Subway has called a surprise meeting with franchisees of its 19,000 sandwich shops across North America, amid a backlog of declining sales and profits, The Washington Post has learned.
Fast food giant It was sold in April to Roark Capital, owner of Dunkin’ Donuts, Arby’s and Cheesecake Factory, for $9 billion. — told franchisees it will unveil plans to increase traffic and regain market share at a meeting on Thursday.
“This meeting is essential,” Subway said in its invitation. “Please join us… We will discuss the current state of the industry and updates on our business.”
The meeting will also outline a promotional campaign currently being tested at restaurants. One franchisee said invitations were mailed out just last week, calling the meeting an “urgent” one.
“No emergency virtual meetings have taken place,” a Subway spokesperson said, disputing that Thursday’s meeting was described as “urgent.” “We continually and proactively communicate with our franchisees to share business updates and plans.”
Discounting has become a hot topic recently: A Subway franchisee who operates nearly 20 stores told The Washington Post that same-store sales have been down 5% to 10% in recent weeks compared with a year ago.
He blames the chain’s recent price-cutting promotions for the decline in foot traffic.
“They’re giving out crazy coupons,” one franchisee complained. “Our total sales aren’t even where they were in 2012, and our profits were five times what they are now.”
Franchisees added that discounts are leaving stores with little profit. A recent national ad campaign featured NBA great Charles Barkley encouraging customers to “buy one Foot Long, get one free on the app.”
“They’re charging $6.99 for a sandwich when it’s $11 on the menu,” the franchise owner lamented, “or $17.99 for three sandwiches.”
Subway doesn’t provide nationwide sales information to its franchisees, but data obtained by The Washington Post showed that in the eastern U.S., where it has about 1,000 Subway stores, average weekly same-store sales from June 25 to July 16 fell 8.7% from a year ago.
Subway’s meeting “seems very unusual,” said restaurant consultant John Gordon, noting that Subway’s sales figures on the West and East Coasts have recently shown same-store sales falling 10% in recent weeks.
Same-store sales in Los Angeles and San Diego fell 8% in the week that ended Aug. 6, a Subway source said. In the Southern California suburbs, sales were down 2% to 5%, the source added.
Last year, Subway North American same-store sales The chain as a whole increased 5.9%.
Subway is discounting its best-selling items, so it’s hard to make up for lost revenue, sources said. A new $3 product, a 1-foot-long Hot Dipper snack, introduced in June was expected to boost sales, but not enough of it is selling, the sources said.
Subway had more success last year with its Sidekicks — 12-inch cookies, pretzels and churros — which helped boost same-store sales even as foot traffic fell 1.7%, but Mr. Gordon said the buzz around the snack offering has faded.
Subway, which doesn’t own any of the stores, makes money from 8 percent royalties it charges franchisees, but after the sale to Roark it faces interest payments on debt and can’t afford a decline in revenue, the people said.
Other chains are also stepping up discounts to attract cash-strapped customers. The Washington Post reported this month that White Castle has slashed the price of its signature sliders to the lowest it has in more than a decade.
But same-store sales at fast-food restaurants excluding pizza places fell 2.9% in July, down from a decline of 1.9% in June, according to Bank of America credit and debit card figures.
Taco Bell grew 5% in the second quarter, while Wendy’s and Burger King were flat, according to data firm Technomic. McDonald’s is extending its $5 value menu through October.
The Golden Arches announced last month that second-quarter same-store sales fell for the first time in four years, falling 0.7 percent.
“This shows that the price wars aren’t working overall, but they are improving traffic a little bit,” Gordon said.
