Subway: The Remarkable Story of the World’s Largest Fast-Food Chain
It was a major success, with 200 branches in the United States by 1981. And although each franchise appears to be the same, they are all independently owned.
Even though it is a well-known brand, building a Subway location is one of the least expensive when compared to McDonald’s. To everyone’s surprise, a 2015 report stated that the franchise costs were as low as $116,000, whereas, at that time, McDonald’s was 10 times higher. Thus, those were times when a subway franchise could be opened for one-tenth the cost of a McDonald’s.
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As a result, the number of franchises and sales increased dramatically. They advertised their products against the fatty options offered by other fast food firms and became fairly popular as a result. They also profited from the Great Recession of 2008 by launching a $5-foot-long promotion that netted them $3.8 billion in sales.
Where It All Began
This simple concept was exactly what customers were yearning for when it initially opened its doors in 1965. The first Subway was called Pete’s Subway and was founded by Peter Buck, a nuclear scientist, and Fred DeLuca, a struggling college student at the time.
Subway took a bit to catch on, but once it did, it took off, and how! Every day, new chains opened, and Subway proved to be surprisingly resistant to cultural variances.
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Subway invented the open kitchen concept, and consumers loved watching their dishes being created right in front of them with fresh ingredients. However, as time passed, the open kitchen concept got more popular, and a slew of new sandwich shops sprouted up. Suddenly, this brilliant notion was insufficient.
The Downfall of Subway
On the other hand, because of the modest initial investment, too many stores clustered alongside each other. As a result, they started cannibalizing their sales. In contrast to other sandwich shops that performed double the numbers, an average Subway location made $437,000 in sales. As a result, franchisees began to turn against Subway.
They were dissatisfied with how the chain had grown carelessly. While the $5 subs were a commercial triumph, Subway overdid it. It kept the promotion going long after the economy had recovered. And franchise owners were not profiting from it. It made a big hole in their pockets.
The Subway chain was losing its spark. Lastly, there were the public relations horrors that ensued.
Following the closure of 355 outlets in 2016 and 800 more in 2017, Subway only proceeded to close franchisees the following year.
So, why was expanding the number of retailers a negative thing?
Subway Corporate did not intervene, however, because even though the stores were not doing well, more stores meant they were paid more fees and royalties.
So, while this was harming small company franchise owners, Subway was still profiting—at least for the time being. Franchise owners are required to pay Subway 8% royalty fees (more than most other fast food restaurants), regardless of how well the location performs. To put this in context, McDonald’s only takes a 4% cut.
Today’s reality for Subway
Subway, which has been a family-owned business for nearly 58 years, is finally considering selling control to private equity firm Roark Capital for roughly $9.6 billion.
However, Subway’s recent history will live on. It was worth more than $12 billion just a few years ago. Even this valuation is subject to change. The sandwich maker must still demonstrate the value of the business to Roark Capital.
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It has revamped its menu and is giving its drab-looking locations a new youthful vibe. There are also marketing gimmicks that have come to light recently. It was announced a few months ago that anyone who officially changed their name to Subway would be eligible to win free subs for life. 10,000 people have signed up for this!
Conclusion
When a crisis develops, an organization must go above and beyond the expectations of the public to manage the issue. The recent Subway incident puts the fundamentals of crisis management to the test.
The organization did not engage in public discourse.
This was a period when they might address the matter, either to reaffirm their actions or to divert attention away from the probe. During a crisis, corporations frequently establish charity funds or other corporate social responsibility efforts to mitigate reputational harm; Subway allegedly had not taken these next measures, and Subway had fallen behind the curve due to a lack of immediate action.
To be successful in crisis management, companies must remember the basics, be upfront with their customers, recall their values, and make reparations if feasible.
