Subway has ordered some franchisees to spend as much as $100,000 on remodeling their sandwich shops as the corporate scrambles to sell itself — and is threatening to remove their stores in the event that they don’t comply, The Post has learned.
The struggling fast-food giant — which has faced a lackluster response because it attempts to auction the chain for $10 billion, in keeping with sources — is meanwhile demanding that some franchisees make major investments to upgrade their shops in a matter of months, sources said.
“Franchisees are getting letters from Subway saying you could have 120 days to pay for materials and plan out remodeling or Subway is taking your stores for breach of contract,” one indignant franchisee fumed in an interview.
The concept, in keeping with sources, is force smaller franchisees to bankroll a large overhaul of the aging chain’s increasingly dilapidated store fleet as greater franchisees and prospective buyers alike have these days balked on the potential costs of such a revamp.
“Why would any multi-unit type want to hitch up with Subway with such low margins, simply to pump in lots of dollars for transforming?” said John Gordon of Pacific Management Consulting Group, a firm that’s focused on the fast-food sector.
The Post reported exclusively in February how Subway had begun forcing smaller franchisees to foot the bill for expensive store upgrades and was making it harder for them to shut money-losing stores because the chain attempted to place more locations within the hands of multi-unit operators.
Subway, led by John Chidsey. wants franchisees to spend $50,000 to $100,000 a store on remodeling plans which are seven years old.Alamy Images; NY Post photo composite
The Miami-based chain — which operates greater than 20,000 restaurants nationwide — is stepping up those efforts because it preps for a sale of the corporate, in keeping with a Reuters report this week.
“It looks like the business is just not terribly healthy and there may be a good amount of renovation to do,” an investment banker source following Subway’s sale process said confirming that the condition of the stores is a priority for investors circling the corporate.
Seven years ago, former CEO Suzanne Greco announced a chainwide renovation initiative called “Fresh Forward” that called for upgrading stores with latest furniture, reconfigured service areas, drink stations and point-of-sale systems.
Nonetheless, with the typical bill per store estimated between $50,000 and $100,000, fewer than half done the work, in keeping with the corporate. After years of lax enforcement, Subway has begun to clamp down in the shape of a tersely worded letter to chose franchisees.
Subway is having a tough time getting large operators to purchase Subway restaurants because lots of them look outdated.NurPhoto via Getty Images
“You might be in default of the franchise agreement for failure to each remodel the restaurant … and otherwise operate the restaurant in accordance with the operations manual,” Julie Hidalgo, a lawyer for Subway parent Doctor’s Associates, wrote in a recent letter to a franchisee that was reviewed by The Post.
“In case you don’t comply Doctor’s Associates will terminate the franchise agreement,” Hidalgo added, noting the 120-day deadline. “Time is of the essence in response to this notice.”
Subway confirmed in a press release that it requires its shops to be remodeled every seven years — and noted that it had prolonged deadlines throughout the pandemic. The corporate also said it handed out “tens of tens of millions of dollars in grants between 2019 and 2021” to assist franchisees with renovations.
“The feedback from guests and franchisees in regards to the remodels has been overwhelmingly positive, saying that the brand new image is vivid and welcoming,” the corporate said in a press release.
Nevertheless, the timing is painful for smaller franchisees who don’t have large amounts of money lying around, and who could be forced to take out construction loans at stiff rates of interest to get the work done.
“I’m not paying 7% to 9% interest with a daily bank,” one franchisee grumbled, adding that “Subway is pushing their very own financing that, when including fees is 12% to 14%”
Subway has been losing stores since former spokesman Jared Fogle was arrested in 2015.FilmMagic
Subway owns not one of the 20,576 US locations it had at the top of the yr and relies on its franchisees to run their restaurants. As many as half are making little, if any, money, in keeping with sources. The parent company collects an 8% royalty fee on gross revenue and never profits.
Meanwhile, the method to sell Subway which was imagined to be over by May is taking longer than expected as the corporate haggles with its remaining suitors over price. The corporate not yet in exclusive talks with anybody suitor, a source near the situation said.
America’s biggest restaurant chain initially sought $10 billion but is now believed to have lowered its threshold. After taking an initial round of bids in late February, Subway was expected to decide on a winner by mid-April, sources on the time told The Post.
That deadline has now been pushed back again to what is going to likely be next month, Bloomberg reported over the weekend.
Private equity firms Advent International, Roark Capital and Sycamore Partners together with others are believed to still be circling the corporate, sources said.
Private equity firm TPG Capital — which once owned Burger King when it was being run by current Subway CEO John Chidsey — has dropped out of the method, in keeping with Bloomberg.