There was a time when Subway was the go-to sandwich chain in the United States, as stores were popping up everywhere, and you couldn't get the Five-Dollar Footlong jingle out of your head. However, times have changed, and Subway has really started to struggle, with stores disappearing as quickly as they appeared. There are obviously a lot of factors at play here, but it's clear that they need to make some changes to get back on top of the sandwich world. From the lack of fresh ingredients to the difficulties at the corporate level, let's take a look at the real reason why Subway is disappearing across the country.
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00:00When is the last time you stopped at a Subway?
00:03If it's been a while, you might not be surprised to learn that 2017 was not a good time for
00:07the chain that's been banking on their eat-fresh image to get customers through the door.
00:12It was only in late 2017 that franchisees found out that business had fallen 25 percent
00:16since 2012, and stores were shutting their doors.
00:20CNN reported that in 2016, Subway closed 359 locations, and 2017 was even worse.
00:26According to Business Insider, that year saw Subway closing another 909 stores across
00:30the U.S., which accounts for about three percent of their domestic footprint.
00:34So it's not entirely surprising there's a lot going on behind the scenes at Subway,
00:38and their problems are way more complicated than you might think.
00:41So why did your neighborhood Subway close?
00:45Not so fresh
00:46Subway built their brand on the idea of eating fresh, so if you've been to almost any location
00:51in recent years, you may have been surprised to find your subtoppings look a little less
00:54than garden-fresh.
00:56It's not your imagination, and there's a business-breaking reason for that.
01:00Business Insider UK spoke to a number of Subway franchisees and managers and found most locations
01:04only get shipments of vegetables and produce once a week.
01:07Particularly busy locations get fresh produce in twice a week, but that's still not enough.
01:12While Subway stated they worked with around 100 suppliers and family farms to make sure
01:15all their locations had the freshest produce available, those on the front lines had other
01:19things to say, like the Pennsylvania employee who said,
01:22A lot of the lettuce we receive is often near expiration and is already turning brown even
01:26though the bags are vacuum-sealed.
01:28The same goes for tomatoes, often they are delivered and within a week are mushy and
01:32rotting.
01:33Subway, eat fresh
01:35Is this chicken?
01:37One of the other things Business Insider says is to blame for Subway's continued struggles
01:41is scandals like the mystery meat chicken findings of early 2017.
01:44That's when CBC Marketplace did DNA testing on six different chicken sandwiches, including
01:49two Subway sandwiches.
01:51For the other fast food chains that were investigated, McDonald's, Tim Horton's, Wendy's, and A&W,
01:56tests showed that what they were serving was at least 85 percent chicken, if not more.
02:00Subway?
02:01The averages of their tests showed customers were getting between 42 and 53 percent chicken.
02:05The rest was soy, and it's not surprising people were pretty outraged by the deception.
02:10Subway takes a big hit on this chicken challenge, and it's not over yet.
02:16Subway on the other hand says the tests were wrong and claim they allow for only one percent
02:20or less of soy to be included in their chicken products.
02:23Denials notwithstanding, that's the sort of headline that can destroy a business' reputation.
02:27Subway launched a lawsuit against the CBC for $210 million.
02:31Is this chicken what I have or is this fish?
02:35Franchisee revolt
02:36In December 2017, the New York Post got wind of more behind-the-scenes problems for Subway,
02:41an outright revolt from at least 400 of their franchise owners.
02:45It started when Subway Corporate decided to temporarily bring back the $5 footlong promotion
02:49in hopes of revitalizing dwindling sales.
02:52$5 footlong
02:56Franchisees got together to petition against the deal, saying it was only going to hurt
02:59their already-suffering bottom lines.
03:01The franchisee letter sent to Corporate read in part,
03:04"...the national promotional focus over the past five years has decimated us and left
03:08many franchisees unprofitable and even insolvent."
03:11At the same time franchisees were revolting against the $5 footlong, the promotion's original
03:15creator, Stuart Frankel, spoke with Restaurant Business on why even he thought bringing it
03:19back was a bad idea.
03:21As the owner-operator of a college-campus-based Subway, Frankel came up with the idea in 2003
03:26but says Subway latched onto it and kept it for way too long.
03:29Even though it allowed them to grow and push some competitors out of the way, it did some
03:32major damage in the long run.
03:34Frankel says,
03:35"...once you keep pushing a low price point in the minds of the consumer, it's hard to
03:38sell sandwiches for what they're really worth."
