In a new way to squeeze franchisees, Subway has mandated a policy change, per a leaked memo obtained by Business Insider. Effective December 28, the directive requires all Subway franchise owners to accept and honor every digital program and promotion.
This includes loyalty rewards and digital discounts. The memo further clarifies that participation in loyalty incentive programs to attract new members is compulsory. However, Subway will not be financially supporting these initiatives.
For many franchisees already grappling with minimal profit margins, this policy shift could further erode their earnings.
New Way to Squeeze Franchisees for Healthy Business Growth
Ranked as America's eighth largest fast food chain, Subway is renowned for its iconic $5 footlong deal and extensive presence nationwide. With a 15-year history marked by controversy, the deal has been a significant part of Subway's brand identity.
The sandwich giant boasts over 20,000 locations in the U.S., predominantly operated by franchisees. These franchise owners traditionally held the autonomy to choose whether to participate in various promotions offered by Subway's corporate headquarters. However, this level of discretion is set to change.
In a statement to Business Insider, Subway emphasized the importance of robust business expansion in boosting franchisee profits. The company highlighted that many digital transactions typically result in additional sales for numerous franchisees.
Additionally, Subway pointed out that their mobile application remains one of their most potent channels for growth.
"Healthy business growth is key to helping increase franchisee profitability," Subway told Business Insider in a statement.
The statement from Subway highlighted that most online transactions contribute to increased sales for numerous franchisees. Furthermore, it emphasized the Subway app as a key driver of their growth.
The company pointed out that targeted digital promotions lead to a surge in online sales for their franchisees. Additionally, these offers maintain continued engagement in their digital segment and promote recurring visits from Subway customers, even after the promotional period concludes.
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Franchisees express Dissatisfaction
In recent news, Subway, known for its intensive promotion of discounts via its mobile app, recently informed its franchisees that they will soon be required to accept these offers.
The new policy announcement was met with immediate and strong reactions from Subway operators. One franchisee expressed dissatisfaction with Restaurant Business, and others echoed similar sentiments.
For Subway, headquartered in Miami, this strategy is seen as a crucial step in enhancing sales through its digital platforms. The company maintains that digital sales bring additional revenue, which they argue is more beneficial for franchise owners.
Subway has been actively promoting various deals using traditional paper coupons and its mobile app. These offers often include significant discounts, like the recent coupon for three footlong subs at $17.99, essentially offering a 50% reduction. The current digital deal consists of a buy-one, get-one half-off on sandwiches.
However, not all Subway operators participate in these promotions. The company's app indicates which locations are part of a specific offer. While Subway claims about 90% of franchisees participate in digital offers, some franchise owners, speaking to Restaurant Business, believe this figure is overstated, estimating actual participation around 60% to 70%.
Subway has hiked operating fees and added language to its 20-year franchise agreements that require locations to be open 364 days a year, in addition to promoting unprofitable promotions. A location that shutters more than once a year risks being taken over by Subway headquarters.
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