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28/07/2019

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The Rise And Fall Of Subway
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  • With more than 42,000 restaurants
  • in over 100 countries, Subway has the most locations
  • of any fast-food chain on the planet.
  • And at first, that sounds like a sign
  • of a thriving sub giant.
  • However, Subway is anything but.
  • Subway's closed thousands of stores
  • in the last three years
  • and saw a 25% fall in business from 2012 to 2017.
  • So what happened?
  • The chain began as Pete's Super Submarines
  • in Bridgeport, Connecticut, in 1965.
  • Three years later, cofounders Fred DeLuca
  • and Peter Buck rebranded it to simply Subway.
  • Announcer: Subway's famous giant foot-long sandwiches
  • are made right before your eyes, the way you want 'em.
  • Len Van Popering: What was so compelling then
  • and still is today about Subway
  • is really an open-kitchen format.
  • In many ways, they really pioneered that
  • and the ability to customize your sandwich.
  • Narrator: The brand redefined fast food
  • with fresh ingredients that customers could see.
  • Compared to other fast-food chains at the time,
  • it felt healthy.
  • And it worked.
  • By 1981, there were 200 locations across the US,
  • and soon after, Subway went international.
  • Joel Libava: In the late '70s,
  • and in the '80s, and in the '90s,
  • everyone knew about Subway.
  • I mean, they were everywhere.
  • They're still everywhere.
  • Narrator: That's Joel Libava, an expert in franchising.
  • While each store looks and smells the same,
  • they're all independently owned franchises.
  • Libava: The format is pretty simple.
  • You buy a franchise, you get trained,
  • they help you secure a location.
  • They help with a grand opening,
  • and you're open.
  • You're open for business.
  • Follow the several-hundred-page operating manual,
  • do the advertising,
  • and customers will come in.
  • Narrator: Not only were Subway franchises successful,
  • they were, and still are,
  • one of the cheapest chains to franchise.
  • It costs between $116,000 and $263,000
  • to open a Subway franchise.
  • Compare that to opening a McDonald's,
  • which costs up to $2.2 million.
  • Because Subways were easy to open,
  • the number of stores skyrocketed.
  • Between 1990 and 1998,
  • store locations rose from 5,000 to 13,200.
  • And in that same period of time,
  • gross sales rose by about $2.1 billion.
  • Subway's success continued into the early 2000s.
  • At a time when obesity was rising rapidly in America,
  • Subway continued to market itself
  • as a healthy alternative to fast food.
  • Kate Taylor: One of their biggest successes
  • for sure was the Jared Fogle story.
  • Everyone remembers those ads,
  • where it's him in those huge pants
  • where he's showing how he lost all of this weight.
  • And that just made them so much money,
  • and it really made people think
  • about Subway as a really great health brand.
  • It was one of the biggest advertising wins
  • that any chain's had in recent decades.
  • So that was a huge, huge part of their brand.
  • Narrator: Subway carried Fogle's success story
  • for nearly a decade.
  • But by 2008, the world was suffering
  • from the effects of the Great Recession.
  • And for many Americans,
  • hunting for deals replaced the obsession with weight loss.
  • So Subway changed up its message.
  • In March 2008, it introduced a new promotion
  • that would come to define the chain.
  • ♪ Five ♪
  • ♪ Five dollar ♪
  • ♪ Five dollar footlongs ♪
  • Narrator: By August 2009,
  • as other restaurant chains were struggling
  • through the Recession, the $5 footlong had pulled in
  • $3.8 billion in sales for Subway,
  • a 17% jump in US sales from the year before.
  • But even the best deals run their course.
  • ♪ Five dollar ♪
  • ♪ Five dollar footlong ♪
  • Narrator: Starting in 2014,
  • Subway's sales began steadily dropping.
  • Behind the scenes, many of the reasons
  • for Subway's success had turned on them.
  • Quiznos was once Subway's main competition,
  • but tons of sub chains, like Jimmy John's,
  • Firehouse, Potbelly, and Jersey Mike's,
  • and fast-casual chains like Panera,
  • were offering seemingly fresher and healthier options.
  • And they started stealing market share.
  • Taylor: They were competing against people who bring in
  • fresh produce every day.
  • A lot of Subway locations
  • only bring in fresh produce once or twice a week.
  • Narrator: On top of that, fast-food chains
  • that had been around as long as Subway
  • were coming up with healthy alternatives of their own
  • and getting creative with new menus.
  • Taylor: More and more fast-food chains really want
  • to have that innovation pipeline
  • where they're bringing something out new almost every month.
  • Fast-food places are looking for ways
  • to bring in new customers, drive traffic,
