franchisee. There are financial requirements, which include having liquid assets between $30,000 to $90,000 and a net worth between $80,000-$310,000. You must, however, participate in a two-week long training course that teaches business concepts, methods of operation, and basic management skills. The training time is spent in a classroom and on-site at a local Subway franchise for a "hands-on" experience. At the end of the two weeks, each potential franchisee must pass an exam to become a Subway franchisee.
According to Subway’s website, if you possess an entrepreneurial spirit and want to work hard, you can apply for a franchise. Steps include:
Submitting a franchise application
Meeting with a local business development agent
Reviewing the Franchise Disclosure Agreement
Conducting local research
Singing the franchise agreement
Attending a training
Securing a location
The website also lists sites for sale here: https://www.subway.com/en-US/OwnAFranchise/RestaurantsForSale
If you are interested in owning a quick service franchise, but don’t believe that a Subway franchise is right for you, fortunately there are many other options available. The quick service food franchises listed below are all award-winning brands that have been rated highly in FBR franchisee satisfaction surveys.
With more than 900 restaurants in 29 states and Washington, D.C., the 30-year-old Checkers & Rally’s brand stands out thanks to its black, white and red checkered design. Milkshakes, burgers, chicken wings, and seasoned fries make up the menu, and customers can choose between eat-in, drive-through, and delivery options. Buildings could include stand-alone restaurants, converted spaces, or non-traditional locations, giving franchisees leeway to lower their real estate investments, according to the Checkers & Rally’s website. A recent Franchise Business Review survey shows it ranked among one of the best opportunities for franchising by its franchisees, citing it as “very good” for training and support, financial opportunity and general satisfaction.
Franchise requirements are as follows, according to Franchise Business Review:
Franchise fee: $30,000 per restaurant
Total estimated initial investment: $96,414 – $1,501,265*
Minimum net worth: $750,000
Minimum liquid assets: $250,000
Royalties: 4% of net sales
Total advertising requirement: 4.5% of net sales
Both candidates with prior restaurant experience and those seeking a financial investment are encouraged to apply for a franchise; all prospective franchisees must complete five weeks of training.
The chain boasts a 62% return on investment and opened 50 new restaurants in 2017. In 2018, Restaurant Business reports that franchise revenue rose 9.5%.
Learn more about franchise opportunities with Checkers & Rally’s.
Lennys Grill & Subs opened in Memphis in 1998, and is known for its cheesesteaks, Italian, and turkey subs. The fast-growing chain already has 100 locations, primarily in the Southeastern and South-Central United States with a plan to reach 200 locations within the next five years, according to the Galesburg Register-Mail. Its top 50% of franchise owners grossed $775,000 in sales and brought in $85,711 on average in earnings before insurance, taxes, and amortization (EBITA), according to its Franchise Disclosure Agreement. Franchise Business Review ranked it as one of its 200 Best Franchises to Buy in 2019.
Franchise requirements are as follows, according to Franchise Business Review and the Lennys Grill & Subs web site:
Franchise fee: $25,000
Total estimated initial investment: $192,844 - $431,326
Minimum net worth: $400,000
Liquid capital requirement: $75,000
New franchisees come to Memphis, Tennessee, for four weeks of training in a certified training restaurant, and one week of training at the Restaurant Support Center. Prospective franchisees are not required to have owned or operated a restaurant previously.
If you prefer pizza to sandwiches, Donatos Pizza might be the quick service restaurant franchise that most appeals to you. With growth markets in the eastern part of the United States, Donatos operates 54 company-based restaurants, which roll out products and processes before they are passed on to its 160 franchisees. Franchisees buy their dough directly from Donatos, which offers “ready-to-go” crusts—reducing customer wait times, according to the Donatos Pizza website. It also gives customers choice, thanks to “five points of distribution,” which include delivery, pick-up, drive-through window, eat-in, and catering.
Franchise Business Review ranked Donatos Pizza one of its 200 Best Franchises to Buy in 2019.
Franchise requirements are as follows, according to Franchise Business Review and Donatos Pizza.
Franchise Fee: $30,000
Total estimated initial investment: $375,000 - $699,900
Minimum net worth: $1 million
Minimum liquid assets: $200,000
Commitment to three locations
Training and support include a field marketing manager, local store marketing, and a franchise business consultant who looks at profitability. Training includes a discovery day at Donatos Pizza’s home office in Columbus, Ohio.
Whether you decide to invest in Subway or another quick service restaurant, there is a lot to consider when opening food franchise. For example, Franchise Business Review reports that the time investment for a food service franchisee varies as much as your monetary investment, depending on:
• the size and capacity of the franchise concept
• the number of locations you open; and
• how long the franchisee has been in business.
In its Top Food List report, Franchise Business Review’s research shows that 37% of food franchise owners earn less than $50,000 per year, and just 16% – the “top performers” – earn more than $200,000 per year. The average annual income reported by all food and beverage operators it surveyed is $120,000 for businesses open at least two years. The report also states that its top food franchises reported average earnings 15 to 20% higher than their competitors.
Understanding all of the food franchises and concepts available, expected profitability and income, and what will be expected from you as a franchisee are major factors to consider before you invest in any franchise. You can learn more about this year's top-rated food franchises in Franchise Business Review’s Top Food List -- The Best Food Franchises to Buy in 2018 - Reviewed, Ranked, Recommended.