October 10, 2012
SUBWAY franchise horror stories are not that hard to find. If you’re thinking of buying an existing Subway franchise, following a few common sense insider tips can keep you from becoming one more cautionary tale.
Heard any good Subway franchise resale horror stories lately?
If not, here are a few for you:
> A buyer decides to purchase an existing Subway franchise without getting professional advice. He overpays for the store by approximately $60,000. When his cash flow cannot support him or his debt service, he asks a business broker to sell it for what he paid for it (ie, find another sucker to stick it with). The broker refuses to list it, as it’s clearly overpriced.
> A seller assures the buyer not to worry about the franchisor’s remodel requirement. It will be very cheap, he says. He had a friend who just remodeled his store for $15,000, he says. When the time comes to remodel, the price tag is $60,000. The new buyer is stuck, as he the remodel is required in his agreement.
> A seller assures the buyer not to worry about a new Subway store opening in the same market. “It won’t affect you at all,” he says. Once the nearby Subway opens his sales drop 30%. If he wants to sell, his asking price will be determined by the lower sales volume.
> A buyer purchases a Subway restaurant from his uncle. The uncle claims cash flow will be 25% of sales. The new buyer learns that cash flow is actually 12% of sales, and that his rent is too high. He tries to sell, but cannot get near what he paid for it.
> A buyer contacts an experienced consultant and tells him he has the “combo report” from the Subway he’s thinking of buying. The consultant offers to analyze the report and advise him on the health of the franchise location for somewhere between $495 – $995. The buyer balks at paying for advice, then invests $100,000 – $150,000, takes out a loan with a personal guarantee and signs a long-term lease. UnhappyFranchisee.Com awaits his arrival and participation.
Are you familiar with the SUBWAY franchise opportunity? Please share a comment below.
5 Things You Should Know Before Buying a Subway Franchise
Fayaz Karim (BSc, MBA, CA), is a franchise consultant, broker and Subway specialist with 25 years of experience.
He also publishes the Mr. Franchise Man website, and contributed the horror stories above.
We asked Mr. Franchise Man Fayaz Karim to share the 5 things every Subway franchise resale buyer should know.
Here they are:
1. You must know if the price you are paying is a fair price and the only way to find that out is with a Valuation or a second opinion from an industry expert. To give you an example: I had a call from an unknown person who said he had found a store with weekly sales of $2700 and a rent of $2000 a month, should he buy it? I did not need much more information. I said “run” and do not waste your time.
2. Make sure you know what the estimate is for a remodel if it is coming up in 12 months. It could be $6,000 or $30,000. You don’t need a surprise. Better still, get the seller to do it before transferring the store to you.
3. Calculate cash flows accurately and consider all expenses, even the pest control charges and costs for uniforms.
4. Ask for the COMBO sales report and get someone independent to interpret it for you. This is the most crucial report for analysis. It is like a blood test is to a doctor – he knows what it all means and can diagnose a sickness and order further tests to judge the health of the store.
5. Ask if there is another Subway store opening nearby in the future that could affect your sales and profitability.
According to Fayaz, most Subway owners, by and large, are happy. The fact that there are relatively few existing stores for sale, he contends, is proof of that.
However, Fayaz also acknowledges that many sad stories arise out of mistakes buyers make when getting into the system, such as the lack of due diligence, erroneous assumptions and cash flows, and overpayment for stores in a desperation to get in the Subway system.
He also states “There is no doubt that the ‘culture’ at Subway can be Gestapo-like, but it is not so everywhere; only in isolated areas and instances… The main question is how much of this ‘culture’ are you willing to put up with and for how long while you are making money?
“Why are there over 8000 franchisees in the system, and why are they yearning for and buying more stores?
“If the system was that bad, many more would be bailing out. Not so.
Thanks to Fayaz Karim for sharing his insights and advice on buying a Subway franchise.
ARE YOU A SUBWAY FRANCHISE OWNER OR FORMER FRANCHISEE? ARE YOU FAMILIAR WITH THE SUBWAY FRANCHISE OPPORTUNITY? PLEASE SHARE A COMMENT BELOW.
January 24, 2012
Subway franchise owners are invited to share their complaints and frustrations, as well as advice for prospective Subway franchise owners, below.
Anonymous comments are encouraged, and all email addresses and other information is treated with strict confidentiality.
Around the Internet, complaints have arisen from many Subway franchise owners who feel that they are being victimized by their franchisor, and by founder Fred DeLuca in particular.
