In this edition of “Ask the Profit Coach“, MD writes…
“Hey Coach Morse, I know you work mostly as a Profit Coach, but was wondering if you could answer the following question. I have been thinking about buying a SubWay franchise, but have heard some horror stories about being shafted. What advice would you give someone who may want to start up a SubWay? Also, how much does it bring in?”
First of all, Subway is a rock-solid franchise. They dominate their space in the industry and I feel fortunate to be a part of their ongoing success story. Having said that, owning a Subway is like owning any other business. It takes hard-work and dedication to build a profitable business. In my experience, those who feel “shafted” either didn’t do their homework before buying the franchise, and / or had unrealistic expectations of how easy a store would be to operate and how much money they could make.
The following are some steps I think would be wise to take if you are thinking about buying a Subway franchise:
1. Begin your research by visiting www.subway.com and click on the Frachise Opportunities tab, Franchise Opportunities Worldwide. Follow the “Getting Started in 3 Easy Steps” link.
2. While you continue to gather information from the Franchisor, you’ll also want to visit several different Subway stores and talk with the owners. It’s never good to just pop in unannounced so please call ahead and ask if a time could be arranged to meet. Most owners will be glad to share some of their experience with you. If you get the chance after talking, buy lunch at their store; it’s a great way to say thank you.
3. Make a business plan. Do NOT skip this step. If you need help in this area visit www.score.org.
4. Read the Franchise Offering Circular and seek the advice of an attorney to help you understand anything that is unclear.
There is more to it than these four steps, of course, but this should get you headed in the right direction. As far as how much you can bring in with a store, sales from store to store vary widely and are affected by a wide range of circumstances. Subway representatives can share average sales figures with you, as well as other financial information that will help you make projections.
Thanks for your question and best of luck on your journey!
Coach Morse
Do you have a question for the Profit Coach? Send it in using the contact page and i’ll do my best to get an answer for you.
To whom it may concern:
I have been a 15 plus year Subway operator. I have been Franchisee of the Year for my territory. I have been a representative on both the local and national advertising fund board of directors.
I can tell you this…I would not own a Subway if I had to touch it with a 10 foot poll.
Why?
1) $5.00 Footlong has increased sales but hurt bottom line profits upwards of 60%. DAI, DA’s, and vendors are getting rich, not franchisees.
2) New remodel policy: every 7 years expect to dump 50K into comsmetic changes
3) Equipment package stinks. Never was designed for higher sales volume of $5 footlong, thus increasing repair costs 5 fold. Even new equipment mandated by remodels fails to meet company mandated standards…something the company knows about but is unwilling to acknowledge or mitigate…thus the risk is all on the franchisee
4) Deluca (Subway Founder) is in process of “stealing” $600 million of the franchisee’s money through a very subtle change in the franchise agreement that in essence gives him control of the franchisee advertising fund. Several lawsuits have been filed by various Subway Franchisee parties including SFAFT (Ad trust) and NAASF (franchisee association)
5) Deluca (through his sister…the R&D Director) threatened vendor contracts if they participated in franchise association trade shows. This is very close if not is a direct violation of FTC racketeering laws.
6) Several Volunteer SFAFT Board of Director and NAASF Board of Directors have been harrassed and threatened with business ruin through a series of DAI lawsuits filed against them, harrassing inspections, etc.
7) Most Development Agent contracts are coming up for renewal. Delelopment Agents (DA)were usually the first qualified franchise in a territory. Most were given the territory to develop and in turn, the company would give a % of the royalty flow to the DA for their assisting franchisee find locations, inspecting stores, and doing other job functions. As the market has become saturated with stores, the company has chosen to eliminate the middle man (DA) or change the conditions of the contract. As such many DA’s have sold or changed their behaviour from being a business partner to being business competitor. So in essence, the franchisee ends up competing with his DA for locations. In some extreme circumstances…of which I am personally familiar with, the DA uses the inspection process and the store transfer approval process (DA’s approve who can buy the store, Subway Corp rubber stamps the approval) to mark franchisees out of compliance, put the franchisee in termination of his or her franchise agreement, and then announce themselves or immediate family members as the only approved buyers. The sad part is that Subway corporate turns a blind eye to all of this.
Any how the point is that the DA’s are being pinched by Subway Corporate, so it leads to some very unethical and potentially illegal behaviour.
Subway Fred,
Thank you for your comments. I’m sorry to hear that you have had a bad experience. I can relate to some of what you are saying.
At times DAI can come across very threatening. I’ve seen improvement in their communication style over the past few years, but they still have room to improve.
As far as the ongoing battle over who will have control over the Advertising Fund, I fall into the category of the undecided. I’ve been around long enough to have seen SFAFT run some pretty terrible promotions, though they have done much better in recent years. I think your claim that Fred Deluca wants to “steal $600 million of the franchisee’s money” is unfair, however I understand the anger behind your comment. In my opinion, Fred Deluca has the greatest incentive to increase sales, so I’m not fearful that DAI run advertising campaigns would be any less successful than the current ones.