  • and Subway has not tried to do that
  • in the same way other places have.
  • Narrator: But other fast-food chains
  • weren't the only competition for Subway franchises.
  • With Subway's franchising model making it so easy
  • to open locations, stores inevitably started opening up
  • around the corner from each other in lucrative markets.
  • Take downtown Manhattan, for example.
  • Within a 15-minute walk in less than half a square mile,
  • there are 10 Subway locations.
  • And these locations in close proximity
  • began cannibalizing each others' sales.
  • Libava: The Subway franchise agreement, the contract,
  • it says they can open anywhere.
  • There is no protected territory.
  • So franchisees really have no say-so
  • in where the other franchisees are going to open.
  • It's a problem.
  • Narrator: And Subway corporate wasn't stopping it,
  • because the company benefited
  • from a high number of locations.
  • More locations meant more franchising fees
  • and high royalties to Subway corporate,
  • which diminished the effect
  • of falling sales from a single location.
  • Taylor: When franchisees' sales are kind of slipping,
  • as long as they're staying open,
  • it doesn't necessarily hurt Subway
  • as much as it would some other chains.
  • If everyone's kind of, like, chugging along, like,
  • opening new locations, then they can kind of
  • keep on keeping on, and it's not gonna be
  • the end of the world for the corporate office.
  • Narrator: Franchise owners, on the other hand,
  • took the hit.
  • In 2012, each Subway franchise generated
  • an average of $482,000 a year.
  • Four years later, that number had slipped
  • to $422,000 a year.
  • For comparison, the average annual revenue
  • of a McDonald's franchise in 2016
  • was $2.6 million.
  • And to make matters worse,
  • Subway would lose the face of its company.
  • In 2015, the man
  • who had embodied Subway's "eat fresh" mission was charged
  • with possession of child pornography
  • and having sex with minors.
  • Subway cut ties with Fogle,
  • and he was sentenced to 15 1/2 years in federal prison.
  • Taylor: And the Jared Fogle thing kind of basically went
  • from a huge positive to huge liability.
  • Like, the worst things possible
  • that your brand could be associated with.
  • Narrator: All of these things
  • created the perfect storm for Subway.
  • And soon, locations started to close.
  • In 2016, Subway closed 359 stores in the US.
  • It was the first year the chain closed more locations
  • than it opened.
  • In 2017, that number was over 800,
  • and by the end of 2018, over 1,000 locations had closed.
  • With all these sour ingredients,
  • it's hard to imagine Subway could bounce back.
  • But the chain is certainly trying.
  • In 2017, Subway launched its Fresh Forward program,
  • starting with remodeled stores.
  • The revamped locations featured new menu boards,
  • WiFi, USB ports, updated furniture, and music.
  • Libava: I will give Subway credit.
  • They're doing something interesting.
  • They are offering grants where,
  • if a franchisee applies and everything's in line,
  • they can get up to $10,000 towards remodeling.
  • Narrator: By the end of 2020,
  • over 10,000 locations will have this new restaurant design.
  • But Subway says food is its next priority,
  • and it's backing it up with an $80 million investment
  • in updated menu items.
  • Subway's partnered with the media company Tastemade
  • to develop hundreds of new menu ideas,
  • like the Green Goddess Tuna Melt
  • and the Southern Style French Dip.
  • In 2018, the chain introduced its cheesy garlic bread,
  • its most successful promotion in the last five years.
  • And in 2019, a line of ciabatta sandwiches
  • and Halo Top milkshakes hit stores.
  • Van Popering: Historically, Subway would evaluate
  • about six or seven new menu items per month,
  • but we've set up a process and invested in capabilities
  • where we're literally testing
  • at least 100 new menu items every month.
  • Narrator: As for whether or not all these menu items
  • and revamped designs will stop shuttering stores
  • and dropping business, only time will tell.
  • Taylor: They need to figure out
  • who they want their customer to be.
  • I think it's really an uphill battle for them.
  • But if they kind of go back to the basics,
  • think about what people want,
  • ask people what they want
  • and think about it a little bit more innovation,
  • that's kind of going to be a good start for them.

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Description

With thousands of store closures in the last three years and petitions against Subway from its franchise owners, the fast-food chain with the most locations globally seems to be on the rocks. We unpack what's going on and where Subway's headed from here.

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The Rise And Fall Of Subway

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