Analysis of “Subway” Franchising Case Study
Subway is a private and American fast food restaurant franchise that was founded in 1965 by Fred DeLuca, headquartered in Milford, Connecticut, and that operates in more than 100 countries around the world. It focuses on fast foods, including beverages, salads, and submarine sandwiches. It has been named as one of the fastest-growing franchises that have more than 41,000 franchise units around the world (Subway, n.d.). Approximately half of these units operate within the United States. Interested franchisors pay a franchise fee and a royalty fee henceforth. The company has grown immensely primarily through its flexible franchise model that was first implemented in 1974 (Subway, n.d.). It has been so successful that it has surpassed McDonald’s as the restaurant with the largest number of stores.
The firm adopted the model as a growth strategy because of the lack of capital to open more stores and the need for rapid brand development. The restaurant was established in 165 and adopted a franchising model nine years later (Taylor, 2019). The company’s expansion across the United States was slow. Therefore, adopting a franchising model was the most effective strategy for the restaurant to open more stores and expand its brand across the US and the world (Taylor, 2019). The strategy was also adopted because the owner would not infuse any capital into new units. Rather, he would receive a franchise fee and royalties from all franchisees.
Subway’s franchise model is based on the establishment of inexpensive sandwich shops in any location around the world. A potential franchisee needs between $116,000 and $263,000 to open and operate a Subway unit, with an initial feel of $15,000 (Taylor, 2019). The franchising model is attractive to investors because it is inexpensive and easy to open. The system has been criticized because it allows franchisees to open units close to each other, thus creating highly competitive environments. As a result, the company has lost several franchise units: 359 in 2016, 909 in 2017, and 1108 in 2018 (Taylor, 2019). The closure of these units was initiated by changing trends in the fast food industry and the decline in sales (Hsu and Abrams, 2019). Based on the model, Subway gives all its new franchisees operations manual, training program, store design and equipment ordering guidance, and informative publications (Subway, n.d.). In addition, they get representatives on-site during opening, periodic evaluations and ongoing support, access to formulas and operational systems, and training (Subway, n.d.). All new franchisees are required to attend a mandatory two-week training course that includes lessons on how to operate a Subway store and a business.
The use of franchising has helped Subway grow immensely. First, it has been able to open more than 23,000 stores in the US alone (Hsu and Abrams, 2019). It has achieved its goal of growing its brand and competing effectively with multinational corporations such as McDonalds. Second, it has expanded internationally and operates in more than 100 countries. It is among the most valuable and fastest-growing franchises. Third, its revenue has grown significantly since its first franchise in 1974, mainly through royalty income. Fourth, it has become an international brand that employs more than 30,000 people.
Hsu, T. and Abrams, R (2019) ‘Subway got too big. Franchisees paid a price.’ The New York Times, Web.
Subway. (n.d.) Get on board with the world’s number one franchise. Web.
Taylor, K. (2019) Experts and insiders say Subway is haunted by a fundamental flaw that is forcing the chin to close hundreds of locations. Web.