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.

Wednesday, May 26, 2004

Here is one of the recent emails from a new franchisee:

"I have read my first copy of your "news letter". As being a new franchisee to the system I have to say you and our fellow owners are dead on. How much more Greedy can DAI get? No wonder you see more stores for sale then before. The tactics to work 98 hours a week in a community that pulls the sidewalks in no later then 9 PM is ridiculous. Added costs for labor, lights etc. just so DAI can get some extra Profit. Perhaps if they really cared.........All I know right now is that they are more interested in their bottom line then they care about those of us supplying cash to line their pockets. What do I get from the corporate office, I can't even get my rep to call me back."

It is sad to see such disillusionment from a new franchisee. It goes to my previous point in an earlier post that this attitude of DAI will have negative consequences. DAI really need to become franchisee friendly. Just getting a new CEO who reports to Fred-Dee will not do the trick. Fred and company really need to have an attitude change and this will not come voluntarily.

Tuesday, May 25, 2004

I just received an email from a franchisee who reminded me of the Fortune article which was written in 1998. I know this article was a bit of an annoyance to Fred because it touched on so many things which were wrong with Subway. The situation at the time led to the formation of NAASF to try and correct the problems as an negotiating intermediary with DAI. How effective has NAASF been? You be the judge.

Here is the link to the full article.

Take care.

Sunday, May 23, 2004

I came across this web site while reading a post on the NAASF site.

It is a good example for a local site in a specific market. It has some excellent updates for the local market to keep the POS up to date.

Check it out

It is a shame that all DA's are not required to host a site like this.

Take care.

Thursday, May 20, 2004

This is just a short update with some information pulled of the internet for your information and amusement (I will continue with my post as soon as I have some time):

To get your attention:

"Fuck Subway," an uncharacteristically belligerent Fogle said at the press conference with a dismissive wave of one of his massive arms. For full text go to this link - click here.

"Shame Shame Shame on you. Bathroom doors were locked by employees to keep college students from entering facilities. The paying customers were locked out as well. We were told during our meals that both restrooms were out of order." To go to the web page with more interesting comments click here.

"Do you like Subway? Do you wanna start eating there for almost free?" A how to eat, almost, for free at any Subway - click here to go to full story.

Now, for a bit of a different tack on Subway related things; "Click on food for nutrition facts & analysis" Go here for the link.

Here is a endorsement for the new salad and other Subway menu items:

"The line of Fresh Salads is only a part of Subway's revamped menu. Some of the items are new, some are improved, some are just reworked. For example, the old Steak and Cheese Sandwich is now called the Philly Cheesesteak.

The big, big news at Subway is around the corner, a few months away. The country's biggest fast food chain is installing toaster ovens, so you'll have the option of hot versus cold sandwiches." Click here for the full story.

Did you think Subway and Starbucks were similar?

"What bugs me about the Subway v. Starbucks problem is that I can't see any reason to believe that Subway's transaction cost schedule is going to differ from that of Starbucks. The businesses are essentially identical; yet, the business model is quite different." Click here for the link.

Here is a link to a PDF file from the The International Franchise Association Symposium Legal Symposium. Bed time story for some I'm afraid but very interesting for others. Linky Linky Here.

That's all for tonight folks. Take care.

Friday, May 14, 2004

I have been reviewing several messages posted by Subway franchisees over the past several days. There is a distinct bell curve distribution of satisfaction with the current arrangements in our organization.

On one hand there are the people who think Subway is the best system in the world. They point to the fact that we are constantly rated the number one franchise in the industry and our sales and number of units continue to grow, both domestically and in the rest of the world. Sales are up and the prospects continue to be good that it will continue indefinitely with the excellent guidance of DAI. Who could argue with this?

On the other side of the curve we have the people who think the very opposite. They point to the fact that Subway is the most litigated franchise in the world and that there are arbitrary decisions handed down by the organization with little consideration as how this affect the franchisee. Though we see growth of stores this is often at the expense of existing franchisees in the same market. They also point to the fact that increased sales are often achieved through more expensive operating requirements such as menu items and equipment. With a more complex operation more staff is required to do the same sales as in the past. With higher equipment and leasehold expenditures less is available to the franchisee. As such, increased sales do not always result in increased profits to the operator. Who can argue with this?

