the recent Restaurant Finance and Development Conference. Lower valuations, and some 7,000 unit closures since 2015, have sapped franchisee morale. While no franchise has great relationships with all its franchisees, any new CEO will need to contend with a large group of skeptical operators. To be sure, plenty of owners are satisfied with the state of the brand right now. But franchisees oper- ate 100% of the chain’s locations. They are the ones who interact with the customers who buy the chain’s sandwiches. Ensuring better rela- tions with that group is important. And any new CEO should address that first. “As the representatives of Sub- way franchisees in North America, NAASF sees a brand new opportu- nity for Subway with the departure of John Chidsey,” the North Amer- ican Association of Subway Fran- chisees, a group of the company’s operators, said in a statement. “We look forward to a culture of collab- oration and open communication as we work toward a mutual goal of success, measured by franchisee profitability.” CUT THE MENU Subway under Chidsey did a good job of improving the quality of in- gredients and generating menu news. But the company hasn’t tak- en a step that is crucial in any turn- around: trim the menu. Struggling brands will frequently turn to new menu items to gener- ate interest. But they can be afraid to remove some items, fearful of losing those customers. The result- ing “menu creep” hurts operations, making it more difficult for franchi- sees and for workers while adding to the number of items operators must keep on hand. There are additional challenges with Subway, because new items of- ten bring new ingredients custom- ers can use for other subs because so many of its orders are custom- ized. That costs money. Subway’s menu is complicated.
ture certain customers. This was made blatantly last year, when con- sumers cut back on dining out, frus- trated by high prices. Subway has made repeated efforts to focus on value, either through its mobile app or in-store. But many of these efforts are either too aggressive, such as buy-one, get-one Footlong subs—effectively discounting its highest-priced, and most expensive sandwiches—or they don’t work, as noted by the fail- ure of a recent $6.99 6-inch Meal Deal. Yet discounts can also harm franchisee profitability, something Subway operators do not need right now. The new CEO will need to find a value strategy that resonates with consumers enough to get them in the door without damaging franchi- see profitability bad enough that it drives more operators to the brink of closure. That’s a tough needle to thread. But Subway’s next CEO will have to do that with another major chal- lenge: Many consumers still re- member the $5 Footlong promotion the chain ran for years before end- ing it in 2012.
Each of Subway’s primary compet- itors operates with a much simpler menu with fewer breads, sauces, proteins and cheeses. Yet that hasn’t necessarily translated into stronger sales. Cutting the menu could also give Subway a reason to reorganize the menu to make it easier for consum- Jersey Mike’s, the Subway compet- itor, was just sold for $8 billion at a multiple presumably much higher than the one Subway just sold for. In 2019 the company funded franchi- see remodels. The remodel project was finished in a year and Jersey Mike’s says today that it has easily made its money on that investment since then. ers to understand. MAKE SOME KEY INVESTMENTS We don’t think Subway should necessarily do that, though it would help. But the brand should pump some money into its revitalization program. That could be in the form of marketing, new equipment or re- models. Subway has done some of this, notably the slicers now in each of their restaurants. Yet the company could do much more to support its operator base. Many brands looking to fix things will pump tens of millions, if not hundreds, into the effort. Mc- Donald’s had an E. coli outbreak in October that hurt traffic by about 900 basis points and it quickly an- nounced a $100 million investment, including $35 million for marketing. Restaurant Brands International has pumped so much money into Burger King’s turnaround that we can barely keep track of it all. An investment could provide a big boost to marketing as well as those franchisee relations we talked about. FIND A VALUE STRATEGY THAT WORKS Whether anybody likes it or not, quick-service restaurant chains need some low-priced items to cap-
39
JANUARY 2025 RESTAURANT BUSINESS
PHOTO: ENVATO
Powered by FlippingBook