Industry News | December 25, 2017 | By Danny Klein | QSR Exclusive Brief

Report: Subway Closed Over 900 Restaurants in 2017

Subway is bringing back the $5 footlong.
Subway's 2017 turned out to be a rough year. Subway
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Subway has a challenging 2018 ahead. According to Business Insider, the world’s largest quick-service chain dropped its U.S. unit count by 909 locations in 2017. The number came from a Subway representative and represents more than 3 percent of the sandwich chain’s 2016 U.S. stores. It’s also nearly three times 2016’s 359-unit count drop, which at the time marked the first instance in Subway’s history where the brand closed more stores than it opened.

Subway has 25,835 U.S. restaurants. It had 26,744 at the end of 2016. Bloomberg said Subway’s sales fell 1.7 percent in 2016 from $11.5 billion in 2015 to $11.3 billion, and The New York Post, citing an internal memo it obtained, said traffic declined 25 percent in the past five years.

Business Insider said the news could be “just the tip of the iceberg for Subway closures,” although a spokesman would not comment on the number of expected closures in 2018.

The publication also spoke with three franchisees from different regions. According to the story, based on internal conversations and national sales numbers, one of the franchisees believed up to a third of all Subway locations were currently unprofitable. