SUBWAY: What Do Franchisees Make on $5 Footlongs?

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:

Subway

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.

RELATED POSTS:

SUBWAY: What Do Franchisees Make on $5 Footlongs?

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF SUBWAY’S PROMOTIONS?  SHARE A COMMENT BELOW.

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

Discount promotions are one of the most contentious areas of the franchisor / franchisee relationship.  (Especially when it comes to Quiznos)

The reason is simple:  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.

One of the most contentious examples was the Quiznos Million Sub Giveaway.  Here’s the Smart Money finding for Quiznos, which report a $2.25 loss per sandwich:

Quiznos

Promotion: Million Sub Giveaway – The first million people to register for Quiznos’s Q Club received a coupon good for any sandwich. (Certificates for this promotion expired by March 15, 2009.)

What some stores normally charge: $5.29 (one six-inch chicken sandwich)

Promotion Price: Free

Bottom line for restaurant: Loss of roughly $2.25 a sandwich

"The response to Quiznos’s Million Sub Giveaway was tremendous — with all one million free sub certificates requested within three days of the launch," says a Quiznos spokesperson. While Quiznos claims to have reimbursed franchise owners for food and paper costs, which amount to roughly $2.25 for, say, a chicken sandwich, other costs including rent, utilities and labor fell to individual franchisees — leaving some franchisees with an average loss of roughly $2.25 per sandwich, according to a franchisee in Maryland.

RELATED POSTS:

SUBWAY: What Do Franchisees Make on $5 Footlongs?

LITTLE CAESARS: What Franchisees Make on a $5 Pizza

McDONALD’S: What Franchisees Make on a $1 Burger

BASKIN ROBBINS: Franchisees Lose $1.45 per Scoop on Promo

QUIZNOS: Franchisees Lost $2.25 per Sub on Giveaway

BURGER KING Franchisees Sue Over $1 Cheeseburgers

WHAT DO YOU THINK OF QUIZNOS PROMOTIONS?  SHARE A COMMENT BELOW.

NEW YORK NY FRESH DELI: Worst Franchises by SBA Loan Defaults

The “Our Restaurants” section of the passport restaurants inc. website states:

“New York NY Fresh Deli As one of America’s fastest growing franchised quick-casual sandwich restaurants, New York NY Fresh Deli was included in Entrepreneur Magazine’s May 2006 list of Top 50 New Franchises.  Currently, there are 29 franchised restaurants operating in 14 states.”

However, our recent post 15 Worst Franchises by SBA Loan Defaults listed the franchise concepts with the highest rate of SBA loan defaults for 2008.

The New York NY Fresh Deli franchise was listed as the 5th worst.  According to Katie Adams of Investopedia:

5. New York NY Fresh Deli

Perhaps it was the low single-site franchise fee ($17,500) that attracted new business owners, but it was low revenues that led to closed doors.

Thirty-one per cent defaulted on SBA loans in ‘08

ARE YOU FAMILIAR WITH THE NEW YORK NY FRESH DELI FRANCHISE OPPORTUNITY?  SHARE YOUR THOUGHTS BELOW.

Are SUBWAY Franchise Owners Happy?

Are you familiar with the Subway franchise opportunity?

Are Subway franchise owners happy?  Why or why not?

Please share your thoughts and opinions below.

*     *     *    *    *

In the 30 years since it launched its much-hyped Franchise 500, Entrepreneur magazine has named Subway the #1 franchise 16 times.

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

SUBWAY: Send Jared to Gitmo! Parody Press Release

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.

QUIZNOS OVERVIEW & DISCUSSION

Read more

Judge Hoffman’s Ruling Against Quiznos Franchising II LLC (PDF)

Read the story here:  QUIZNOS: Quiznos Franchisees Celebrate Legal Victory

DISTRICT COURT, CITY AND COUNTY OF DENVER,
STATE OF COLORADO
1437 Bannock Street
Denver, Colorado 80202

Case No. 06CV10765

QUIZNOS FRANCHISING II, LLC,
Plaintiff,
v.
ZIG ZAG RESTAURANT GROUP, LLC, et al.,
Defendants.

After a five-day bench trial that began December 8, 2008, District Court Judge Morris B. Hoffman delivered this ruling on December 31, 2008:

Judge Hoffman’s Ruling Against Quiznos Franchising II LLC (PDF)

orderaftertrial
What do you think? Share a comment below.

QUIZNOS Franchisee Blasts HQ’s Coupons and Discounts

A Quiznos franchise owner posting as FQuiznos has voiced the frequent complaint of struggling Quizno operators:  That heavy discounting and couponing makes it impossible for Quiznos franchise owners to achieve or maintain profitability.  Quiznos franchise owners complain that this strategy is profitable for the franchisor – which makes money on marking up products sold to franchisees as well as royalties on gross sales – but devastating to its franchise owners.

On a Quiznos discussion post, FQuiznos wrote:

Quiznos wants to “increase franchise owner profitability” yet they keep mandating lower prices and mandating that we accept coupons on top of those prices as well. They lower retail prices and launch coupons at the same time. So a regular size prime rib which should sell at $8.49, now is at a regular price of $5.99. They launch a coupon for two dollars off and now you are selling a regular size prime rib sub for $3.99. Food costs remain the same so how is that going to increase franchise owner profitability. I think Quiznos just wants owners to close their doors, saves them the headache of dealing with failing stores and lawsuits. If they haven’t gotten this right in 27 years who says they will today.