These are the extremes and neither represents the majority of views. Only with a full survey of all franchisees would one be able to ascertain the number of satisfied and dissatisfied people. Even then, it would be an interpretation as to where one would draw the line as to satisfied or dissatisfied. It would be possible to do a survey and, a year later, do the same survey with the same questions. By analyzing any changes one would be able to determine if there was a positive or negative trend in the satisfaction ratio within the organization.

From my 13 years with Subway I can say that there have always been unsatisfied and satisfied franchisees. Are there more dissatisfied ones now than a decade before? I really don’t know for sure. I would presume there are but it may just be because we have more franchisees now. The percentage may be the same. In addition one does not have the benefit of experience in the full system as we are more impacted by decisions in a local market which are managed by Development Agents. In other words, the personality and management style of the DA may be a bigger factor than any possible perceived change at DAI. Only with an ongoing survey of franchisee satisfaction can one determine with any clarity where the organization is heading in this category. If there is a negative trend, it will not bode well for the organization as there will be strife and conflict which may result in harm to our investment.

Between the two extremes rest the majority, no pun intended. They are a silent lot with little to say about anything. Mostly like the general population in the country and their opinions about the Government and their own affairs. Things are pretty good and they don’t want to complain, even if they had something which bothered them. They are the ones which do not participate in FAF meetings, don’t come to seminars or conventions, don’t run for election and don’t even vote at Subway family elections. Heck, they don’t even see the need to become members of NAASF even when it is free! Some become members, but only because they are ‘asked’ to do so! They would probably not even let IPC know who they were if it was not for the nice checks which IPC sends each year.

However, if things were to change where sales slowed down and profits started to drop to the point where their livelihood became threatened they would wake up. As long as things are good you will not hear from them. It does not matter that their fellow franchisee may be in serious trouble due to encroachment issues or they are being harassed by a development agent. It does not matter, because they are selfish or self-centered. Is this harsh? I don’t think so. There is no way they can’t know that there are problems out there. I have even talked to prospective new Subway franchisees and they know of the problems! Some turned away from becoming a Subway franchisee due to the bad reputation of this franchise. If they do not even want to become a NAASF member and participate in an active way it is because they really don’t care, as long as it does not directly affect them.

This is about to change:

With DAI auditing 20% of the franchisees, that means you have a very good chance of being audited and charged a ‘fee’ the benefit of this service, even if it is found you did nothing wrong and have never underreported your sales. You may have been in operation for one, ten or twenty or more years but this does not matter. It seems strange, but no one seems to have over reported their sales and received a refund from DAI? If you are selected for an audit, it will cost you. Heck, you could be audited every year it you happen to be a chosen one. (You know, a DA’s favorite.) Better then to keep your head down, right?

Now that your staff is required to be a nutritionists and computer experts you would expect that there would be a line up of applicants to work at your Subway store. Such skilled jobs are hard to find and you will have no problems getting good candidates, right? Then there are the organizational skills required in just keeping the latest FAF promotions straight. It is not just the national campaigns, the local ones, the in store ones, the MOP and the SOP, and so on. There are the schedules to be maintained and changed on a weekly basis, sometimes more frequently as staffs have requests. Don’t forget about the complex and varying formulas which they have to remember. Gone are the days of the Club Sandwich, now we have new names also. At least our staff gets a chuckle of saying Seafood Supreme.

Our customers; poor souls, have you ever taken or found the time to look into the face of a new one. They walk into the store. There is a line in front of them and a line forming quickly behind them. They look to the menu board for guidance but find only confusion in an impossible array of items offered for sale. Even the old ones get a surprise when they can’t find their familiar items any more. We seem to have two of everything. There are six inch and foot longs. The prices are not logical as the foot long is not double the price of a six inch, or even close. However, you can load the sandwich with as much as you want for no extra money! What a deal, until you realize you are paying for this ‘privilege’ in the cost of your sandwich.

Then there are the Kid’s Packs. Who is the genius who wants to discourage our young customers from coming to the store often? Is there a customer out there who does not realize that the cost of the toy is a major reason why this food item is so expensive? After you have bought a Kid’s Pack why would you come back the next day and get the same or similar toy when you just want the kid to have a reasonably priced meal which you can afford. Why not price the Kid’s Pack based upon food cost and let the customer have the option to pay extra for the toy?

