A group of Subway franchisees, upset with the company’s direction, published several grievances in an open letter Tuesday as rumors of a possible sale continue.
The open letter, co-written by more than 100 franchisees, according to Business Insider, is addressed to Elisabeth DeLuca, co-owner of Subway and widow of founder Fred DeLuca. The New York Post reported the franchisees operate 250 stores, or roughly 1 percent of the U.S. footprint.
The operators noted many of them are immigrants who traveled to the U.S. seeking the American Dream, but added, “this dream has turned into a nightmare.”
The franchisees accused Subway of writing deceptive franchise agreements and denying a request to source higher quality tuna and ship fresh produce to stores every day instead of twice a week. The franchisees also claimed development agents forced them to open stores next to each other, or else Subway would recruit a competitor to put them out of business.
“We watched as the high-performing stores that we put our blood, sweat, and tears into were taken from us by Subway Development Agents, because there was a smudge on our window, or cucumbers were not sliced to a precise thickness,” the franchisees said in the letter.
“There was little that we could do about that,” the letter continued. “As Subway Franchisees, we don’t directly lease our stores from the landlord, we sublease them from Subway even though we are the ones that find and choose the locations. So if Subway wants to kick us out of our locations for any reason, they are within their legal rights to, even if we’ve been playing by the rules the entire time.”
The operators claimed they’ve experienced difficulties keeping stores open amid the pandemic because they were mandated to subsidize “loss-leading promotions”—like the $5 Footlong deal—with Paycheck Protection Program loans and federal aid. In addition, the group accused Subway of preventing franchises from reducing hours so the company could earn more royalties.
"We had to take away from our families so that we can pay royalties to you, a multi-billionaire who does not need a bailout or any federal aid,” the franchisees said.
The complaints were followed by a handful of ways to fix the relationship and company. That list includes: mutually agreeing on changes to franchise agreements, the right to directly lease stores, the right to source fresh produce every day and offer higher quality ingredients when available, barring business development agents from purchasing stores that were closed due to their inspections, and exempting franchisees from paying royalties in the amount of PPP loans and federal aid they receive.
Those are the first five. The sixth request addressed a rumored sale. If a transaction occurs, franchisees would like to receive a royalty rebate of 8 percent, to be proportionally distributed to franchisees by gross sales. The operators believe it would be a “sign of good faith for all of the turmoil, and heartache that we have endured throughout Subway’s 40-plus year history.”
Whispers of a possible sale have spread among franchisees and employees, Business Insider said. John Gordon, an analyst with Pacific Management Consulting Group, told the publication earlier in April that Burger King and Popeyes parent Restaurant Brands International and Arby’s and Buffalo Wild Wings parent Inspire Brands have “done due diligence” looking at Subway in the past year to year and a half.
In response, Subway said the letter doesn’t represent the opinions of “the vast majority of our dedicated franchisee network.” The company also denied that it's up for sale.
“Subway is committed to the long-term success of our franchisees and provides multiple forums for franchisees to share feedback, working hand-in-hand with them to ensure decisions are focused on maximizing their profitability,” the company said in an email to QSR. “There are many exciting announcements—ranging from menu enhancements to digital upgrades and new delivery options—on the horizon, and we look forward to sharing these with you in the coming weeks.”
The letter comes about a month after the media widely reported Subway was moving some of its operations from Milford, Connecticut, to Miami. The new Miami office is scheduled to open in spring 2022. Consumer-facing departments will make the transition, such as culinary, marketing, and global transformation. Meanwhile, finance, legal, development, and human resources and business services will remain in Connecticut.
Subway said, “A Miami presence allows us to keep our finger on the pulse of more cultural conversations and the evolving tastes of the modern consumer.” The chain laid off 300 workers from its headquarters in February 2020 and cut another 150 a few months later, including 100 from headquarters.
Subway, which had about 23,800 U.S. restaurants at the end of 2019, closed a net of 2,970 stores between 2017 and 2019, according to its FDD. In 2015, Subway had 27,103 locations—more than Burger King, Wendy’s, Taco Bell, and Pizza Hut combined. Additionally, the chain’s franchise revenues dropped from $866.7 million in 2017 to $838.5 million in 2019. In the same timeframe, net income went from $9.7 million to $7.5 million.
The franchisees said they never hear from Elisabeth DeLuca, but they are asking for that to change because their voices “have always been silenced by Subway corporate.” Dr. Peter Buck, who co-founded the chain with Fred DeLuca, is the other majority shareholder, but is not mentioned in the letter.
“We pay a high royalty that eventually ends up in your pockets, every week,” the letter said. “You may not be aware of all of the injustices that Franchisees have endured. However, not knowing is not good enough.”
“We see you presenting charities with large sums of money doing good work,” the operators continued. “If anything, this shows us that you want to do the right thing in life. Please do not turn a blind eye to us anymore. Let’s make the wrongs at Subway right, and together we can BUILD BACK a BETTER Subway greater than it ever was before. THIS IS OUR DESTINY.”