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Top 4 Reasons NOT to Buy a Subway Franchise

Is a Subway Franchise Really a Good Investment?

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TOP 4 REASONS NOT TO BUY A SUBWAY.

Here at Franchise city we help investors find the right franchise, a lot of that has to do with educating people as we do in these videos. One of the brands we are asked about most often is the Subway Franchise. Now there is no question Subway as a corporation is super successful, but does that bear any relevance to you as an individual unit franchise owner?

We all know the high points about Subway, in this video we will look at some reasons you may not want to open one.

 1. Massive Competition. If you live in any major city and have a desire for a Sub you won't drive more than a couple of blocks before seeing another Subway Franchise. Thatis convenient for you as a consumer but for franchisees not so great.
When you combine the fact that your store is competing with many other Subways -
with the very low margins seen on promotions like the $5 sub - you have a recipe
for working hard for little pay. Additionally Subway as a corporation despite it's
massive success has seen revenue declines the past few years which brings us to our next point - store closures:

2. Store Closures and Corporate Decline. Subway reportedly had 359 store closures in 2016.The first time ever. For the past 4 years we have been cautioning Subway investors on what appeared to be a potentially over saturated and overheated market.Despite all this information being publicly available you still see people lining up to buy a Subway. And you see this type of irrational investor behavior in real estate speculation as well as in stock market investing. Right before a crash, or a decline there is a massive influx of investors who throw their money at this supposedly "incredible opportunity". But the opportunity only looks incredible because everyone is doing it. Once it hits bottom people learn their lesson. And you can't blame investors as they see all these franchises everywhere and assume that means guaranteed success. What that in fact means is intense competition.

3. Low Unit Sales. It's funny when I take calls from clients asking about
buying a Subway I always ask "So I assume money is not your primary focus then" and I would hear a silence on the other end of the phone. Again we have people for no good reason other than the big name want to throw money at a franchise despite having no idea about the economics, operational model or anything for that matter. Remember education is your friend and knowledge is power. Well its easy to find out how much a Subway franchise earns and the average sales per unit as noted in the QSR 50 for a Subway franchise is approximately $424,000.

Now it’s important to note that back in 2012 Subway AUV's were $482,000 so we are seeing a decline in per unit revenues year to date of about $60,000 per store. So stores only 3 years later were earning $60,000 less than they did in 2012. Now $424,000 in revenues may sound like a lot of money to inexperienced business owners but remember Subway takes 12.5% right off the top - an 8% royalty and 4.5% weekly ad fee. Then your rent, your employee salaries, your insurance, your ingredients, your taxes all come out of that number - and don't forget your really low margins to begin with. What is left over for you as an owner is really not that much. In fact on Subways own website when asked how much can you earn they suggest you speak only with multi unit owners, not single store owners! From a revenue perspective on the QSR 50 next to Baskin Robbins which is typically a seasonal
business Subway has the 2nd lowest unit revenues of the entire QSR 50 list.

 

4. Disgruntled Owners. We hear it first hand from people who want to sell their
franchise. And if you Google its not hard to find owners who are mad at Subway for
many reasons including super low margins, overly aggressive expansion policies,
regional managers who create problems and much more. Of course there are Subway
franchise owners who are happy as well but most of those got in long ago.
Often those who get in early with emerging brands will have success. As always make
sure you invest at the correct side of the growth curve - going up - not down.

So there you have it 4 reasons to consider not buying a Subway franchise. It's up to the investor to decide whether buying a Subway is a wise decision. Just be sure to perform your due diligence, educate yourself and be realistic.

Here at Franchise city we help people find profitable franchises, we'll tell you the good and the bad and we work with over 600 national franchise brands as brokers. We work with several food franchises that we can show you to compare against Subway. If you would like to discuss your options complete the form on this page or call us to set up a consultation with a broker. There is no charge for our service, just like your real estate agent and your franchise will never cost you more by using a broker.

https://www.qsrmagazine.com/reports/qsr50-2016-top-50-chart

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