Then we have tills, sorry POS, again no pun intended, which do not reflect the latest promotions or the latest inventory items. (It is no wonder that my real, financial statement, food cost is higher than the POS one by a few percentage points). I look at the DA territory food cost and productivity and just laugh, I guess I should weep. Oh, as a side bar, why is it that the weekly list of required reports as listed in the closing POS list does not include, according to DAI, essential reports? Why are they missing? If you don’t know which they are you may discover this at your next audit. At present the POS is an annoyance but it will become a major problem as we move down the road to a more complex operation and FAF and DAI will insist on full and accurate information from your POS. How you will manage this will be interesting as the current software does not allow for any easy rout to upgrade or for modification. The more stores you have the more ‘fun’ you will have. But, I guess, with more stores you can afford a software consultant.

Then there is the requirement, which was proposed by Fred Deluca, to extend our hours of operation. In many cases it will not be a problem as we are already doing this. (The silent majority?) However, there are stores out there which just can’t justify staying open late or opening early as there just are no customers at that time of day. If variance will be allowed, how is that different from what exists today? Customers will still not be assured of every Subway being open for breakfast or open at midnight. If DAI really wanted a standardized hours of operation; it will have to stipulate the exact opening and closing time for all stores. Maybe this is where they are heading? Anything else flies against the logic being argued by Fred and his team.

A secondary consideration is the issue of liability and the availability of staff which can close a store at midnight. We are all being told how important it is to have staff that is well trained and able and willing to serve our customers well. There should be no difference between the quality of the lunchtime staff and the midnight staff. Yeah sure, have you ever been in a late night store and seen the quality of the staff. Who in the world can you get to work at that time of day? Certainly not the young and eager people we have on during the day. So, do we sacrifice quality of service just to get a few extra dollars of sales? In my area we have serious work place security issues to consider. The violation of these can result in charges and significant fines if you place an employee in a dangerous environment with or without their consent. Having any person working late and alone will be considered such a risk. We will need to have at least two people on at all times. This is at all times of the day. Kind of throws Fred’s labor cost out the door, does it not? But, why would DAI worry about this?

I would argue that most, if not all, franchisees want to maximize profits. If there is a dollar to be made by opening early or staying open late, they will do this without being micromanaged by DAI.

Operational changes which have been made and will be made will significantly affect you cost of operations. It was argued by many at both DAI and NAASF that the four wide bread forms would improve sales as customers preferred them. Tests were done and, sure enough, customers liked them and came in droves. Well, almost in droves as I have not seen any significant increase in customer counts. What did happen, this is my observation, customers were able to stuff even more food in their sandwich than before. Food cost crept up. It also slowed down the proofing and baking process as now we can bake 20% less bread than before. The cost of operating the oven also went up by 20%, I wonder why?

Now we will have the new induction ovens. They are also being tested by DAI and NAASF members. We are told by NAASF that they are a great addition to our offering to the customer. From my understanding, sales in the test stores are not up significantly to justify this investment. Apparently sales are up about 3%. This is not a statistically significant amount and may be due to the novelty factor of having this item in a store and also possibly where a neighboring store does not have this oven. The cost of the oven will result in increased operating cost due to the initial investment, maintenance, electricity and staff time. It will slow down your line; do not be fooled into believing it will not. If you are already tightly scheduled you will have to add more staff.

There are many other items which should be discussed. You really need to let both DAI and NAASF know of your concerns, if you have some. Write them a letter. How long will it take, a few minutes? You can send an email to your coordinator and she will redirect it to the appropriate person, if you want. Send a copy to your DA and don’t forget to let your elected NAASF representative know of your concerns. Really, they do not think there is a big problem as very few people bother to write them.

I will continue when I have more time,

Good Night and Take Care.

Monday, May 03, 2004

If you had not noticed; it is already May! How time flies.

Before I continue with my post here are a few of quotes from a Board Member and a NAASF member (to read the complete post go to the NAASF web site):

On How has NAASF benefited me:

"For clarification, the recent announcement in STS that DAI would withdraw $2,200 for each store from 313 accounts 60 days prior to installation completely blindsided NAASF. Since the announcement, NAASF has worked hard to get this decision reconsidered. No success yet, but we're still trying."

On Get rid of the SubClub program:

"In a recent survey conducted by NAASF through its website, the overwhelming majority of respondents (86%) indicated that they wanted to eliminate the existing paper loyalty program, the SubClub card. Based on that information, and on feedback from franchisees in meeting after meeting, your NAASF Board of Directors took a strong stand at the recent SAC meeting in February for eliminating the SubClub program."

