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.

Saturday, July 22, 2006

The deed is done - I sold my last Subway!

I started with my first store about 15 years ago. At one time I owned five stores, six if you include a satellite store.

I had hoped to build ten stores but along the way Subway changed. It went from a franchise which worked hand in hand with the franchise to one which became confrontational and control oriented. Rather than work with store owners to develop and improve the system it decided that this could best be done at head office.

Doctors Associates Inc. (Subway) took a new path. Why I'm not sure but I suspect it was to try and control as much of the market as possible. One of the objectives was to crowd out any competition by placing a store on every possible location. As this was not advantageous to an owner, due to reduced store sales (cannibalization of customers), there was some objection to crowding the market by over saturating locations. Various models were proposed by DAI to achieve a certain level of market penetration. Cents of sales per capita were used as a measuring stick as were population densities. The Development agents were 'encouraged' to develop their market under threat of termination.

The people most in objection to the New Order at Subway were the old guard of franchiser. There was a queue of people wanting to get into the system but they, Subway, were being hampered in the growth by objections and legal challenges made by existing owners and Development Agents with a vested interest due to ownership of stores or with associates with Subway stores.

So, how best to reinvent the System? Easy said but not so easy done. Get rid of the old guard and replace them with new, forward thinking, owners. To achieve this a new policing system was invented in the form of the monthly inspection report. In this report one DAI employee is empowered to terminate existing franchise agreements with impunity. No appeal is possible and if you do not shape up a letter will be sent by the legal department that your franchise is terminated. Your option at this point is to go to a dysfunctional arbitration with all the 'evidence' of wrongdoing compiled by DAI as evidence. You have nothing but your word and that of your staff and customers.

As this was not enough, a surprising number of owners stuck with the system, a new and improved franchise agreement was developed. Franchise fees are now going up from 8% to 10% over time, severe penalties are now added to any audit errors and further severe penalties are now included with a poor inspection report. This is in addition to the continued ability of DAI to terminate a franchise agreement. DAI also added e new twist to the equation. Now DAI is planning on taking over the Subway Franchise Trust Fund which is administrated by the franchiser at present through an elected board. DAI want control of the advertising funds so that it may utilize these funds for its own ends.

It is finally so bad that the various franchise organizations, FAF and NAASF, have taken legal action against DAI and Fred Deluca. Where this will lead is open to question. I suspect that DAI is within its legal right to do as it has done. It is unfortunate that the owners, the franchise, do not take stronger action. Wasting time in court is just what DAI wants. They have the time, money and resources to continue this battle until fatigue sets in with the franchise community.

My advice: Get Out While You Can.

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