World of Franchising - SUBWAY & NAASF

A discussion of issues affecting franchisee operators in the Subway franchise system and how the system may be improved. If you have any comments and wish to contribute to this web page; feel free to email the author.

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Location: Canada

My background is in Research and Development (Science) as well as Economic Development (Business). Currently managing my own businesses. My degree; B.Comm, Finance Major.

Thursday, April 29, 2004

Just an update:

The next post to the web site will be in the first week of May.

Take care.

Sunday, April 25, 2004

Just a few points and observations to ponder:

"An arbitration clause may not be an invincible shield against class action litigation, but it is surely one of the strongest pieces of armor available to the franchisor."
  • American Bar Association

  • "I'd just like to basically say that, with the Franchise Rule as it is now, I think it is wrong that this FTC rule is not enforced as I feel properly. Subway in fact itself after admitting on several occasions that they were violating the FTC Rule, was able to avoid prosecution from the FTC, which sends a signal to all franchise opportunities out there in America that the FTC has no teeth, no courage, or no ability. The way it is right now, requiring franchisees to sign away all of their legal and constitutional rights is not fair to the franchisees. And evidently it seems to be a serious problem all across the board because why are so many franchisees filing class action suits in the majority of the franchise concepts, which is taking place.

    I would hope that the FTC would require that the franchisor play fair, and if these issues were addressed, then we wouldn't have the problems in the franchise industry that we have today.

    I would appreciate the support of the FTC to either uphold and pursue violations when they take place or either abolish the Franchise Rule, the FTC Rule, altogether and give franchisees the right to bring the franchisor into court when they participate in the abuses that they do."
  • Mike Johnson, a Subway franchisee

  • "It's not necessary to be so structured in this world. With all the people who work here (Subway), whether you are real structured or not, it is not going to affect how much work they do. People have inside of them a certain work ethic, and, if you appeal to them nicely, they'll respond and give all they can give".
  • Fred Deluca

  • And then there is our staff (what they really think?):

    "Anyway, the trials and tribulations of subway work politics is a little off-topic, so we'll now move on to the tale of my first idiot customer. I was out the back of the store, doing nothing, as we often did, when the door buzzer went off, as it does. Al and his well trained side-kick who I was working with tonight immediatly shouted "SHOTGUN NOT". Apparently this indicated that they could not be bothered from their eating and newspapers to serve, so it was left up to me. I made my way out to the front where I began to set up the work bench as I greeted the customer. The customer was about thirtyish, with two adorable little brats. He stared at our various signs posted around about our different deal and such, and slowly deciphered some kind of sense from them, and formulated that into an order. I took the order and began making the sub, then as I cut open the bread, I asked If there would be other subs being ordered tonight for his kids. This was quite possibly the stupidest action I have ever undertook. He launched himself into a thirty minute speach about how his snotty little shits are allergic to everything from Acorns to Zylene as they ran about behind him attempting to destroy the postmix machine, the drink fridge, the straw dispencer and the potato chip rack. All I could do, being the polite numb nut that I am, was nod and smile and tell him that his sugestions that we do away with normal gluten conating bread and replace it with some freak-o bread would be brought up at the next staff meeting. This guy was the first paying asshole I ever had to serve, but he sure wasn't the last."
  • Submitted by Despiadado, a Subway employee

  • And then there are our franchisees (funny if it was not so sad): "When local Oneonta, NY firefighters became dehydrated while snuffing a fire down the street one hot night in August, thoughtful Subway restaurant employees gave them some of the restaurant's cold water. About four cases, it turns out. They even called their owner during the late hour to get his permission, which he granted.

    Next thing your know, the thoughtless owner (perhaps by some misguided desire for profits) told the good Samaritan employees they'd have to pay him for the water they gave to the firefighters. While the initial gift of water did not make the news, the "take back" attitude of the franchise owner hit the local paper - big time!"
  • Thompson Group on a case study

  • And to conclude for tonight:

    "Another manager of a Subway Restaurants franchise in Edmonton has come forward with a complaint of religious discrimination, alleging an official of the sandwich chain refused to let him wear his turban while serving customers.

    The complaint is the second made public recently by Sikh Subway franchisees and managers against Dan Mohan, the sandwich chain's development agent in Calgary. Mr. Mohan has not returned several calls.

    Harminder Pandher said Mr. Mohan was discourteous, made fun of his religion and told him he could not wear his turban, a key article of his Sikh faith.

