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.