By: Zach Medanski
It is safe to say that Subway franchisees don’t much care for the company’s new $10 promotion. And anyone with a calculator can see why.
Beginning tomorrow, the giant restaurant chain will start promoting a sandwich special that dates back 12 years. The offer: any two sub sandwiches, including the Big Philly Cheesesteak that is currently priced at $8.95, costs only $10.
Franchisees don’t like it. According to the North American Association of Subway Franchisees, an organization representing operators, three quarters of the franchisees questioned said they won’t be offering the promotion.
The company’s chief executive officer, John Chidsey “reportedly thinks that putting out the promotion will revive the brand from sluggish sales fueled by nationwide store closures because of the outbreak of the novel coronavirus, but store operators say they can’t afford to take on the cost of selling sandwiches for a fraction of the cost for food and labor,” fox6now.com reported. “A store operator from New York told the Post that the initial $5 footlong promotion, which started in 2008, was put in place when labor rates were $7.50 an hour, as opposed to the current $15 an hour.”
This is the second time in just months that Subway has raised franchise owners. The franchisees “expressed concerns over the chain’s upcoming “buy a footlong and get a footlong” promotion, saying it may pose a financial risk, according to a new report,” said foxbusiness.com. “Is there going to be any compensation from Subway to the franchisees for the loss they are going to incur with this promotion,” Nayanika Barker, chair of the National Association of Subway Franchisees asked Subway. “After all the franchisee is giving a footlong free for every footlong?”
The numbers tell the tale. According to trade publication restaurantbusinessonline.com, “To get an understanding of why franchisees do not like the $5 Footlong, or two-for-$10, we asked Keith Miller, a Subway franchisee out of California and an advocate for franchisee issues, to walk us through the cost associated with it. We kept it at $5 for simplicity’s sake and did not include the rebate in our calculation. Yet the calculation provides a good idea why franchisees oppose such offers, and why discounts in a franchise are all the more challenging. Start first with labor costs. Wages vary widely by jurisdiction but are increasing considerably in many markets.”
Another factor is that Subway operators “have less control over their food costs than many of their competitors offering $5 price-point items,” the magazine added. “For instance, McDonald’s ensures its operators put just two pickles on a Quarter Pounder with Cheese but at Subway that number can vary and customers can easily request more pickles or olives on their sandwiches. That can quickly increase costs.”