    "I did the training course in Connecticut [Subway head office] with the turban on and worked in stores there and never had a problem," said Mr. Pandher, 41, who managed a store owned by his wife.

    "Then in the year 2000, I was told I must wear Subway visors or baseball caps. I said, 'Why is this coming up now?' "

    Mr. Pandher decided to air his complaint publicly after Hardip Singh Brah, another Sikh franchisee in Edmonton, made his religious-discrimination case public earlier this month.

    Mr. Brah complained that Mr. Mohan referred to his turban as a "diaper on his head," and filed a complaint with the Alberta Human Rights Commission. Mr. Mohan has denied making the derogatory remark.

    Subway requires employees who wear turbans or other religious coverings to apply in writing for waivers of the company dress code, a policy that Mr. Brah and Mr. Pandher say is discriminatory and infringes on their freedom of religious expression.

    "The waiver policy is neither necessary nor fair," said Mr. Pandher, who is considering filing a human-rights complaint as well. "On the one side, Subway is claiming to be an international company. I should be able to wear my turban without special permission."

    The Pandher family decided to buy Subway franchises in the 1990s. Mr. Pandher's wife purchased two Subway outlets in 1998 and 1999, and the couple travelled to Connecticut for training.

    Mr. Pandher was permitted to wear his turban in Connecticut and in Edmonton until May, 2000, when a field representative cited him for being "out of compliance." He was not wearing the requisite company baseball cap.

    Mr. Pandher says he attempted to resolve the matter for more than two years, leaving several telephone messages with Mr. Mohan and finally travelling to Calgary to see him in person in the spring of 2003.

    "They were very rude to me," said Mr. Pandher, who finally hired a lawyer. "This has been very frustrating for me. I was scared to work in my own stores." The family ended up selling the two Edmonton stores, and Mrs. Pandher bought another one in High Level, Alta.

    Mr. Pandher's lawyer, Barinder Pannu, wrote a letter to Subway in March of this year outlining the "denigrating and humiliating" attitude of company representatives in Calgary:

    "Finally, I come to the not-so-subtle message which is being conveyed to Mr. Pandher that his wearing a turban is contrary to the dress policy of the company," Mr. Pannu wrote.

    He noted that his client did not feel he had to make a special request to wear his turban as "the exemption already exists in law."

    David Cousins, a Subway lawyer in Connecticut, responded two months later that he would treat the letter as Mr. Pandher's waiver request: "This letter may be used as a grant of the uniform waiver to him," he wrote.

    Kevin Kane, a Subway spokesman in Connecticut, said the company's uniform-waiver policy worked well until the two recent complaints from Edmonton.

    "The point of the policy was to make things easier, not make life difficult for people," Mr. Kane said.

    "I'm not sure if this is pushing up the need to review the policy. Someone will probably take a look at it."

    He said franchisees' disputes with local Subway development agents may be resolved through the company's head office, which has the ability to suspend or discipline the agents.

    He could not say whether Mr. Mohan has been disciplined.

    There is a large body of jurisprudence establishing a person's Charter right to freedom of religious expression, said Shirish Chotalia, the lawyer representing Mr. Brah in his human-rights complaint."
  • By Marina Jimenez, Globe and Mail, Friday, Dec. 26, 2003

  • Has anyone ever seen a DA disciplined by DAI in recent memory? I know I have had run inns with my DA and talked to many people at Head Office, including the Ombudsman's Office. I even have a written reply from the Ombudsman, a rare document, which states that it appeared I was in the right. Did it make any difference? No!

    Obviously there has to be a better way to resolve problems. Litigation by individual franchisees is not easy. To quote Fred: "if you appeal to them nicely, they'll respond and give all they can give." What has happened to this mindset? Possibly Fred does not consider franchisees as people? All we ask it to be treated with respect and fairness.

    Take care.

  • An arbitration clause may not be an invincible shield against class action litigation, but it is surely one of the strongest pieces of armor available to the franchisor. Franchise Law The Arbitration Clause as Class Action Shield By Edward Wood Dunham.

    Friday, April 23, 2004

    Just a short update tonight.

    I was looking at some of the browser information and I see that our web site is now being viewed by people in Australia, Europe and, of course, North America. I received an email from a vendor today and he was very happy to have found this web site. To quote him "A breath of fresh air." It seems that it is not just franchisees who are frustrated with DAI.

