Subway will force its franchisees to sell discounted sandwiches despite many struggling to survive — and the brand new mandate could give added ammunition to federal regulators already seeking to put the kibosh on the fast-food chain’s nearly $10 billion sale, The Post has learned.
The family-owned company – which agreed in August to be sold to personal equity firm Roark Capital, backers of Arby’s, Dunkin’ Brands and Jimmy John’s – will demand that every one of its roughly 19,000 outposts honor digital coupons and promotions starting Dec. 28, sources with direct knowledge of the situation said.
Prior to now, promotions like Subway’s renowned $5 footlong deals were optional – with many franchisees refusing to participate.
Making them mandatory could undercut Subway CEO John Chidsey’s argument that every one store operators are independent because the Federal Trade Commission intensifies its antitrust probe, experts said.
“It’s puzzling to say the least that that is the time Subway is deciding to do that,” Georgetown Law Professor David Vladeck, a former director of the FTC’s Bureau of Consumer Protection, told The Post.
Many Subway franchisees don’t need to honor coupons that cut prices. Getty Images
Vladeck said if he was reviewing this deal then this latest edict will surely cause him to lift an eyebrow if no more.
“There could also be an economic justification but it surely’s hard to justify a requirement,” said Vladeck, who ran the Consumer Protection Bureau from 2009 to 2012.
Seth Bloom, a former General Counsel to the Senate Antitrust Subcommittee, also took issue with Subway’s decree.
“If consumers widely use these coupons, yes, forcing franchisees to simply accept them could impact the case,” Bloom told The Post.
Subway wants more customers in its restaurants with traffic declining within the third quarter and October. Getty Images
Subway declined to comment on the change in tactics.
Chidsey had tried to allay antitrust concerns shortly after accepting Roark’s bid of $9 billion, plus an additional $600 million if Subway hits certain financial targets in two to 3 years.
“The beauty of franchising is franchisees set their very own pricing and consumers visit all types of quick service restaurant brands,” Chidsey told CNBC in a Sept. 7 interview.
“They’re independent contractors,” he said. “They hire, they set pricing.”
Last month, the FTC began a full investigation of the proposed merger, believing Subway could possibly be a direct competitor with a few of Roark’s chains, especially Arby’s.
The FTC is worried that Arby’s could also be a direct competitor to Subway complicating the proposed merger. AFP via Getty Images
Sen. Elizabeth Warren (D-Mass.) has also opposed the deal.
“We don’t need one other private equity deal that could lead on to higher food prices for consumers” she posted on the social media site X on Nov. 26.
Many franchisees have bridled over the looming mandate.
They are saying they’re already having trouble making ends meet since the margins are so thin.
“It costs me $7 to make a turkey sandwich if you include labor and rent,” one multi-store Subway operator told The Post. “So I make a $2 to $3 profit.”
Subway gets an 8% royalty charge on all sales, regardless whether the restaurants make a profit.
It generates 17% of its sales through digital coupons, Chidsey said at a Yahoo! Finance conference last month.
Many franchisees suffered declining foot traffic and sagging sales within the last fiscal quarter, in response to financial data from businesses in one Southeast and one Northeast region shared with The Post.
FTC Chair Lina Khan is getting some fast food merger indigestion. REUTERS
The 2 regions, which have about 1,000 restaurants each, had traffic fall off by as much as 5% within the third quarter, the inner data shows.
Sales in each regions were up 2% within the quarter in comparison with last yr – after growing at double-digit rates from mid-last yr through the second quarter.
A Subway spokeswoman had a distinct tackle the present numbers.
“The third quarter of this yr represented 11 consecutive quarters of positive same-store sales growth with same-store sales for the highest 75% of US restaurants – about 17,000 – up double digits with positive traffic, in comparison with the identical period in 2022.” the rep said.