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, June 18, 2004

I read this comment on the NAASF web page (you can link to NAASF directly and read these comments in context of previous posts):

"I sympathize with your view, but am less than convinced that it can be done. For one thing, there is so much dirt to dig, and so many that continue to bury it, legally and otherwise, that it would take an army of experts to do so. At this point, NAASF is so far behind in the fight for equity, that I suspect they are a little overwhelmed with it all.

Consider--DAI has kept them occupied with planning and executing an every-other year convention (plus spring and fall forums), testing of equipment and new products, going to various and sundry alphabet-committee meetings, collecting information they want on various polls, keeping them involved in the on-going "upgrade" of our software, etc., etc. Perhaps the intent is to keep them so diffused and occupied that they won't be able to focus on any one or two important issues. With "importance" being defined by the franchisees, not DAI.

NAASF should be fully independent of DAI, friendly, but not beholden for anything, including funding. The tough part of that may be walking the line between too-friendly and war. Litigation might begin war. If that happens, NAASF will not be effective at anything else at least until the war is over, and maybe not even then. The other danger is that of a few, or maybe more than a few, franchisees to become sympathetic to DAI during the lawsuit and undermine those who are not. The most likely to be sympathetic to DAI would be those who are naive or are not affected by the issue in litigation. This would divide the franchisee community, and probably make the situation worse.

And then there's the fact that DAI employs or can employ as many attorneys as they want, because of their bottomless pockets. Litigation could last for years, and not actually win franchisees any improvements. How would we feel about one lawsuit draining all resources NAASF has, taking years to settle, dividing (maybe bitterly) the franchisees as a group, and immobilizing NAASF on every other issue? I'm not sure this is what we really want

Obviously there are problems perceived in going head to head with DAI. My point that the above writer was referring to was that NAASF needs to do something now. They are fast loosing credibility as a champion of the franchisee. Please take the time to go to the NAASF web site and read the various comments on this and other posts. Add you own and lets start a discussion on this or any other topic you may have.

Take care.

Wednesday, June 16, 2004

One of my concerns regarding NAASF and DAI has been the apparent opinion that we can work together as a team to build the brand and improve the operational relations with DAI and the franchisee. Time and again we see that DAI will do what they want and just seem to play NAASF with appearance of inclusion in decision making.

In the latest Newswire (Vol. 2, No. 21 - you can view these by linking the the NAASF web site) we are given a glimpse at the process which happens all the time: "During the past several years, [italics added] your NAASF has worked with DAI to develop a process to assure that, as we grow the brand, we do not overdevelop in specific markets..." "However, NAASF's basic goals have not yet been met."

Even the basic goals which NAASF set were not met after several years of discussion! In reading some of the links on this web site you can get a pretty good idea of the character of the person who controls Subway. That we continue to think that such a person will voluntarily give up control is not born out by the evidence.

The major investor in Subway is the franchisee not DAI. It is time that we take some control of the situation. By just talking we will not make any significant inroads. We do have some power to influence the process. One is to enter into a test case against DAI. Encroachment would be a very good test. Why is NAASF so reluctant to support the franchisee on this issue?

One of the solutions that NAASF has latched on to is the need for DAI to hire a CEO. How does NAASF think that this will change the culture at DAI? In all my knowledge of corporations the CEO reports to the owners and not the staff. Any CEO worth his money will know who writes his paycheck and it is not the franchisee!

I came across an article which supports my opinions regarding the corporate structure in North America (why else would I refer to it :-)). You may find it interesting. I have provide a direct link for you. The article appears in the June issue of Wired Magazine, 12.06, June. For the busy or the lazy; the article basically says that the group does a much better job of predicting than the individual. It goes on to suggest that the operation's employees should be used much more in making corporate decisions and less emphasis should be placed upon the decision of the CEO!

On this note; we really need to get back to basics where the franchisee takes control of the operation. We will make better decisions than DAI with or without a CEO.

