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.

Sunday, March 09, 2008

Every so often I get an email which is just too good not to post. The following is worth reading and, if you are interested in starting a Subway Franchise, following up on. Please, do not limit your research to my blog as you will be amazed at the number of negative comments about Subway you will find. As a note; most of the positive blogs you will find are posted by DAI, Subway or 'friends' of Subway.

"hunt wrote:
The Subway chain used be a good opportunity. Not since Subway headquarter became predatory against franchisees.

Read Fortune magazine archives on how this chain led by president Fred DeLuca (nicknamed BendoveritsFred) has caused a record number of unhappy franchisees, defrauded landlords and violated laws. Discover why after a six year study, U.S. House of Representatives' Dean Sagar concluded: "Subway is the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of." Says Cliff Marshall, a franchise consultant for more than 30 years: 'If anyone in my family ever asked whether they should buy a Subway, I would say absolutely not, no way. A Subway franchisee who asked to remain anonymous for fear of retaliation said the system "is a total mess." Go here learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm


Learn how DeLuca violated Connecticut's Unfair Trade Practices Act by pressuring independent SFAF board members to block owners he didn't like from running for office. Apparently he has no respect for legal statutes or fair play. Go here to learn more: http://franchisepundit.com/index.php/2005/05/28/what-to-learn-from-this-subway-lawsuit/


Read how DeLuca's franchise agreement forces owners with a legitimate grievance to submit to arbitration where there is no jury, few rules, and the outcome is binding. Arbitration companies compete ferociously for Subway's business and DeLuca uses that leverage to stack the deck in his favor. Florida attorney Keith Kanouse says, "I've seen over 300 franchise agreements, and Subway's is the worst." Go here to learn more: http://franchisepundit.com/index.php/2005/07/05/subways-deluca-loses-battle-with-franchisees/


In a perfect example of poetic justice, the Wall Street Journal recently announced that DeLuca lost a NASD arbitration claim, in which he alleged the UBS caused him $193 million in damages Not only did the DeLuca trusts fail to recover any of their losses, they also were ordered to pay $50,000 to reimburse UBS for document-production costs. Some owners were delighted to hear DeLuca got a taste of his own medicine, but others worry that it will only fire his drive to abuse them more to make up his losses.


If you think Subway owners make good money, think again. A store owner in the US nets less than $26,600 in profit, barely above the poverty level for a family of five. To earn a decent income, they must often work 60 to 70 hours a week and invest in multiple stores. The main problem is encroachment of stores. Even with more than 27,000 Subway's already open, DeLuca keeps building more. The result? Average revenues per store are down some 8% from when they peaked way back in 1994! Go here to learn more: http://books.google.com/books?id=yNFN1OpnkBkC&pg=PA100&lpg=PA100&dq=subway+franchisees+lowest+paid&source=web&ots=l-dgtBas1-&sig=Of1ObbDdfXuZsckQcO2Vp54RAV4&hl=en"

and a second;

" Read how DeLuca's franchise agreement forces owners with a legitimate grievance to submit to arbitration where there is no jury, few rules, and the outcome is binding. Arbitration companies compete ferociously for Subway's business and DeLuca uses that leverage to stack the deck in his favor. Florida attorney Keith Kanouse says, "I've seen over 300 franchise agreements, and Subway's is the worst." Go here to learn more: http://franchisepundit.com/index.php/2005/07/05/subways-deluca-loses-battle-with-franchisees/

In a perfect example of poetic justice, the Wall Street Journal recently announced that DeLuca lost a NASD arbitration claim, in which he alleged the UBS caused him $193 million in damages Not only did the DeLuca trusts fail to recover any of their losses, they also were ordered to pay $50,000 to reimburse UBS for document-production costs. Some owners were delighted to hear DeLuca got a taste of his own medicine, but others worry that it will only fire his drive to abuse them more to make up his losses.

