Image Courtesy of Subway
Subway Could Be ‘Gobbled Up’ by Jersey Mike’s After ‘Ignoring’ Its Franchisees
December 4, 2024
Subway is reportedly at risk of being “gobbled up” by Jersey Mike’s after the popular sandwich chain ignored its franchisees’ “screams for help.”
According to The New York Post, the depressing headlines contrasted sharply with recent reports from Jersey Mike’s, a much smaller rival. Despite having only 3,000 US sites as opposed to Subway’s 20,000, the chain sold itself to the Blackstone Group for $8 billion, which was not much more than Subway had received six months prior from Roark Capital.
The outlet spoke to Robert Zarco, who provides counsel for the North American Association of Subway Franchisees. Zarco claimed that the sandwich chain’s habit of “ignoring” franchisees has left it vulnerable to Jimmy John’s, which is growing at a much faster pace than Subway.
The Post shared that Subway has shrunk by 15% over the last four years, dropping from “23,799 US restaurants on Jan. 1, 2020 — shortly after Chidsey took the helm — to 20,133 on Jan. 1, 2024, according to public filings.”
Meanwhile, one of Subway’s franchisees noted that he could “easily see Jersey Mike’s more than doubling in size soon to 8,000 US restaurants.” Public filings show that the average Jersey Mike’s restaurant earns around three times as much money as the average Subway.
“If Subway keeps treating its franchisees the way it has over the last five years where it is ignoring their screams for help, Jersey Mike’s will have an easy task of gobbling up [the brand],” he said. “I hope it’s the reason for the change because it should have been. Because of the tensions that are prevalent, it is a good move for Roark to come in and wipe the slate clean and establish a better working relationship with the franchisees.”
The “it” that Zarco is referring to is the exit of CEO John Chidsey, who announced his retirement after joining the company in 2019. Carrie Walsh, the current president of EMEA and former global CMO, will take over as temporary CEO in place of Chidsey while the company looks for a permanent replacement.
Roark is the private equity firm that purchased Jimmy John’s back in 2016 and Subway in 2019. Roark also owns Arby’s, Baskin-Robbins, Auntie Anne’s, Buffalo Wild Wings, Carvel, and more legacy brands.
Subway Is Overdue for a Change
Subway’s CEO shakeup is promising to signal change for the embattled sandwich chain.
As reported by Restaurant Business, Chidsey took over as CEO in 2019 during a time of significant upheaval for the business. The company was in turmoil at the time due to the combined effects of founder and CEO Fred DeLuca’s death in 2015 and the imprisonment of longstanding brand spokesperson Jared Fogle. A number of important developments for the brand surfaced during a flurry of activity that included cutting corporate employees and moving most of the chain’s operations to Miami, where Chidsey lived.
To increase consumer satisfaction and draw in new business, the company drastically changed its menu and ingredients and refocused on international operations and expansion. In keeping with the brand makeover, a number of venues underwent renovations as well.
According to Restaurant Business, the adjustments were successful. Both the average unit volume drop and closures slowed. The benefits of international development accords fueled growth in the sector.
The emphasis on discounts and the rewriting of franchise agreements, however, did not sit well with operators. These concerns were noteworthy because franchisees control and run nearly all of Subway’s 37,000 restaurants worldwide.
Subway convened an urgent meeting with its franchisees in North America in August. According to The New York Post, the subjects of discussion included severe drops in sales and traffic as well as the equally important (and contentious) ongoing discounting. Franchisees reported that discounting caused them to lose a significant amount of sales revenue, particularly as total volume was not similar to earlier periods.
Other pressures, though, may also be increasing. At the time, the New York Post said, “Subway, which owns none of its restaurants and makes its money through 8% royalty fees it collects from franchisees, now faces interest payments on debt following its sale to Roark and can’t afford to have declining earnings, sources said.”
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