Subway is exploring a possible sale of the sandwich chain which could be worth more than $10 billion, a person familiar with the matter said. The process is still in its early stages and Subway may still decide not to proceed with the sale.
“As a privately held company, we don’t comment on ownership structure and business plans,” Subway said in an e-mail. “We continue to be focused on moving the brand forward with our transformational journey to help our franchisees be successful and profitable.”
According to industry media Restaurant Business, SUBWAY closed more than 300 stores in the U.S. in 2016; in 2017, closed 909 stores in 2017; fast-food giant SUBWAY closed more than 1,100 stores on U.S. in 2018. There are now less than 25,000 stores in the U.S. It has reached a low in recent 8 years.
The reason behind the closure is that SUBWAY’s franchising model has led to food quality problems. Its products structure remains undiversified and uncompetitive. A spokesperson of SUBWAY later said in a statement mentioned that SUBWAY has been focusing on “developing and optimizing its restaurants to take advantage of better locations for profit and the store closures are part of its optimization plan.”
The lagging nature of SUBWAY may have something to do with the family-managed business. In 2015, the 50th anniversary of SUBWAY, co-founder Fred DeLuca died and his sister Suzanne Greco took over the company, retired in 2018. Another co-founder and initial investor, Peter Buck, died in 2021.
Professional managerJohn Chidsey was hired and managed the company in 2019. Chidsey has been working hard to solve problems of SUBWAY and made new business strategies. He has closed branches and restructured the company’s operations as well as focused on improving the quality of SUBWAY’s menu and meals. He has expected that SUBWAY’s business will level off and expanded business overseas.
Chidsey has really made a dramatic improvement for SUBWAY.
In 2021, Subway’s 21,000 U.S. stores recovered from the pandemic and generated $9.4 billion in sales, increased by 13% from a year earlier. According to its official release, Subway’s same-store sales in the third quarter of this year increased by 8.4% compared with the same period in 2021.
SUBWAY’s development is also unsatisfactory in the Chinese market. Subway has 661 stores in mainland China. It’s less than the 3,000 stores previously expected by the company.
The reason for the slow development is that the product innovation ability is too weak. Because it is limited by the category of sandwich, the room for maneuver will be very small.
The other reason is that SUBWAY does not manage its franchisees well enough. SUBWAY has lowered its investment barrier in pursuit of store growth. The headquarter is also relatively lenient in screening the qualification and location review of franchise stores. This makes the quality of ingredients, supply chain and service level vary which seriously affects the brand’s reputation.
In fact, there had been rumors in the market that RBI, the parent company of Burger King and Tim Hortons, had informal talks about acquiring Subway before the sale information was exposed. However, the disagreement in the negotiation was mainly on the price. Subsequently, RBI rejected SUBWAY and chose its rival Firehouse Subs for $1 billion – far less than the $10 billion valuation of SUBWAY this time around.
The introduction of a restaurant group to manage and operate SUBWAY will be more beneficial to its future development.