    I also came across this post in another site "I would like to see a more aggressive NAASF that is fighting for the owners. How about NAASF organizing petition drives, e-mail actions, something needs to be done to get the message to DAI that owner's are unhappy, profitability sucks, and DAI needs to help us turn this thing around." What do you think of this suggestion? There is a wonderful tool available to anyone to take confidential surveys,
  • PollMonkey
  • . This unusual tool allows anyone to design a simple poll for free or a more complex one for a small monthly fee. It would be very valuable in getting the voice of the franchisee heard and published.

    That was my thought for tonight.

    Take care.


    During the 1990s, Subway was involved in more legal disputes with franchisees than any other chain -- more than Burger King, KFC, McDonald's, Pizza Hut, Taco Bell, and Wendy's combined. Dean Sager, a former staff economist for the U.S. House of Representatives' Small Business Committee, has called Subway the 'worst' franchise in America. "Subway is the biggest problem in franchising," Sager told Fortune magazine in 1998, "and emerges as one of the key examples of every (franchise) abuse you can think of." (Fast Food Nation, Houghton Mifflin, January 2001, p. 100)

  • Tuesday, April 20, 2004

    I just received the latest, Vol. 1, No. 19, publication of the Newswire. There is no doubt that the Board Members are working hard for the Subway franchisee. They are our tireless and non-paid, not even a per diem, representatives to DAI.

    In the newsletter (Newswire) we are asked to discuss a variety of topics in our Discussion Board. I am an active participant and often view the various posts as well as make my own comments. My concern is the lack of input by the Board Members. Questions are asked by the franchise community but sometime they are never answered, or if they are answered it is not in a timely fashion. Surely there should be some assigned 'moderators' who can review the posts, answer questions or get answers. The few times I have seen a post by a Board Member it is, some times, to put down some person who has vented. This is unfortunate. It would be so much more conductive to a discussion if the concerns were looked at and a solution offered. We are not looking for what NAASF has or is doing; please, you don't have to justify your actions. Some times there is no short term solution and we all know this but we need to have empathy for the distress of our fellow franchisee who may be in serious trouble or who may just be fed up with the current situation.

    I was reviewing some of the statistics for this web site and it is interesting to note that we have had viewers from as far away as Europe and as close as DAI. I'm happy that DAI has noted this site and has taken the time to read it, more than once ;-) . Hopefully they will understand that we are not attacking the Subway brand but are actively trying to find a better way for it to operate.

    North America is one of the most democratic places in the world. People in our countries have grown up with a belief in our system; the belief in freedom and equality for all. We also believe that we should not be subjugated but allowed to express our views and opinions freely. In our system the press is free and independent to express just about any opinion it has about the government and the politicians. There are entrenched checks and balances on power and the control by the government of its citizens. (Sure, sometimes we wonder but compared to many places in the world we are very lucky!) We should never take this for granted as there is a natural tendency for people in power to want more control and they are always looking for ways to achieve their ends.

    In our Subway system what checks and balances do we have? We have SAC, System Advisory Council, which has as its members, representatives from all the various Subway family members: NAASF has representatives on this council as does DAI, SFTAF, DAAC and IPC. I'm not forgetting the international representatives. However, there is no binding power on DAI to implement any recommendations of SAC. It would be nice if there was. It would go a long way to resolve the problems of too much centralized control and little check on bad, or ill advised, decisions.

    Another way that there could be some control of the power of DAI is by allowing the franchisee to vote at annual general meeting, much as in a publicly held corporation. Not likely, unless Fred and Pete decide to list the corporation and the franchisee were allowed to buy shares.

    Another, but less effective way, is by way of an independent newspaper. NAASF and IPC can't do this as they have their own agendas to promote. How can you get an independent and free review of NAASF if they control the press? I'm not saying that NAASF is a problem. They really believe in what they are doing and they probably represent the view of the franchisee in their area. They are however possibly too committed to a negotiated agreement with DAI and as such can't get into a legal fight or even encourage a franchisee boycott of some mandated policy by DAI.

    Last thought for tonight: We really, really need a fully independent audit process, not just for the financial stuff but also for encroachment issues and terminations. Only with such an independent body can the franchisee and DAI have full confidence that decision which have been made are fair and unbiased.

