Subway's sale of a foot-long sandwich for $6.99 is drawing backlash from the chain's largest franchise group, raising concerns that the discount could result in losses for cash-strapped restaurateurs, according to information obtained by The Washington Post.
Subway announced the promotion on Friday, joining the fast-food value menu wars in an effort to win back consumers battered by inflation.
The promotion, which can only be accessed through the Subway app, will sell a one-foot sub for $6.99, well below the regular price of $11 to $17.
In response, Bill Mathis, president of the North American Association of Subway Franchisees (NAASF), on behalf of the board of directors, advised members to ignore the promotion, which is scheduled to run until September 8th.
“If your franchise agreement allows it, do not participate in the $6.99 promotion,” Mathis urged franchisees in a private blog post on Sunday and seen by The Washington Post. “NAASF is advising you not to participate.”
NAASF is Subway's single major franchise group, representing approximately 2,500 franchisees company-wide and operating a significant portion of Subway's approximately 20,000 stores in North America.
Most Subway franchisees in the U.S. are able to opt out of the promotion because of contracts signed before 2021, sources said.
In a blog post Sunday, Mathis, speaking on behalf of the franchise organization's board of directors, criticized Subway's management, led by CEO John Chidosie, for frustrating franchisees by ordering expensive renovations despite slim profit margins as well as mandating price cuts on sandwiches.
“NAASF has a wide variety of talented members, including some who are extremely adept at break-even analysis,” Mathis wrote. “Some have suggested that the traffic increase needed to break even on this promotion could be as much as 30 percent.”
“Even if this is accurate, or even half accurate, have you ever seen a promotion by the current Subway leadership group that has resulted in that kind of increase in traffic to franchised stores?”
As previously reported by The Washington Post, the $6.99 sale was revealed to franchisees during a conference call on Aug. 15, which one franchisee called an “emergency” call because it took place just a week prior.
A Subway franchisee with about 25 locations running the promotion said 20% of customers at one of its locations on a busy Monday ordered the $6.99 footlong sub.
But the store's foot traffic was the same as it was a week ago, he complained.
“McDonald's doesn't have the Big Mac on their $5 value menu, but we have it on all of our best-selling subs,” complained another Subway franchisee. “We could put it on a third or half of our menu and not be hurt by this promotion.”
Fast-food sales have fallen across the industry this year, and Subway has privately acknowledged that it is performing worse than its peers, according to people familiar with the matter.
According to the Post, Subway has seen sales drop by 5 to 10 percent in some areas in recent weeks.
Closures have shrunk the chain to just over 20,000 U.S. stores at the end of last year, from more than 27,000 at the end of last year, according to public records, and franchisees have struggled to turn a profit.
Some franchisees are skeptical because Subway and its operating companies have different incentives.
Subway does not own any of its restaurants and collects 8% of total royalties from franchisees, regardless of whether they are profitable.