03:41Chaotic leadership
03:43The fight over the $5 footlong was just the tip of the iceberg, and franchisees on the
03:47front lines of the business were seeing something much different from what Corporate apparently
03:50was.
03:51So store owners called for a change in leadership.
03:53Specifically, they wanted to see a new CEO installed.
03:56Suzanne Greco inherited the job when her brother, Subway founder Fred DeLuca, passed away in
04:012015 after a battle with leukemia.
04:03Anonymous franchisees claim that part of the problem is that anyone with a viewpoint contrary
04:07to Greco's will be on the outs at Corporate.
04:10Meanwhile, one franchisee summed up their situation like this,
04:13"...I wish we had an advocate.
04:15This was my retirement and now, well, it's over."
04:18Serious competition
04:19Tracking the downfall of Subway is surprisingly complicated, and Restaurant Business Online
04:23says growing market competition is playing a huge part in taking business away from Subway.
04:28When they first entered the restaurant market, Subway didn't have that much in the way of
04:31large-scale competitors.
04:33Quiznos was the other big kid on the block, and they made their name on their toasted
04:36subs.
04:37"...We love these subs!
04:39Subs are a dollar off!
04:43When you bring in our coupon!"
04:46It was easy enough for Subway to adjust, they just added the option for customers to have
04:50their rolls toasted.
04:51But other chains have since flooded the market.
04:53At the same time Subway's profits have tanked, competitors Jimmy John's, Potbelly, Firehouse
04:58Subs, and Jersey Mike's amassed some serious growth in 2016, accounting for $540 million
05:03combined.
05:04Meanwhile, Subway not only lost money, but started closing stores.
05:08Since Subway has been content with the status quo, that's allowed competitors to step up
05:12and start stomping them out.
05:13"...The last thing anyone needed was another sub shop, they needed a better one."
05:17But it isn't just other restaurants that are becoming competition for Subway, it's the
05:20number of their own franchises.
05:22Mark Shearer is an attorney who has represented a number of franchise owners in lawsuits against
05:26Subway Corporate, and he told Business Insider,
05:29"...this level of dysfunction has risen to the level of being flat-out evil."
05:33Shearer says Corporate is less concerned with giving their franchises a chance to grow than
05:36they are with collecting their franchise fees from new owners.
05:40Stores open right on top of each other, Corporate collects the fees, and the stores are left
05:43to scramble for business.
05:45Even worse, any complaints directed to Corporate about Corporate have led to what Shearer described
05:50as mafia-style techniques employed to sabotage stores.
05:53Franchisees could have their licenses revoked over the most minor of reasons, he says, and
05:57describes franchise owners as,
05:59"...always in a state of extreme fear.
06:01They fear reprisal for telling their stories."
06:03Subway, of course, says none of that is true.
06:06Slow to change
06:08As a whole, people are becoming more aware of what's in fast food.
06:11It seems like Subway, with their Eat Fresh motto, should be on the top of the heap as
06:15far as healthy goes.
06:16But there's not much that's further from the truth.
06:19Part of that is reflected in the fact they were surprisingly slow to make some serious
06:22changes to their menu and ingredients.
06:24While other chains like Panera Bread and McDonald's announced a long time ago they were going
06:28to be phasing out artificial ingredients, Subway only hopped on that bandwagon in 2015.
06:33And given that announcement only came a year after an online petition condemned them for
06:36using an ingredient in their bread that was also used in the production of yoga mats,
06:40well, that's not good publicity for anyone.
06:43Their menu has stayed the same for a long, long time, and the Huffington Post says the
06:46fact that they were slow to develop a breakfast menu and that they shy away from anything
06:50too experimental means that the 21st century has been moving on without them.
06:55"...fresh has a different meaning than it had 20 years ago."
07:01The face of Subway
07:03"...let's call this what it is.
07:06This is about using wealth, status, and secrecy to illegally exploit children."
07:12When Jared Fogle became the face of Subway, it seemed like a good idea.
07:16He was the perfect poster child for their healthy eating claims, and according to the
07:19Los Angeles Times, Subway profits rose 20 percent after his first commercials went national,
07:24and dropped 10 percent after his contract expired in 2005.
07:27Then, Fogle found himself in court on serious criminal charges with minors, charges to which
07:32he pleaded guilty.
07:33Subway's profits were already headed in a downward direction.
07:36While it's impossible to say how many people decided to take their lunchtime business elsewhere
07:40after Fogle's arrest, it's safe to say it's definitely been a major factor for some people.
07:45Subway has since publicly ended their association with Fogle, but whether or not it was enough?
07:49Who knows?