Ex-Subway franchisee Jim Eddie claims “whole subway system is a scam,” and called his time as a Subway franchise owner “the worse year of our life.”
Another Subway franchise owner writes “Subway use to be a great opportunity for all but now it’s like doing time each and every time I walk through my doors…”
Subway franchisee Debra claims “subway ownership is hell on earth.”
Here are some comments posted on the Complaints Board website:
I was a 3 store owner with Subway. I was franchisee of the year for my region. Then our Development Agents changed and with in 14 months I was forced to sell all 3 locations because I was all of a sudden considered a bad operator. All the while, my stores out performed the market, and the stores of my new Development Agent. In a period of 14 months over 40 stores in our Southern California Market were flipped. All were forced to sell due to "compliance" issues. Most of the stores were above market average. The new Subway Development Agent, the Marwaha Group, in its role of Development Agent has the responsibility to do the Compliance Inspections. Interestingly, they or their immediate Family members were the only approved "buyers" in the 40 locations that flipped.
When Subway Corporate was questioned, the response was that the old Development Agents (who were DA Market of the Year in 2001), Subway Corporate said that the old Development Agents were scumbags, lazy, etc.… Subway was not only aware of the problems, but actively condoned the following potentially ilegal behaviour: Price Fixing, Racketeering, Fraud, and Forgery…
… I was told by my business consultant that all of the "twenty year" people should very worried about our stores. That Fred Deluca and his cronies want us out so they can turn the stores over to make money on the start up costs. He suggested that I start keeping a journal about my inspection experiences, which by the way have gotten horrible. They are so bad that I have started to video tape my stores after each inspection to protect myself.
I have a couple of stores that do way, way over the territory average in sales. Fred makes a lot of money off of me in royalities every year. So instead of giving me a pat on the back and a "good job" I get this… You have syrup on your trash can, the handle to your toaster oven has sauce on it, the pvc pipes under your three bain sink has dust on it, your microwave is dirty your bathroom smells, there are straw wrappers on your floors, etc… all of this during a lunch time where the customers are line up into our parking lot!!!
…It is not enough that I work all day everyday, that I have higher sales than most others in my territory, that my customers go up to this twit as he sits in my handicapp seating typing crap that he is making up half the time, telling him that my stores are the best that they have ever been to (by the way he doesn’t mention that in his report). What he does mention is that my places are dirty and marks me out of compliance. I then get a letter from the legal department threating to take my stores. I for one am sick and tired of it. I’m stressed all the time.
Way back when Subway use to be a great opportunity for all but now it’s like doing time each and every time I walk through my doors…
Owning a subway. They don’t even use the Vaseline when they screw you. They do want to ditch u at 20 years. They are killing me literally health wise. U can never keep them (subway world headquarters) happy… Subway world headquarters in Milford conneticut owned by Fred Deluca, makes it impossible for Subway owners to even break even with THE $5 ft. Sub, let alone certificates & coupons added on it.
…owners work 7 days a week, r exhausted n r constantly harassed by Subway, they r punished to the point where we either die of subway-itis or they take everything we worked for away.
… So if u now made the mistake of buying into " the #1 Franchise" I also advice, get a good attorney on retainer to read the phone books of information u r required to read. Get a good doctor, because they run u to the ground until u r dead or take that store away, n give u nothing for it while they resell it for $250, 000.00 Minimum. You DAI & Fred Deluca r the ones making money.
I wish I never got into Subway, I hate this company, I don’t have long to live according to my Doctors, thanks directly to the stress subway world headquarters, their arbitrators, their inspectors n their little spools that come in at busy lunch time with their laptops, praise u verbally, but are required to write you out of compliance. That is a fact… They r trained to do that…set u up. Just ask any ex-inspector.
…They have ruined my family life my health and are destroying, annihilating my stores knowing im to weak to fight back, so, here it is. No retirement, no health insurance because we are self employed & due to the stress from Subway the doctors concur i have less then 1 year to life.
So hey Fred, see u in hell, u cant n wont take it with you, you lousy ba$tard. Your no italian, your a pig! Keep having your little spies do their thing, your gonna rit in he’ll for what you have done to franchisees and the deception to the customers. Hey, why don’t you shove one of those $5.00 subs up your arse.
Also those defending Subway. They are liars. They are totally lying. In the name of God & all that is Holy, they are lying. subway ownership is hell on earth. No wonder we look like nazi concentration camp survivors, Mussolini is back & his name is Fred Deluca.