FQuiznos maintains that Quiznos marketing department is so coupon-happy they’ve added coupon books as an actual product.  FQuiznos explains:

Customer Purchases the book for $20, we’re supposed to sell it to them.

Then the coupon contains $50 worth of coupons, $25 worth of $5 off any order of $5 or more. Then the other $25 of coupons are for catering.

Running promotions that raise top-line sales – the amount from which royalty payments are derived – at the expense of franchisee profitability is always a sure way to create franchise owner discontent.  After all, franchisees pay into advertising and marketing funds they expect to be used in their – not solely the franchisor’s – best interest.

What do you think?  Do Quiznos franchisees have a valid complaint?  Or is Quiznos advertising driving customers into their stores?  Share a comment below.

Franchise Owner Claims It’s "Impossible to Make Money" With Quiznos

A Quiznos owner named “Martin Tate” left a comment on a Quiznos franchise post warning would-be franchisees that Quiznos stores are money-pits and almost certain to fail.

The commenter writes:

“…I must say, as a Quiznos owner, to anyone considering this, don’t do it. The business model makes it impossible to make money.

“I have been at it for 3 and 1/2 years. I am a successful multi unit manage in the retail finance busness, have turnaround managment experience and banking experience. I have analysed this thing upside down, sideways etc. It won’t make money unless you buy for cash and work 80+ hours 7 days a week yourself. Then you might make a small salary.

“The franchisees are closing everywhere and I have even challenged Mr. Deno and Mr. Brenneman to come and ride stores with me to talk to actual owners. No response to that one. I was very impressed when Mr. Brenneman took over. I thought there were changes coming. They sure did. Sales are down with no profits ever.

“I know how to run a business. That is always the Quiznos excuse. The franchisee screwed up, buy delivery, (I did, what a waste) or do local store marketing. (We did, and still do). I look forward this year to financial disaster, bankruptcy, losing my home and retirement and probably my wife due to Quiznos. Let me tell you. THEY DON’T CARE. There is a reason they are all closing and so many don’t make money.

“One last point. I have a CBD store. Up until the holidays when people aren’t working in the downtown area as much, my store LED the region is sales and customer service. If we were the only ones struggling or one of a few I would say it is us. When over half the chain is “financially distressed” maybe it is them.”

What do you think?  Are you familiar with the Quiznos franchise?  Is it truly that bad of an investment?  Share a comment below.

QUIZNOS: Saratoga Franchisees Call it Quits

According to the Saratogian, multiple factors prompted the owners of a the Saratoga Springs Quiznos to close the store’s doors, from competition to nearby roadwork to Quiznos corporate’s mark-up of required purchases. The franchise had been open for about 2-1/2 years, but locked up Friday, posting the dreaded sign: ""Thank you to our valued customers, but due to economic hardships beyond our control we are now closed." According to the Saratogian:

"We tried to make it through the track season," said Dan Warren of Saratoga Springs, part of a four-person ownership group. "September is one of the slowest months of the year, so it was time." Other owners are Rob Tecler of Saratoga Springs, Mike Beshara of South Glens Falls and Neil Rinehimer of Jupiter, Fla.

* * * * *

"It’s probably everything," Warren said about the reason for the store’s closing. "There’s a lot of competition in Saratoga Springs. Plus, our location was a poor location. They’ve been doing road work out front for the past six months. That cut our sales in half."

* * * * *

Warren said that store owners are required to buy products from Quiznos at above-average prices. Similar complaints were made in a Wisconsin lawsuit that says Quiznos licensing agreements compel franchisees to buy all their supplies – from sandwich meat to paper towels – from Quiznos-owned vendors that charge higher prices than those of independent suppliers. The New York Times reported the corporation receives millions of dollars in rebates from these vendors. Quiznos has been the target of several lawsuits related to its treatment of franchisees, according to the Web site Wikipedia.org. A New Jersey lawsuit relates to the $25,000 in licensing fees Quiznos charges its franchisees. The lawsuit contends that Quiznos often collects and pockets this fee without fulfilling its obligation to find store locations.

* * * * *

Warren said that he and partners also purchased rights to open a Wilton Quiznos, but didn’t pursue it because the Saratoga Springs store didn’t perform as well as they had hoped. Last year, a Quiznos store owned by Steve Baker on Route 50 in Ballston Spa closed. That site is now occupied by Russell’s Deli.

* * * * *

Roger Sharp of Saratoga Springs owns Quiznos stores in downtown Glens Falls… "Both of my stores are making money," he said. "The season in Lake George, considering the weather, wasn’t that bad. We had so much rain this year." Despite their profitability, Sharp said that his stores are for sale… With more than 5,000 U.S. shops, Quiznos is the country’s second-largest submarine sandwich shop, but still much smaller than industry leader Subway.

ARE YOU FAMILIAR WITH THE QUIZNOS FRANCHISE? SHARE A COMMENT BELOW.

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