The REAL Reason Subway Is Failing

Summary

Subway, once a dominant force in the fast-food industry, has been struggling in recent years. From the scandal involving its spokesperson Jared Fogle to controversies surrounding its ingredients, the chain's image as a healthy option has been tarnished. Financial troubles, the decline of its iconic $5 footlong, and poor franchise practices have compounded the issue. Despite some efforts to reinvent itself, such as menu revamps and a recent acquisition, Subway’s customer base continues to shrink, leaving its future uncertain. The company faces fierce competition, and even with improvements, its long-term success remains in question.

Takeaways

• 😀 Subway's initial rise was due to its reputation for offering healthier fast food options, particularly with the '$5 footlong' promotion.
• 😀 The downfall of Subway began after the controversial actions of its spokesperson, Jared Fogle, who was convicted of criminal charges in 2015.
• 😀 Jared's weight loss story, which Subway used to promote itself as a healthy choice, became a PR nightmare after his arrest, deeply impacting the brand's image.
• 😀 Subway's claims of offering healthier food have been undermined by controversies over the quality of their ingredients, such as issues with the sugar content in their bread and questions about the authenticity of their tuna.
• 😀 Despite Subway's 'healthier' image, studies revealed that its meals had comparable calorie counts to fast food chains like McDonald's and contained excessive amounts of salt.
• 😀 The $5 footlong promotion, initially a success, became unsustainable due to rising costs and was eventually phased out, causing a price hike on Subway sandwiches.
• 😀 The price increase left many customers feeling the value of Subway sandwiches no longer justified the cost, especially as competitors offered better options.
• 😀 Subway’s rapid expansion led to franchise issues, with too many locations competing with each other, reducing profitability for individual franchisees.
• 😀 Franchise fees and high costs for franchisees, including an 8% royalty fee, contributed to the struggles of Subway's business model.
• 😀 Subway has made efforts to revamp its image and menu by introducing fresher ingredients and improving store renovations, but its customer base has continued to decline.
• 😀 Despite a recent $9 billion acquisition by Roark Capital, Subway's market share and customer base are still shrinking, showing an uncertain future for the brand.

Q & A

What are the main reasons Subway is facing a crisis?

Subway is facing a crisis due to a combination of factors, including controversies around its spokesperson Jared Fogle, a decline in the perceived healthiness of its food, legal issues regarding the authenticity of its ingredients, and an increase in competition from other fast food and sandwich chains.

How did Jared Fogle impact Subway's image?

Jared Fogle, Subway's former spokesperson, became synonymous with the brand as his story of losing weight by eating Subway sandwiches was used to promote the franchise as a healthy fast food option. However, after his criminal conviction in 2015 for child pornography and sex acts with minors, Subway's reputation was severely damaged.

What was the controversy around Subway's bread in Ireland?

Subway's bread was found to have such a high sugar content that it did not meet the legal definition of bread under Irish food laws. The sugar content in Subway’s bread was 10%, while the legal limit in Ireland is 2%. This led to a court ruling that Subway had to pay VAT on its bread, further damaging its image.

What were the issues with Subway’s tuna in 2021?

Subway faced a lawsuit alleging that its tuna was not actually tuna. DNA tests on samples from various Subway locations showed no detectable tuna DNA in 19 out of 20 samples, suggesting that the product was a mixture of other meats. Subway denied the claims, but the controversy negatively affected its image.

How does Subway compare to McDonald's in terms of calorie content?

A study published in the Journal of Adolescent Health in 2013 found that the average Subway meal contained 955 calories, while the average McDonald's meal contained just over 1,000 calories. While Subway's meals were slightly healthier in terms of nutrients, they still contained excessive amounts of salt, much like other fast food options.

Why did the $5 footlong deal become problematic for Subway?

The $5 footlong deal, which was introduced as a temporary promotion in 2008, became iconic but unsustainable for Subway. Franchisees found that the cost of producing the sandwich exceeded $4, making it unprofitable. Eventually, the deal was phased out, and by 2024, footlongs had increased to prices ranging from $7 to $15, making them less attractive to customers.

What challenges did Subway's franchise model create?

Subway’s franchise model included high fees (a royalty fee of 8% and an ad fund fee of 4.5%), long-term agreements, and unlimited rights for Subway to open additional locations near existing franchises. This caused tension among franchisees and hurt profitability, especially as competitors like Jersey Mike’s and Firehouse Subs grew stronger.

How has competition impacted Subway’s business?

Subway has been losing market share to competitors like Jersey Mike’s, Firehouse Subs, and Panera. These brands offer better quality food and healthier options, putting pressure on Subway. Furthermore, Subway’s image as the 'healthy' option has been diminished as other chains have emerged with more appealing and nutritious offerings.

What steps has Subway taken to improve its business?

In recent years, Subway has implemented several changes, including installing meat slicers in stores to improve the perception of freshness, renovating old stores, and launching the 'Eat Fresh Refresh' campaign to update its menu with healthier ingredients. These efforts have been well-received internationally, with new stores opening around the world.

Why did Subway sell to Roark Capital in 2024?

Subway was sold to Roark Capital for over $9 billion in 2024 because of declining sales and its struggles to regain market share. Despite this, Roark Capital sees potential in the brand and believes that the measures Subway has implemented, such as fresh ingredients and store renovations, will help revitalize the business.