"Because of NAASF's position, DAI agreed to allow testing the elimination of the SubClub card. Within a week from now, ten markets will receive letters from NAASF inviting them to participate in the test to eliminate the SubClub card program. The test will begin in July-August and will go through the end of the year

On 90% Compliance:

"The Compliance Report is a standardized format that is used to paint all with with same brush to protect DAI from further law suits. Some DA's use this as an excuse to visually improve a location by brow beating through the evaluation process. However, the DA location is always exempt from having to improve.

We are led from the top and it's unfortunate that we are being led in this manner. I not only appreciate the committees and boards that are set up, I commend their efforts in trying to change things with their hands tied behind their back. I don't believe they can cut to the real problem regardless of all their efforts. It is my wish that we had more professional skills in our leadership

Are there anyone out there who believe that DAI respects the franchisee? Are you coming to the realization that DAI is increasing the micro management of your store?

To withdraw $2,200 from each of your stores' bank accounts more than 60 days before you have the equipment is absolutely unreasonable. The fact that DAI will have your money, totaling for 17000 stores over $37,400,000, for at least 90 days (they will not be disbursing the money the day they receive it) means they will make a windfall profit of about $230,000. Do you think you will ever see this money? Do you think it will be used for programs benefiting the franchisees?

The fact that there are stores out there which do not have a free $2,200 sitting in their account does not seem to matter. So what if they will bounce a few pay checks or some supplier's checks does not matter. Just because you may have 10 stores does not mean that you will have a free $22,000 sitting there! Then there is the other problem, some people with the money certainly do not have it in a checking account but most likely tied up in some form of saving account. These individuals will have to transfer monies from their saving account with no certainty of the exact date that DAI will take it.

It does not seem to matter how hard our friends at NAASF work with DAI at SAC. They present a reasonable position and, when it fits the needs of DAI, they are listened to. Otherwise they are just ignored or lied to. Lied to may be to strong a statement; possibly mislead deliberately would be better.

Not withstanding what NAASF board members may feel; I believe, as others have also observer, that we need stronger leadership from our Board and CEO. Possibly the CEO is just doing the bidding of the Board but I suspect that the current person does not have the backbone to go head to head with the Board and DAI! Yes, I said the Board. I am of the strong opinion that many of the current Board members are not too interested in taking on Fred and Pete. I'm sure they feel that they are making a difference and improving the lot of the franchisee. However, is in not possible that maintaining the status quo is exactly what Fred wants? Is SAC possibly just a safety valve for venting franchisee frustration? Think about it from Fred's point of view. Here is a controlled environment where he can point to and say; look at us, are we not democratic? We have all the sister organizations of Subway meeting and working together at a team. Did someone from the Board say they were blindsides? More than once possibly? It this team play? I don't think so. It is more like a King playing with his subjects, for fun. If an overwhelming majority of respondents (86%) indicated that they wanted to eliminate the SubShop program, why in the world do you need a test?

If DAI and NAASF really wanted input on decisions there are some excellent tools on the web to conduct a survey. Let the majority, in a democratic way, rule. If they make a mistake I'm sure another vote will correct it.

First of all, we need strong leadership from our NAASF board. This can be manifested by employing a very aggressive CEO who will find ways to take on DAI in a direct way. The CEO will isolate the Board from DAI as the board can then play the good cop scenario while the CEO does the bad cop part. Maybe this will make some sparks fly. You know, you can't bend steel without letting some sparks fly. In the longer term; we need to find a way to improve the franchise agreement. On the way there we need to install some fairness in the system.

We need a fully independent auditing process of all matters related to any conflict involving DAI and DA. When an audit is performed it should not be punitive unless there is clear evidence of fraud.

If there are encroachment conflicts they need to be reviewed by an independent body or, at least, by a body representing the franchisees and DAI equally.

If there are unresolved compliance issues they need to be settled locally without the need to go to Connecticut at a tribunal selected and controlled by DAI. The first step in settling a compliance problem would be for the DA and the franchisee to sit down and discuss the problem at the store location where the problem exists. If this does not result in a resolution then a board of the franchisees peers should be convened and all the matters reviewed and discussed. The cost for this should be paid equally by the franchisee and DAI. If this does not work then the DA needs to file a complaint with the courts in the area of the franchisee or, at least, in the territory of the DA.

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