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, September 22, 2004

Low Carb Posted by Hello

Here are some comments from a few Subway Franchisees:

“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 any 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.”


“I have a theory on why some customers are not coming back as often as they used to. We make the customer work too hard!! What kind of bread, what kind of cheese, what kind of dressing, etc etc. This is compounded by the idiots in menu development that take the name of one of our most popular sandwiches and give it to a friggen' salad. Did McDonalds take the Big Mac name and give it to a salad? Hell no. We are wearing people out. They change all the fresh value meals then change them back. Who makes these decisions and are they still employed at DAI? Then the brain trust at DAI fires the Ad agency like it their fault the menu choices and lo-carb BS is not what our customers want. We are the best sandwich chain in the nation and anything we do that harms that or takes away from that needs to be looked at very carefully. DAI's vice president of change for changes sake needs to get the boot. The new salad program is so inefficient it is criminal. I want to know who makes these decisions and see their head on a pike!”


“Funny how DAI is now concerned about price of admission after increasing our food cost. labor cost and decreasing sales at the same time. Not to mention the increase in FAF funding, purchasing the Quizno's oven, and on and on. I don't know about you guys but all of my costs have increased this year, insurance, unities, everything. If DAi is really concerned about price of admission they need to refund our 1%, cut down inventory (which would save some labor), and bring out some products that bring in customers. I have a real hard time putting any faith in DAi because their track record lately. I know Fred started and built up this thing from nothing but we need positive growth in existing stores not just positive growth because more stores are open. Let's get back to focusing on our sandwiches and being the best sandwich shop there is. Anything that takes away from that needs to go away.”

From me:

“I've been in the system now for almost a decade and a half and have seen some very disturbing trends. I posted, on my web site, the question of where is DAI taking us. We seem to be heading for a premium brand with all the decor and food items going up in cost. Service has now to be top quality or we get Termination Notices. Staff training and selection is very critical to maintain the expected standard. Our operation is very complex when compared to any other QSR and we need very smart people to run our stores with the very complex menu, etc. I'm at the point were I can't afford to stay open late as it is impossible to get quality staff for the late shift. This coupled with the need to sell no less than 5 units per hour to break even makes it impossible to have extended hours of operation. I used to be able to make money with unit sales of 3 per hour. My labor cost is several points above what it was just two years ago. My food cost is also several points above that it was before. There is absolutely nothing I can do to lower either while keeping the operational quality and prices in check. The short of it is that I need to do about $10,000 per week in sales to just have the same profit I had when I used to have sales of $6,000! I look at my neighbor QSRs and note they are full at breakfast while we have only a few customers. Our breakfast product sucks big time! I look at my neighbor QSRs and note they are very bust at night with coffee and donut sales. Our evening menu sucks big time. We need to improve our product to meet the need of the morning and evening customers. It is not the other way around. Advertising will not give them what they want! Discounting our product sounds like a good idea to bring in new customers until you realize that the other QSRs have food cost and labor cost several percentage points less than us. They have some margin to absorb the cost of discounting -- we do not!”

To my comments I got this reply from one franchisee:

“I have been in the Subway system for only two years, but I pray that at year fifteen I am not as miserable and unhappy as ‘you’. I have 30+ years in QSR and the last two have been the most satisfying for me. I know of no other QSR chain as easy to operate. If I was so unhappy, I'd sell and buy one of those other busy QSR's. You'll find thier COGS aren't much lower than ours either.It's easy to complain about what is always wrong, but what about ideas that would make it better ? I don't agree with everything that DAI comes up with, but we do more right, than wrong at Subway. I am excited about speed ovens, and what it can do for breakfast and dinner. Hope you find something that make you happy”

Wow – all I can say is what are you smoking? Are you truly so excited about the fact you have no recourse if you find yourself discriminated against by you development agent or DAI? Can you not see that we are being crowded out in our market by fellow franchisees and end up cutting our own throat with cannibalization?

With people like this we there is really no hope of reforming the system. It is possibly also why NAASF has only 70% membership. Why join as everything is just great!

On this positive note: I just received a letter and documents from a franchisee in a small town. He is currently doing a CPC of $1.05. The town in less than 10,000 population and the trading area is about 50% larger. Wal-Mart just located to the town and the DA wants a Subway in this location. He was approached but declined due to the fact that there was not room for two Subways in the small town. The DA went ahead with a study which proved that there was room for two stores and sold the location to an existing franchisee from an adjacent city. The franchisee had an independent person with several years of Subway experience look at the proposed store and came away with the assessment that his business would see about a 30% loss in sales. Talking to DAI was of no help and the DA is going ahead with the new Subway. Now neither one will be profitable but DAI will probably see a marginal growth in revenue from this action.

