Subway has ignored “screams for help” from its struggling franchisees for years — and is now at risk of being “gobbled up” by a fast-growing rival, a lawyer representing thousands of sub shop owners warned.
Subway last week said CEO John Chidsey will “retire” at the end of the year — five years after he became the first executive outside the founding family to lead the chain. That’s despite the fact that Chidsey had said he planned to stay after the company was sold in May for $9.5 billion to Roark Capital.
As Subway announced the CEO exit, it also revealed it was scrapping its $6.99 footlong deal a month early after admitting to franchisees the deal “is not driving anticipated results,” Restaurant Business Magazine reported.
Subway’s downbeat headlines came in stark contrast to recent news from a much smaller competitor, Jersey Mike’s. The latter now operates just 3,000 US locations versus Subway’s 20,000 — yet sold itself to buyout firm Blackstone Group for $8 billion, not far off what Subway fetched six months earlier.
Subway’s $6.99 footlong promotion was the latest in a series of punishing moves under Chidsey for Subway franchisees, who are forced to pay an 8% royalty fee on gross revenue regardless of their profitability.
Chidsey has likewise forced franchisees to remodel restaurants despite uncertainty on returns and pay “undisclosed” technology fees, according to Robert Zarco, who provides counsel for the North American Association of Subway Franchisees, which represents about half of Subway’s 20,000 US restaurants.
“If Subway keeps treating its franchisees the way it has over the last five years where it is ignoring their screams for help, Jersey Mike’s will have an easy task of gobbling up the Subway brand,” Zarco told The Post.
“I hope it’s the reason for the change because it should have been,” Zarco added, referring to Chidsey’s exit. “Because of the tensions that are prevalent, it is a good move for Roark to come in and wipe the slate clean and establish a better working relationship with the franchisees.”
Chidsey had not made any notable overtures to NAASF, Zarco said.
Roark — which owns dozens of major fast-food chains including Dunkin’, Arby’s, Sonic, Baskin-Robbins and Buffalo Wild Wings — didn’t respond to requests for comment.
At a hastily assembled meeting in August, Subway President Douglas Fry admitted that sales were down 5% to 10% year-to-date in many regions. Meanwhile, he estimated that Jersey Mike’s same-store sales, or sales at stores open at least a year, had risen 1%, sources told The Post.
“We’re doing worse than the rest of the industry,” Fry admitted at the time, according to the sources.
But the $6.99 footlong deal prescribed by CEO Chidsey — a former Burger King CEO — only made things worse, according to franchisees.
“This is the first time I haven’t honored a promotion,” a franchisee with more than 10 Subway restaurants in the US Northeast told The Post.
That store owner was one of the lucky ones: While most Subway franchisees who signed contracts before 2021 can opt out of promotions, newer franchisees were forced into the money-losing deal.
“The last 20 days have been kind of hellish,” a Subway employee wrote Wednesday on Reddit about the value meal. “It might have gone better if the higher-ups actually worked in the store and saw why the owners didn’t want it to be for any sub.”
The franchisee griped that under the promotion, a single customer could order four “Monster Subs,” which have steak, pepper, cheese and onion, for less than $30. As a result, the $6.99 footlong deal failed to improve his gross sales, even as his costs skyrocketed.
Subway is making Carrie Walsh, President of its Europe, Middle East and Asian regions, its interim CEO. Zarco said she is liked by some of the Subway franchisees who know her.
Subway has shrunk by 15% over the past four years, from 23,799 US restaurants on Jan. 1, 2020 — shortly after Chidsey took the helm — to 20,133 on Jan. 1, 2024, according to public filings. The chain is believed to have gotten a bit smaller this year, sources said.
Meanwhile, the average Jersey Mike’s, whose CEO Peter Cancro has become a billionaire off the Blackstone deal, makes about three times as much money as the average Subway, according to public filings.
“Blackstone buying Jersey Mike’s tells me it’s time for me to run,” the Northeast-based Subway franchisee with more than 10 restaurants said, adding that he could easily see Jersey Mike’s more than doubling in size soon to 8,000 US restaurants.
Blackstone Senior Managing Director Peter Wallace on Nov. 19 said his firm had “deep experience helping accelerate the expansion of high-growth franchise businesses” like Jersey Mike’s.