If you think Subway owners make good money, think again. A store owner in the US nets less than $26,600 in profit, barely above the poverty level for a family of five. To earn a decent income, they must often work 60 to 70 hours a week and invest in multiple stores. The main problem is encroachment of stores. Even with more than 27,000 Subway's already open, DeLuca keeps building more. The result? Average revenues per store are down some 8% from when they peaked way back in 1994! Go here to learn more: http://books.google.com/books?id=yNFN1OpnkBkC&pg=PA100&lpg=PA100&dq=subway+franchisees+lowest+paid&source=web&ots=l-dgtBas1-&sig=Of1ObbDdfXuZsckQcO2Vp54RAV4&hl=en

Consultant Marshall estimates that 25% of franchisees are unhappy and suffering, while about 40% are "just getting by and making a few dollars. Barely a third are happy and doing fine, though many of those owners are also development agents who control the number of competing Subways in their vicinity." Steve Sager, a departed Subway agent estimates that half the franchisees in the Northeast are suffering. What does DeLuca have to say about this? "It bothers me that people lose money, but I don't lose sleep over it. This is America." I imagine DeLuca and co-owner Peter Buck sleep pretty soundly indeed, both being ranked by Forbes as the 207th richest men in America. Go here to learn more: http://www.forbes.com/lists/2005/54/BNPG.html

For most people, reaching billionaire status would be enough, apparently not for DeLuca. He recently rewrote the franchise agreement, stripping owners rights and doubling already inflated royalty fees for stores out of compliance of written guidelines. It also eliminates protection against encroachment, encouraging development agents to stack stores. He even added a loophole to take back the lucrative Subway advertising trust which he vested to owners years ago. With apparent impunity DeLuca pronounced his new agreement retroactive for all existing owners! Almost immediately field inspectors began bloating corporate profits through increased compliance fines. Ignoring past policy, inspectors now mark owners out of compliance in several areas for each deficiency! Go here to learn more: http://findarticles.com/p/articles/mi_m3190/is_23_40/ai_n16463127

Even more unconscionable, DeLuca devised a scheme to rip off owners by claiming high internal loss is royalty theft. Using proprietary software he sniffs out owners suffering from excessive shrinkage and forces them to undergo intense internal audits. Owners who can't account for every portion of lost, wasted or stolen meat are labeled thieves and fined up to $50,000! Those who fight DeLuca's illicit attacks are threatened with criminal prosecution or store seizure. Coincidentally, "shrinkage", a term prevalent throughout the restaurant industry, has been stricken from the Subway training curriculum since DeLuca's royalty theft crusade began. Just coincidence? Go here to learn more: http://subwayfranchisee.blogspot.com/2005/04/compliance-issues-at-subway-real-or.html

What help can store owners who suffer from chronic shrinkage or compliance problems expect? Does DeLuca offer additional training and support to help them get their losses under control and their stores back into compliance? Just the opposite! He dangles eviction notices over their heads and charges them huge fines! The U.S. Small Business Administration even stopped lending to Subway owners until DeLuca removed a contract clause that gave him the power to seize any store without cause. Go here to learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm

Franchisees fear that DeLuca may have bolder plans to cannibalize the chain. For years he pressured owners to abandon cash registers in favor of computer POS systems, despite dependability issues and a higher cost to own. When he encountered resistance, he simply ordered POS systems mandatory. Then he required all owners to connect their POS systems to headquarters, giving DeLuca access to every store's transactions. Using his "spy" software to monitor stores chain wide, now DeLuca can efficiently target owners ripe for royalty theft audits and spot inspections, boosting corporate revenues. Go here to learn more: http://storefrontbacktalk.com/story/081006Subway.php

DeLuca appears intent to use new technology against franchisees. Some owners suspect that the Subway Technology Department's pet video surveillance vendor DTT USA has conspired to help DeLuca spy on owners through live camera feeds being installed in stores. If DeLuca can tap into ring ups and video evidence then use it against them, they might as well kiss any hope of a profitable future good by. Is it coincidence that DeLuca's new contract gives him full rights to transmitted data? If you're a Subway owner, here's a hot tip; If it seems every time you have a minor compliance violation (ie: an oven door latch that won't stay shut or a POP display is out of date), a field rep mysteriously shows up on your doorstep for a spot inspection, Big Brother is watching! If this happens to you, obtain a copy of your DSL provider's server logs and have them scrutinized by an IP expert. If you are being spied on, take your findings immediately to the FCC.

