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.

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.


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