Understanding Subway's Closures in the US Market

Subway, the global leader in quick-service sandwich shops, has seen a significant reduction in its store network across the United States. More than 1,000 locations have shuttered their doors, leaving many to question what drove this abrupt change in the brand’s expansion strategy. In this article, we will explore the reasons behind these closures and delve into the challenges faced by the franchise model.

Shifting Popularity and Consumer Preferences

Firstly, it's important to recognize that Subways, like other food items, have shifted through phases of popularity. While they were once novel and a popular alternative to mainstream fast-food options, they have now become a part of the rotational menu that people occasionally want a break from. This transition from being a new trendy option to a more familiar and convenient choice has indirectly led to the decision to close some locations.

Secondly, the sheer number of Subways opened during their peak growth period was unsustainable. Franchising is a business model that relies on expanding as much as possible, but in the case of Subway, the expansion was so aggressive that it outstripped demand in many areas. Opening too many stores in close proximity can lead to significant logistical and financial challenges, such as higher competition for customers and strained resources.

The Franchise Model and Business Practices

One aspect of the franchise model that has been questioned is the company's approach to maintaining and nurturing franchisees. For those who aspire to own a franchise, the initial investment is substantial, with the starting franchise fee for a location in the US being around $12,000. However, selling multiple franchises at once and engaging only with multi-unit owners during seminars suggests a bias towards larger investors. This can make it challenging for smaller operators to enter the market, but also raises concerns about the sustainability of single-store franchises.

There are rumors that Subway intentionally makes it difficult for franchisees to succeed, as they generate more revenue during the initial sale than through ongoing fees. This practice has led to audits that can result in franchisees failing, even if the business is successful on its own merits. These audits can be unnecessarily strict, increasing the risk of closure for franchises that might otherwise thrive.

Financial Challenges and Market Saturation

The financial difficulties faced by Subway are another significant factor in the wave of closures. While the company has not officially reached a loss state, its financial performance has been suboptimal, necessitating strategic reductions in the number of stores. The business model depends heavily on high volume to achieve profitability, but the cost of operations, including rent, utilities, and labor, is high. Sandwiches themselves are not expensive to produce, but overhead costs can quickly eat into profit margins if sales are not consistent or sufficient.

Market saturation is a clear issue. In densely populated areas, having an excess of Subway stores can lead to reduced foot traffic and sales per store. This problem is compounded by the nature of the business, where people prefer to try a variety of options rather than visit a single sandwich chain repeatedly. The difficulty in finding the right price point, especially with the fluctuating costs of inflation and wages, further exacerbates the challenge of maintaining profitability.

Conclusion

The closures of Subway stores in the US are a result of complex interplay between changing consumer preferences, excessive expansion, business model practices, and financial challenges. While the company’s strategy appears to be focused on maintaining profitability and sustainability, these closures underscore the need for careful market analysis and strategic planning in the food service industry.

For franchise owners and potential investors, these closures serve as a reminder of the risks and challenges involved in the franchise model. It also highlights the importance of adaptability and responsiveness to market conditions to ensure long-term success.