Want more proof that Subway corporate is corrupt? Investigate Subway's legal beagle Leonard Axelrod (nicknamed Lenny the Ax), the architect of Subway's contracts. You'll have to dig deep, the evidence is buried. If you're diligent, you'll uncover how Axelrod was disbarred for brainstorming a scheme to defraud landlords. An Illinois appeals court concluded that there was 'overwhelming' proof that Subway had committed "far reaching fraud". An Illinois jury awarded a landlord $10 million in punitive damages after concluding that Subway had defrauded him. DeLuca spent $1.3 million to resolve 72 similar claims. Go here to learn more: http://findarticles.com/p/articles/mi_m3190/is_n49_v29/ai_17847096

Once landlords wised up to Subway's shell game, Axelrod brainstormed his dirtiest trick; a way to skip arbitration by signing leases with landlords and then subletting stores to unwitting franchisees, unaware they were being used as de facto landlords. This way Subway can quickly evict a store owner in a lease dispute and DeLuca can screw the landlord out of the lease. An Illinois court has called the eviction/ arbitration provision "unconscionable". Go here to learn more: http://nextraterrestrial.com/pdf/FDeluca-Fortune%20March%2016%201998.htm

What effect has DeLuca's predatory actions had on the Subway chain? At a recent franchise convention & trade show, it was all too obvious. Attendance and morale were at an all time low. Store owners sulked by, all emotion drained from their faces, not unlike holocaust survivors. Some wore shirts printed with "I Survived a DAI Audit". They huddled in small groups, searching for some relief from this nightmare. Sadly, Subway was once the greatest opportunity in the industry. Today it's just the greatest con job in the industry. Don't fall for it!

If you are affiliated with the Subway chain and believe you've been victimized by them, I urge you to add a comment to this post by clicking on the "File a Rebuttal" button below, or file your own report by clicking on the "File a Report" button next to it. RipoffReport.com posts are monitored by numerous law firms around the country. Your identity will remain confidential but will allow them to contact you in the event a class action suit or criminal complaint is imminent. Any criminal act that Subway staff may be guilty of negates the arbitration clause you are currently bound to."

Take care.

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Blogger hatinghypocrisy said...

I find it terribly humorous that you apparently sold your Subway and yet still have nothing better to do with your time than bash it. You sound like a person who couldn't manage to run your store correctly. I read the letter you received from Subway and happily posted, in violation of your legally binding franchise agreement, which stated your franchise was being terminated. It made no mention of pricing issues. But it did mention that your employees don't bother to wash their hands or wear gloves.

Maybe I have one store. Maybe I run it well and am profitable. Maybe I make my employees wash their hands and take food temperatures. Maybe I'm successful because I listen to their suggestions, and follow their rules. Maybe you don't. Maybe that's why you're a failure. Maybe if you spent as much time running your business as you do writing half-truths, then you wouldn't have failed.

8:49 PM  
Blogger rod.staines said...

Glad to see you are no longer in the system. You tried to ruin Subway while owning your own stores; you do not deserve to own part of a great brand.

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Blogger Amandatory said...

Hi egil, my name is Amanda, im 20 years old and my roomate currently works at subway. I know this might sound a little minor compared to the other complaints you have given and received about subway, but my roomate comes home just about every night complaining on how horrible her working expirience is there.

She has worked there for almost 4 years now, still making a little under minimum wage and hasnt received a single raise...at all. Just recently she came home after working overtime to tell me that her manager requested that she clocks out at 10:30pm everynight and stay till 11:00 or how ever long it takes to finish her closing duties OFF THE CLOCK!!!

With that, after having no raise, and being asked to work off the clock, she recently had a store meeting discussing what needs to be done and how they can improve, they got on the topic of breaks and lunches, my roomate works up to 8 to 9 hours just about everyday, they were told that there is not enough people working and that the job is not hard at all that there is no need for breaks..we live in texas..isnt that a state law?! finally they were told to scrub and deep clean the floors...without clocking in, the general manger and the store manager said that they will just add 2 hours to there schedule later, sound a little shady?! i think so.

I have looked all over on subways website for a number to human recources or loss prevention, but its like they dont exist! i found nothing. what can we do to get this taken care of? who can we call, write, see in person. Im fed up seeing my bestfriend coming home everynight through the roof with stress on how she is going to feed herself or even pay rent with what she makes now.

please let me know if there is anything we can do.

my email is childrenoftheflood@yahoo.com

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Blogger doingtime said...

anyone out there want to sue as bad as I do?

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Blogger David said...

Subway is a brand that has its presence globally. With so many franchises all over the world, it’s quite understandable that while some gets to enjoy the bliss of profit by being associated with Subway, others have suffered badly.

1:34 AM  
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4:36 AM  

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