Dr. Gus wrote
Our DA Office has clearly demonstrated unethical behavior for years.
What has been demonstrated so far to our local area franchisees, is that the DA Office and Subway Corporate are the "same entitiy".
Some franchisees value integrity and honesty far above money. Those few will not stay once they experience the unethical behavior.
The rest who compromise their values for the money, will stay, and will stay quiet about it.
This is just a microcosm of what America at large has come to recently exceedingly suffer from. Excessive greed, above all else.
Jim Eddie wrote:
My wife and I owned a Subway in 1993. Once a week we still talk about the misery we suffered. It sounds like things got even worse since then. I always had a feeling the success of the company was on the back of the hard work of store owners. We only owned the store for less than a year and it was the worse year of our life. I do feel the whole subway system is a scam and if you already own one, it’s too late but if you are thinking of buying one speak to current owners. If they are honest, they will talk you out of it.
What do you think? Are the accolades of Subway as a top franchise deserved?
Does Subway franchise provide the training, support, marketing and systems it promises?
Are Subway and founder Fred DeLuca genuinely dedicated to the success of their franchise owners?
Please share a comment, opinion or insight below.
ARE YOU FAMILIAR WITH THE SUBWAY FRANCHISE? WHAT COMPLAINTS DO SUBWAY FRANCHISEES HAVE? PLEASE SHARE A COMMENT BELOW.
To contact the site admin, email UnhappyFranchisee[at]gmail.com.
April 26, 2010
November 17, 2009
Discount promotions like Subway’s $5 Footlongs sub campaign provide are attractive to consumers and great for the franchisor… but what about the Subway franchise owner who foots the bill? According to Smart Money, Subway franchisees make a “Profit of roughly $1.20 a sandwich.”
Product discounting is one of the hottest topics in franchising. Here’s why: Franchisors make money off the gross sales of their franchisees, regardless of franchisee profitability.
Some franchisors make additional money marking up ingredients and food products to their franchisees.
Public franchisors benefit from higher sales – and stock prices – that are not tied to franchisee profitability.
SmartMoney.com surveyed franchisees from different franchise chains regarding the cost to them of some current and recent promotions. The Smart Money article points out that franchisees generally bear the brunt of a promotions’s cost, including the food, labor, rent and utilities, among other things.
Here’s the Smart Money finding for Subway’s $5 Footlongs sub campaign:
Promotion: $5 Footlongs – The chain offers any regular sub for $5. (Which subs getting this price tag will vary by store.)
What they normally charge: $5.89 (12-inch turkey sub)
Promotion Price: $5
Bottom line for restaurant: Profit of roughly $1.20 a sandwich
The $5 Footlong is a catchy marketing slogan but the discounting on the turkey sub isn’t as deep as some other big fast food promotions. For Subway operators you can still eke out a decent per item profit — and hope the diner is thirsty for a large, high-margin soda. To make the footlong turkey sub, the ingredients cost $1.65 at a New York location. Mack Bridenbaker, a Subway spokesman, declined to discuss the economics of hosting the company’s $5 footlong promotion.
WHAT DO YOU THINK OF SUBWAY’S PROMOTIONS? SHARE A COMMENT BELOW.
August 10, 2009
Are you familiar with the Subway franchise opportunity?
Are Subway franchise owners happy? Why or why not?
Please share your thoughts and opinions below.
* * * * *
According to Entrepreneur’s Subway Hits the Spot, “…In late 2008, the company surpassed the 30,000-restaurant mark. It has 1,600 stores scheduled to open this year. Another 2,400 franchisees have bought in and are waiting in line to open. And it’s on pace to overtake the king of fast food, McDonald’s, in outlet numbers within five years.” Despite a disastrous economy, Subway CEO Fred DeLuca says 2008 was Subway’s “best year ever.”
DeLuca claims their secret to success is the value Subway provides to their franchisees and the simplicity of the concept:
“We work hard to be extremely efficient,” he says. “We give great value for our franchisees: They can build a store for well under $200,000. And we have extremely simple operating systems. The preparation is mostly done in front of the customer. That simplicity is really what attracts our franchisees. You see it, and you can do it”.
Detractors claim that the hype has been bought and paid for, that the Subway franchisor is tyrannical and the system is designed primarily to make money for the franchisor at the expense of Subway franchisees.