I also received a call from another franchisee who was complaining that a second Subway was being constructed 20’ away from their store. Yes, I said twenty feet! It was appealed but, again, it went ahead.

All I can say to Mr. “30+ years in QSR” is that all is not so rosy in our system. Why do you think Subway is the most litigated QSR in the world? I guess “I know of no other QSR chain as easy to operate” is a relative term?

Take care.

PS. I'm not miserable at all :-)

Tuesday, September 07, 2004

It has been a few days since my last update to the site. Many things have happened, most for the better.

For one; I now see more activity by some NAASF Board members in their own Discussion Site. It can still be improved but this is a good start. It would be nice if they would formalize this with the establishment of a communications committee. This committee should be responsible for the monitoring of the site and to answer questions, in a timely fashion, of members.

I note that Fred DeLuca has made a trip to the Mid West and that he observed some serious problems with our store operations. For a change they were not being identified as being caused by owners but rather DAI. Our menu is too complex and we have too many items in inventory. My question is; why did it take a trip to identify this? Why did not Research identify these problems? Oh, (a little sarcasm here) this department is run by Fred’s sister! No wonder there is so little accountability and correction of errors at DAI.

Where is NAASF in all of this? No mention was made by any input that we had on these matters. I guess that DAI does not really have much respect for NAASF or there would be a bit more than just cursory recognition and participation in SAC. NAASF needs to fight for respect. It will not be handed to it without a fight. NAASF has to have legitimacy. This can not be won with free membership. If it remains free it needs to have close to 100% participation of members. I believe that membership has stagnated at about 70%. With paid membership this would be excellent.

I will, again, make mention of web based survey tools. It is imperative that NAASF use these to get input to survey questions. In addition we need to use a professional question designer. It is not easy to design a survey which gets to the truth in an unbiased fashion and then ensures that the results are interpreted with some statistical significance.

Why is this important? We need to develop a database of issues which are important to the franchisee. Only the franchisee can legitimize the stance of NAASF and with a firm base on which to build will NAASF be able to say to DAI that these items will have to be corrected. It not, alternate action will be necessary. A strong bank account is also an important tool of strength. Without both franchisee support and the ability to act NAASF will be like a dog on a chain. We can bark all we want but that is about it!

If you want to send NAASF a letter address it to Jim Hatfield, Chairman NAASF. I’m sure they will appreciate any input, positive or negative. Let them know your opinion and your willingness to support NAASF in extracting justice from DAI.

In my last posting I expressed my desire for change within NAASF. Here is my wish list of items I would like to see improved at DAI:

1. Independent audit by an independent audit company.

2. A random generated number for stores selected for audit. What this would entail is the selection of stores for an audit not by the whim of the DA or any other individual but by a random process. The exception would be where fraud is suspected. In this case it would have to be shown why this was suspected and the auditor advised to transmit the reason for the audit to the owner.

3. The selection of a new store location also needs to be farmed out to an independent agency. Only then will store owners feel less threatened by new business development. If an existing owner wants to appeal the decision then it should be handled by an independent audit firm and all matters kept confidential. Any cost for an appeal should be shared equally by DAI and the store owner fighting the appeal. In any case, there needs to be a maximum amount set for all costs.

4. When DAI wants to add a new menu item it should remove another which is not selling well in a market.

5. All new inventory items must be consumed in the production of sales. If it is found that stores are throwing out product due to low sales then the sales item must be removed from the menu in order to reduce food cost.

6. The menu board needs to be simplified. A standardized pricing system should be developed which is less confusing to the customers as well as simplifying the job of the staff.

7. Research and Development needs to do real research in the field. It is not sufficient to sit in an office and brains storm new ideas. They need input by franchisees before any testing actually begins. Then it has to be shifted to a new set of testers with a new group in a new location. Staff and owners need to be surveyed (see my comment above regarding survey questions) to see if they are interested in the item. All aspects of the product need to be discussed. The taste, the cost, the time to prepare and any technical difficulties. It is also important to develop a way to track the new product with an update to the POS system.

8. In building new stores more attention needs to be given to future growth and development. Is there sufficient capacity in the design for new products and equipment, etc?

9. The construction department also needs to develop store view perspectives which show the design of the store in a three dimensional view both inside and outside. This has to be integrated with the geography of neighboring businesses and tastes.

10. Finally we need a long term and shorter term plan as to future development and direction of the system. Where are we headed? Why?

That is by no means a complete list but it underscores the lack of current planning and development of Subway. It is possible to grow the brand with no more stores. Focusing on internal items which will enhance sales will be a better and wiser way to grow the brand. With stronger stores we will be better able to face change and improve our operation. In the longer term it will be the strength of the store which will result in a stronger and more vibrant Subway.

Take care.

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