(Marike79)
QSR Magazine has released its annual QSR 50 report, which details the number of stores and approximates how much each one earns on average.
Once again, Subway is — by far — the winner in terms of sheer number of locations. In 2014, the chain had more than 27,000 stores, nearly double the 14,350 for McDonald’s. And not a single Subway location is actually owned by the company. Every store is owned by a franchisee.
Where Subway comes up very short is on the per-store average earnings. According to QSR Mag, the typical Subway location only brought in around $475,000, that’s the second-lowest per-store average of all 50 restaurants in the study.
And it’s not just because Subway is a sandwich shop. No chain in that sector with more than 1,000 locations even came close to having sales as low as Subway’s.
For example, Panera averaged $2.5 million per store last year. Even though that chain’s 1,880 U.S. locations is about 1/15 the size of Subway’s number of U.S. stores, the chain’s total 2014 revenue of $4.5 billion was nearly 40% that of Subway’s total U.S. take of $11.9 billion.
Subway corporate, which relies on the fees paid by franchisees for its revenue, has long pushed for more, more, more locations. As recently as May 2014, the corporate leadership believed the chain was still far away from the saturation point and could still reach upwards of 35,000 stores in the U.S. Globally, there are around 44,000 Subway locations.
In the U.S. alone, about two new Subways open each day, with a few more new store popping up daily elsewhere around the world.
But even before the news broke in July that federal investigators were looking into Jared’s possible involvement in a child pornography case, there were signs that all was not well in Subway-land.
Sales were down about 3.3% in the U.S., even as the company continued to open up new locations. In 2014, each day saw two Subway shops open for business for the first time. But customers weren’t exactly lining up around the corner for sandwiches they could already get a few blocks away.
“We’re not cool with the millennials. We seem tired and old, and it’s hard to break out of that,” one franchisee recently explained to Bloomberg.
At the same time as sales sagged, company co-founder and president Fred DeLuca was diagnosed with leukemia. He recently handed over the presidency to his sister Suzanne Greco, who has pledged to find ways to make more money that don’t rely solely on expansion, but who hasn’t exactly specified what those might be.
“Subway’s business has been selling franchises,” explains Darren Tristano at Technomic, a firm that provides many of the earnings and sales estimates for fast food industry watchers. “When your goal is to have the most vs. the best, you’ll eventually run into trouble.”
The chain’s growth has long been spurred by a relatively low cost for entry — a couple hundred thousand, compared to the millions you would need to start a more lucrative franchise like McDonald’s or Taco Bell.
But while a Subway store — with its smaller staffing and equipment needs and generally lower real-estate costs — might be less-expensive to operate, the decline in sales is really cutting into each franchise’s already thin profits.
Restaurant consulting firm Pacific Management Consulting Group estimates that between 2012 and now, the average per-store profit for a Subway location has dropped from $70,000/year to around $40,000.
The Wall Street Journal recently noted that some franchisees are selling their stores at deep discounts. One Chicago-area franchisee, who spent nearly $300,000 acquiring and remodeling a store in 2006, unloaded that same store in May 2015, months before the Jared scandal broke, for only $77,000.
“No one wants to buy a Subway now,” the franchisee tells the Journal. “People are selling for whatever price they can get.”
We’ll have to wait and see whether the Jared news — the former spokesperson has agreed to plead guilty to one count of travel to engage in illicit sexual conduct with a minor and one count of distribution and receipt of child pornography — will have any further negative impact on Subway sales or the ability for franchisees to sell their stores at a reasonable price.
by Chris Morran via Consumerist
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