Link here to the Wired article.

Monday, June 07, 2004

In my last comments I ended up discussing the impact of the new ovens:

"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."

I received a voice mail from my Subway coordinator the other day. She was very concerned that only one person had taken the trouble to complete the order form for the oven so that DAI could plan the installation of the oven.

Apparently, if you have not heard, DAI will deduct a good portion of the installation cost of the oven directly from your bank account. It will then sit on this money and use it for the costs associated with its installation. The total profit that DAI will reap just from sitting on your money for a few month is quite substantial! There is no indication as to how any profit will be returned to the franchisee. What ever happened to the process where one would just order the equipment and then send the money to DAI? I can't say I'm very happy about DAI just deducting a few thousand dollars from my checking account. I never keep much cash in this account as I earn no interest on it. So, to make sure I'm not short (NSF - anyone?) I'll have to add a substantial amount to this account and then have it sit, without interest being earned. Once it is withdrawn by DAI it will sit in Subway's bank account for a substantial period of time before it is disbursed for the purchase and installation of the oven.

This is a growing trend by DAI. They have been deducting a larger and larger amount from my bank account each year. It used to be that they were limited by the amount you would allow them to deduct but now it is up in the thousands. Next on the list will be the breakfast program and the skillets needed for that. Maybe we will need additional electrical for this also?

After this, why not renovation and other items? Why not just take over the whole management of the store? Why not indeed? After all, DAI can do a much better job of managing your investment. I'm sorry, did I say your investment? DAI does not see it this way. You are allowed to operate a Subway store but only by paying a hefty fee to do so. It used to be 8% of your gross sales. It is not substantially more than that if you factor in all the mandatory upgrades and improvements. If you do not do the 'recommended' improvements 'your' store will be taken away from you.

I'm sure you think I'm exaggerating. If you have been in the system for more than a few years you will have seen the growing control of DAI in every part of your business. Sure a franchise system needs to have some conformity to maintain a distinct identity and product which is consistent from location to location. How far one has to go is the question. After all, DAI benefits from you investing a substantial, if not all, your wealth in the system by operating 'individually owned' franchised restaurants. We are not Starbucks where the chain is mostly owned by the company. However, DAI wants us to be like Starbucks with a store on every corner and almost an identical look from location to location. In a Starbuck the corporation can take a loss in a location and equalize this from another just to keep any competitor out. In Subway the franchisee will work for nothing in the over developed location and eventually loose his business as he will not be in a position to do the necessary improvements and upgrades.

If the franchisee is able to develop a location and his sales grow then his area will be marked for additional development by DAI. His reward for his hard work will be, if he is lucky, a new store which he will be asked to open or a new store which someone else opens. In both scenarios the franchisee takes a hit in his bottom line. In the first one he may be able to equalize some of the loss over two locations but in the second he will lose without any recovery possible. Rather than allow the franchisee to determine when it is the opportune time to increase his investment in the market place by adding a new store this has now been taken away from him. If you are lucky you have a DA who has some conscience and still treat the franchisee as mensch.

Do you want to get a better idea of what a good citizen Fred is? Here is an interesting link.

Stay tuned,

Take care for now.

Wednesday, June 02, 2004

Here we are in June! How quickly time flies when we are having fun.

I came across this intersting article from a Legal Symposium on Franchisee Associations, comments also from Subway's legal council. Discussion is mainly about franchisee associations. The article give a view into the thinking of some at corporate HQ. The file is a PDF document.

Then there is this link to TurboChef Technologies. It begs the question: Did anyone at DAI, IPC or NAASF benefit from inside knowledge? Very depressing to contemplate but do you not think someone would be tempted to buy some stock in this company? If not personally then through friends or family members.

We are having over 300 people visiting this site each month. They also spend a substantial amount of time reading the articles.

If you find these posts and links interesting, please email the link to your fellow franchisees.

More posts to follow - check back regularly.

Take care

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