Earlier this year, we reported that in its 52-years of operation sandwich chain Subway - for the first time ever - contracted in 2016, closing 359 U.S. locations. Bloomberg described the situation as the “biggest retrenchment in the history of the restaurant chain” whose total store count dropped 1.3% from 27,103 in 2015 to 26,744, while the company failed to keep up with the latest fast-food eatery trends.
“Subway is in the midst of a massive transformation, and change of this size takes time,” a representative for the company told Business Insider. “Our goal is to strengthen the Subway brand in every market around the world to give Subway franchisees the greatest opportunity to successfully grow their businesses.”
Confirming that Subway has indeed peaked in its 5 decades-long business cycle, even as management desperately attempts to engineer a soft landing, a Subway representative said that another 909 locations have been closed in 2017, representing more than 3% of the chain’s 2016 U.S. stores.
This is the second consecutive year that subway has closed hundreds of locations. The company is currently operating 25,835 shops in the U.S., compared with 26,744 at the end of 2016. Sales in 2016 have also declined -1.70% after 359 locations were dropped. It’s evident that a domestic sales slowdown has rippled its way through the company in 2017, and will most likely persist through 2018.
There is more bad news: the company’s international business has stalled with the decline of 471 international shops. In 2017, the chain had 44,014 worldwide, down from its 44,485 stores in 2016. Subway has failed to keep pace with fast-casual competitors: Panera, Starbucks, and Sweetgreen, as the company, is not deemed cool by millennials.
"Today, people are ever more educated on nutrition, food sourcing, and ethical holistic business models," Sara Bamossy, the chief strategy officer at ad agency Pitch, told Business Insider. “To create (or to rekindle) loyalty and sales, it is not enough to label something as ‘natural’ and it’s not enough to be affordably priced.” On top of Subway’s troubles, the overall restaurant industry is waning and could fry the dreams of a smooth transition by management.
The private company has been pressured not only by a sharp recent decline in US restaurant traffic and sales – an industry which as we reported recently suffered its worst collapse since 2009 – but by the industry’s heavy reliance on discounts and promotions.
Subway also has lost some of its luster as a healthier-food option, Bloomberg notes as it has been working to restore its status by eliminating antibiotics from its chicken and switching to cage-free eggs.
Mitesh Raval, a Virginia franchise owner, said “the national promotional focus over the past five years … has decimated [us] and left many franchisees unprofitable and even insolvent.” More than 400 franchise owners have banded together and signed a petition, which “protests chain’s plans to roll out its famous $5 footlong deal in January."
The deal officially starts on Jan 1, 2018, while the appetite for a more larger crisis with franchisees could be evident in 2018.
And of course, no one can forget Subway’s former spokesman Jared Fogle, who turned out to be a creep, charged with having sex with minors and possessing child pornography. Subway bet the farm on branding with Fogle and cut ties with him in 2015, just around the time when store closures started.
In summary, the compounding effect of store closures, eatery trends, waning restaurant industry, and poor advertisement choices, have ultimately dethroned Subway, and now forced the company into a contraction phase for the second year in a row.