America’s leading fast-food sandwich chain — Subway — is fading fast. Complaints about rising prices and dingy and poorly run franchise outlets are mounting. Sales are plummeting. The company is in danger of going out of business, analysts say.
In an online posting, one long-time customer summed up Subway’s rise and fall this way: “A local Subway used to smell like fresh dough. Now, it smells like a dirty mop.”
Some observers see Subway’s current difficulties as an outgrowth of the public relations disaster it suffered in 2015 when its long-time spokesman and mascot, Jared Fogel, was arrested and jailed for possessing child pornography and paying for sex with minors.
The company took a huge hit form the scandal. Had it known about Fogle’s proclivities and how he was exploiting the Subway name for personal gain? If not, why not? Fogle’s spectacular fall from grace gave the public the impression that Subway might have a serious internal management problem.
But in fact, by 2015, the company was already spiraling down, a victim of the success of its original business model which had left it unable to innovate and to keep pace with evolving consumer demand.
Subway originally succeeded because it made a compelling case that its customers could slim down — just as Folgle famously had — if they ate the company’s low-calorie sandwiches. No one thought that the quality of a Subway sandwich was especially high, but the company baked its own bread and used healthy ingredients that were put together right before the customer’s eyes.
And their sandwiches were much cheaper than comparable offerings from expensive gourmet shops.
The combination of the price and weight-loss incentive also gave Subway a special edge over fast-food chains like McDonald’s and Wendy’s that offered high-cholesterol burgers and fries. Subway had found its niche, and beginning in the 1990s that niche seemed wide and potentially inexhaustible
In 2008, with the deepening recession, Subway largely dropped its weight loss message and focused exclusively on its price advantage. Short term, it was a smart move. The company pulled in nearly $4 billion in sales that year, a 17% increase over 2007. The “$5 foot-long sandwich” became a Subway staple, and customers flocked to the franchise; other sandwich shops couldn’t compete, and Subway rushed to fill the void
But the void also led to vast overexpansion. Subway soon developed a problem common to popular franchises. Too many stores were allowed to open in the same geographic area, making it difficult for any to make a profit. Franchises have no say in this policy, which allows corporate headquarters to collect more licensing and royalty fees, regardless of sales.
In downtown Manhattan, for example, more than 10 Subway franchises were allowed to open over a period of just two years in a concentrated area that someone could walk off in 15 minutes or less, None were making huge sales, but they were getting by and Subway corporate promised them that eventually, all boats would rise. Meanwhile, the company kept raking in new fees, oblivious to its coming decline.
Once the economy started to recover, many customers no longer saw Subway’s price edge as key to their own sandwich preferences. Quality returned as key criteria, and new regional and local chains (e.g. Jimmy John’s and Panera’s) began to open. Subway began offering new kinds of sandwiches as well as wraps and sliders but also began jacking up the prices. Many offerings proved too expensive for the company’s mainstay of low-income price-sensitive customers. But Subway wasn’t attracting many new higher-end customers, either.
Subway used to have 42,000 stores in 42 countries, a phenomenal global presence, the largest of any fast-food chain, in fact. But overseas stores take a while to get on their feet and earn a profit under the best of times; now Subway found itself completely over-extended. Since 2012, and especially since 2014, the company has closed thousands of its stores, domestically and abroad — 600 in 2016, 1,000 in 2017, and over 3,000 in 2018, with more to come. And Subway sales have fallen by a whopping 25%.
Who or what can stop the downward spiral? It could take a miracle, industry analysts say. In a capitalist economy, many companies rise and fall, their ability to survive based largely on their capacity for re-invention. Subway is stuck in its ways and is still reeling from the fall-out from the Fogle scandal. It would likely have to rebrand the company, reorganize itself internally, and develop an entirely new product line.
But the economy and the world may already have passed Subway by. Its last competition Quiznos was forced to fold, and Subway, with its much larger empire, may well be next.
As one industry analyst told the Washington Post: “No one really wants what Subway has to offer anymore.”