    Monday, April 19, 2004

    I have been busy talking to franchisees over that past couple of days. Some actually call me long distance to discuss their problems. I don't know the extent of problems out there in Subway land but, from my limited exposure to a small area, it must be fairly severe. I can't understand why the franchise community has not become more active. Possibly it is that the ones who get into trouble generally are so disillusioned with the system and the lack of support that they throw in the towel. DAI may feel that these individuals can't be team players and not dedicated to the system and rightly should be encouraged to leave. It is my belief that this is not correct. I have personally met many of these individuals and you could not wish for better people. I think Subway will be poorer for their loss but it will not become apparent until much later, possibly when it is too late to reverse the cancer of ill will which is growing in the system.

    I read this post on a web site recently and it serves to illuminate some of the problems perceived by some:

    "Let's not forget Fred's "carrot garden". That's why he packs 3 bags too many of carrots per box of lettuce blend. I have been in the system for 6+ years. It had gotten better & better every year up until about 6 - 12 months ago. Then the nazi tactics really broke in. 4.5% faf payments with no additional advertising that I have seen. (less in my market?) Forced beverage supplier COKE "Personally I think it taste like S*IT! + I live in a Pepsi friendly market area. 98 hours per week minimum. My areas in bed by 9:00pm except for the criminals, crack heads and cops. Toaster ovens, they look like a small pizza oven, "oh ya, I forgot we will probably be making pizzas somtime next year, so they will be perfect" and at the same time we can change our name to PIZZWAY. I think the toasters are a good idea, but the expense of the wiring upgrade will take a while to recoup. It is a fact, Fred does not care about the franchisees at all lately. I use to make a good living $150K in 2002 down to $100k in 2003 due to additional stores being built. I'm guessing I'll make around $50k in 2004 All 3 of my stores are for sale now. I'm getting out while I still can! If you really want to pend some money on a franchise & you think subs is where its at, open up or buy an existing Quiznos. I've seen a couple for sale doing over 750k a year in sales. Fred WILL eventually distroy what he created single handedly. The writing is on the wall, he's slowly pissing off and financially distroying too many people." [SIC]

    I'm not saying that DAI is all bad but there is definitely a perception in the community that DAI is not listening to the franchisees anymore. Team play means you listen and act on concerns in a responsible way. You respect the opinions of others and admit that you may just be wrong at times!

    Till the next time, take care.

    Sunday, April 18, 2004

    Well, I got some mail! Only up a few days with very limited exposure and I'm getting mail, wow. Here is an excerpt of the latest email, I have deleted the name and address to protect the privacy of the sender. I will not include this unless specifically asked to do so:

    "I have been with Subway for 6 years and I am pleased for the most part; however, over the past year I feel that DAI has not put forth nay [SIC] ideas that have been to my benefit. Toaster ovens, increased hours of operation, getting in bed with Atkins, the 1% increase in FAF funding none of this has helped or will help me.
    I think we need more direct action- petitions, etc. to get the word to DAI that they have lost the backing of the owners. I for one will not be funding my account for the toaster ovens any time soon. Maybe we could suggestion that nobody fund their account? Short of that maybe we could get DAI to buy our stores and assume some risk. If I can help let me know

    To answer your question, you have helped by participating in the information on this web site, thanks. Please feel free to offer any more suggestions.

    I'm hoping that more people will send messages and offer any suggestion as to how to get DAI to take notice of the franchisee.

    Thursday, April 15, 2004

    NAASF was formed to represent the franchisee and to provide a common voice to DAI (Doctor's Associates Inc. = Subway). In many ways this is similar to how unions were formed. The big difference is that unions were formed out of conflict with employers while NAASF was formed to work with the 'employer', DAI.

    Unions had some very specific objectives and they were charged by their members to achieve these in a reasonable time. Due to the voting power of the membership it was also possible to influence politicians to change the law to include specific labor friendly legislation. This was not won easily as people even lost their lives in the struggle for fairness in the work place.

    To put a franchisee in the perspective of a historic comparison one has to go back to the medieval times of kings and serfs. It is a long way back in history and actually served to illuminate how far we have to go to get to where employees are in society today.

    A franchisee buys a right to operate a franchise business. They pay for all cost involved in the construction and development of the business and then pays a further royalty (I wonder where the origin of this word came from?) to the franchiser; first for the license and then as a percentage of the sales. All the risk is born by the franchisee and he may loose his investment if the business is not successfully. The success or failure is the responsibility of the franchisee. Now, I don't think there is one franchisee who disputes this or has any objection to this risk.