The $5 footlong campaign did not hurt my bottom line at all. In fact, it increased sales by about 20% with food cost rising only 2%. Store owners who lost money on this promotion need to hire me as their Profit Coach so I can teach them how to make the kind of money they’ve always dreamed of.
Remodeling was expensive, but not $50k. It cost me approximately $30k per store to upgrade from the old decor to the new Tuscany decor. However, to upgrade from the Tuscany to the new TusanyII only cost me $4500. DAI has done an excellent job at reducing the cost of future remodeling.
In any business, Subway Franchise or not, there will be extreme cases where individuals take advantage of others, abuse their authority, and so on… With nearly 25,000 stores in North America, most Subway franchisees are having a profitable experience. Could it be better? Always! That’s where I’ve chosen to focus my energy, on maximizing my profit and helping as many of my fellow franchisees do the same.
Those who are considering becoming a franchisee will need to gather information, weigh their findings, and decide if they are comfortable moving forward.
I want to stay positive,after 26 yrs with another fast food company i am now in the build out stage of opening my first subway.what things can i be doing now to help the opening process. what things can i now expect? i can say everyone at subway has been very helpful the bad is it has been a slow process so far 5 months
Hello,
I am first time buyer and i have few questions regarding the buying process.
1. How do you calculate the asking price?
2. What’s the best offer price that we can put for the store that does about average weekly 5100.00.
Me and my husband will be operating the store.
thank you
In general there are two ways to calculate the value of a store, in my opinion. First you can simply determine the price based on 50 to 60% of the annual sales. The other way is to take the average yearly profit and multiply that times three. $5100 per week is a low volume store so the purchase price should be somewhere between $120k and $140k. At such a low sales volume you will need a low lease payment, something that doesn’t exceed $1200 per month, otherwise you could have real trouble making a decent profit.
Here’s to your success!
Coach Morse
Dear Coach Morrs: I am planing to purchase a Subway Franchise and I need help in figuring out what should be the price for the store. I believe that I was told by the subway ppl that it will cost me anywhere from 150k to 220k and I spoke to the leasing agent of the area that I am think of opening the store and the rent is from 1500 to 2300. what do you think … thanks for your help..
Pink,
The price ranges you received are accurate in my view, however they are too big to make any decent projections. Build your store for the lowest possible cost. You can always buy more equipment later, but start with the minimum required of you so you can keep your loan payment manageable in tough times. If you’re opening a new store, location is the key factor in your success, next is negotiating to keep your fixed costs low. The Leasing Department at Subway will not get you the best deal on your rent. Trust them at your own risk. Instead, negotiate with the Landlord yourself. Ask for a low rent (should not exceed $1600), never accept a lease that includes Percentage Rent, a Triple Net Lease is standard, but make sure you have a lawyer review the terms so you are adequately protected. Insist that the Landlord is required to provide copies of all invoices used to calculate maintenance and taxes. Remember, high start up costs and high rent can kill your business inside of 18 months. There is no such thing as a once in a lifetime chance, so don’t be afraid to walk away if the deal stinks.
If you need further direction you can contact me to schedule a private consultation.
Here’s to your Success!
CM
Hi Coach, first time on your site, doing some research on Subway and found my way here. I too am in the process of putting a deal together to open a Subway. My scenario is a bit different as I operate a gas station, c-store, and a restaurant and we are looking to convert our restaurant into a subway. Our bonus, in my opinion is that we have customers, sales, and space already existing that we are looking to build on. What I am trying to figure out is what type of increases could I see both in customer counts and sales by converting to a subway? Our restaurant does $250,000 annually currently with roughly 100 transactions a day at a little over a $6 average sale per customer. Can you help me get an idea? We’re from Canada by the way too, eh….
Hi Coach, I am in the process of looking at an existing Subway Franchise to purchase. I’ve worked in the food business at a catering hall owned by my family for 5 yrs and this will be my first business venture. I’ve found a location that is currently doing averaging 8500/ week as per the combo report and has avg 9400/week for the 2 yrs prior ( stated on the combo report as well.) The store currently has a 10yr lease at $6800/month. The store due for a remodel in 5 months. The owner is 100% absentee and had a falling out with his brother in law who was running it. He is asking for 130k. Do you think this is a good for me to get started. The store has a 10yr history at the location.
Unfortunately, I don’t think this is a good investment and here’s why:
The rent is too high; and not by a little. It’s $50k per year too high, which means instead of making between $85k – $100k profit, you will only make between $35k – $50k (based on my experience).
In addition, a 10yr old store should have been remodeled 3 years ago. If the decor is not currently Tuscany, the remodel can cost you between $30k – $50k.
My advice is to keep looking.