WHAT DO YOU THINK? DO YOU OR HAVE YOU OWNED A SUBWAY FRANCHISE? ARE SUBWAY FRANCHISEES HAPPY? WHY OR WHY NOT?
logo: Doctor’s Associates
June 25, 2009
What have we started? Yesterday, we posted a story about the lawsuit filed by U.S. serviceman Leon Batie, Jr. against Subway for allegedly seizing his two Subway franchises and reselling them for (their) profit while Batie was busy fighting in Afghanistan. A reader comment suggesting Subway spokesman Jared Fogle be detained at Gitmo until Batie’s issue is resolved. That prompted a satirical article by Sean Kelly at Franchise Pick (SUBWAY: Send Jared to Gitmo!) with an invitation to sign a petition.
By this morning, a satirical press release was circulating on the Internet and, reportedly, aboard U.S. Navy ships at sea:
UNFORTUNATELY, THE INFORMATION CONTAINED HEREIN WAS INSPIRED BY REAL EVENTS. USE OF THE SUBWAY LOGO & TRADEMARKS IS FOR SATIRICAL PURPOSES ONLY.
SUBWAY® RESTAURANTS ANNOUNCES KIDNAPPING OF JARED
SUSPECTED RETAILIATION FOR UNLAWFUL SEIZURE OF SOLDIER’S STORES WHILE DEPLOYED TO AFGHANISTAN
(Milford, CT) June 25, 2009 — The SUBWAY® restaurant chain announced that its longtime spokesperson, Jared S. Fogle, 31, was kidnapped early this morning when two U.S. Army Blackhawk helicopters descended on his mansion in Indianapolis, Indiana and eight U.S. Army Rangers raided his home, nabbing the famous skinny man.
Also captured in the raid were Fogle’s famous size 60 pants, which sources say he now uses as a night time “blanky” for emotional comfort.
The motive behind Fogle’s capture was revealed when the U.S. Army General David Patraeus held a press conference to announce that Fogle was transferred to a military brig in Guantanamo Bay, Cuba. “Subway brought this action upon itself when it violated the rights of Lt. Col. Leon Batie, Jr., a former Subway franchisee who was deployed to Afghanistan when Subway unlawfully seized his two Subway stores,” said Patraeus. “We’re gonna keep him at Gitmo and make him eat Big Macs until certain demands are met and Subway makes it right.”
Subway’s egregious conduct against Batie was revealed by the Dallas Morning News and has since become an international story around the globe. According to the original article, one of Batie’s stores was sold through an insider deal to OPM Ventures, LP, owned by Subway executives Mark Holubec and Roger Dalton. The two work for the Dalton Gang, Subway’s Texas development agent. Their transaction ultimately yielded the two Subway executives more than $100,000 profit while leaving Batie with a six-figure mountain of debt.
Batie, an Army reservist, became a Subway franchisee in 2002 and bought a second store in 2003. He was living the American Dream and was in the process of opening a third store in March 2005 when he received his deployment orders for Operation Enduring Freedom. For the next year, Batie lived in a mud hut in Afghanistan and was awarded the Bronze Star for bravery during combat. In March 2006, Batie was on two week R&R leave when he learned that Subway had terminated his store leases without a required court order.
The U.S. Servicemembers Civil Relief Act bars anyone from terminating an active-duty service member’s installment contract, including leases, without a court order. Ignoring federal laws, Subway unilaterally terminated Batie’s leases and seized his stores without obtaining court approval and without properly notifying Batie of its intentions.
“For Subway to take my businesses without ever notifying me was just wrong,” said Batie. “I want to make sure that if ever there’s another reservist that’s in a similar situation as mine, the franchisor … doesn’t trample over their rights.”
Subway received the Army’s demand this afternoon, which must be met before Jared and his pants are released. The demand includes a very large cash sum for Batie with an official apology from Subway, and a free “Five Dollar Footlong” for all active and retired members of the military. If Subway refuses to comply, the Army is threatening a call for global boycott of Subway and further kidnappings of Subway’s agents and executives.
To support Lt. Col. Batie, call and email Subway at the contacts provided at the top of this page and tell them they are wrong to trample on a soldier’s rights while he is fighting terrorists on foreign soil.
The satirical Press Release links back to the SUBWAY: Send Jared to Gitmo! post, where you can show your support for Reservist Batie by leaving a comment.
WHAT DO YOU THINK? SHARE A COMMENT BELOW.