    The area where there is problems is that the franchiser, through his development agents, may remove the franchisee at any time at their discretion. There may be some recovery of the investment if the franchisee can sell the business to another franchisee but there is no assurance of this. If the business is too successfully the franchiser will sell another franchise to another person in the same trading area, thus reducing sales to the store but increasing the total revenue to the franchiser. If the franchisee objects to this the development agent may set in motion a process to discredit the original franchisee and have him removed from the system. There is no recourse to this. If the development agent does not like an individual franchisee he may also set about a process to have the individual franchisee removed. Again there is no recourse available to the franchisee. The courts tend to favor the franchise agreement and the process of the law. In addition, the cost of going through the courts is a very expensive proposition which few small operators can afford.

    When you enter into business with a partner there is a presumption of fairness and good will on both parties to do what will be the most beneficial to all. In other words to maximize the return on the investment. In the Subway franchise system this has been perverted to where what is good for DAI must be good for the franchise. In some cases this is true, but not all. Adding hours of operations without a consideration for local conditions or labor laws is a perversion of the agreement. There are many areas where having anything less than two employees on at all times is considered criminally negligent. And it should be. Adding menu items which increase food costs is not fair nor should it be done without the full agreement of all parties. Adding operational items and procedures to the store which reduces productivity without a demonstrated increase in profits is not fair. Adding equipment which is for the sole benefit to DAI and must be purchased by the franchisee is not fair.

    I could go on but you get the point - I hope.

    Where does NAASF fit into this scenario. As a franchisee operation one would expect that it would be very active in getting the inequities corrected as soon as possible. The reverse is almost the observed situation. They have spent franchisee money on developing a POS system which is about as poor as the one developed by DAI. They are talking about developing a training program for the stores because DAI is not doing this. No thought of how ridiculous this sounds? It is DAI's responsibility to develop a training program for their operations manual! If they don't do it and you really feel they are required to do it, sue them. Don't waste more franchisee money on something DAI should be doing.

    It may be difficult for an outsider to understand how an organization which is not supported financially by franchisees represents them. It may be even more difficult to understand that there are development agents on the board of NAASF or people very closely related to them. Development agents represent DAI and not franchisees, no matter how any one individual development agent behaves or supports NAASF. Possibly one of the reasons why NAASF appears to be so timid is the very precarious revenue source. It is almost all dependent on the good will of none franchisee support!

    More to come..

    Tuesday, April 13, 2004

    One of the most important activities a franchisee can do it support the franchiser and the brand. After all, why would any sane person devalue their substantial investment. Any criticism can result in a diminished value as prospective investors are turned away and do not pursue their dream of owning a Subway franchise.

    Let me assure anyone reading this that the fundamentals of the Subway system is strong and you will most likely see a good return on your investment. At the same time I can not say how any one individual may fare with their investment as there are too many local and personal factors at play which may affect your specific situation. (My disclaimer!)

    Why would I therefore spend time writing when the best thing would be to just lay low and say and do nothing? It is quite simple; I believe that the franchise can be improved! It used to be that we as franchisees had more of a voice in affecting policy and procedures within the system. Well, that was at least the perception. As the franchise grew it became more centralized and less reflective of the views of the major investors, the franchisee. In a public corporation one can buy shares in the corporation and have a say as to who runs it and how they run it. At present there is absolutely no way that the franchisee can influence the corporation. In response to this situation a franchisee association was formed, North American Association of Subway Franchisees, NAASF.

    More to follow.. Stay tuned.

    Sunday, April 11, 2004

    We are now in the midst of Easter which is considered by many to be the most important religious holiday. We should remember the many people who are suffering severe hardship and anxiety during this time of reflection.

    Friday, April 09, 2004

    I have been in the Subway system now for well over 10 years and am dismayed at the trend which had become evident over that past few years.

    Subway used to be an organization which listened to its franchisees and acted upon complaints and recommendations. It was a dynamic place to be where one felt part of a team where the individual owner was respected and actually listened to. There was a very good team spirit.

    The organization is now one of the most litigated franchises in North America. Franchisees are being terminated without recourse or compensation. There are many instances of store encroachment which result in Subways actually competing with existing customers for a diminishing slice of the pie. Stores are being audited and, even if no under reporting is found, the owner is assessed a substantial fee of several thousand dollars. Again, there is no recourse.

    What needs to be done is for the franchisee to take control of the franchise system so that the real owners, with the biggest investment, have some say on how the operation should be run.

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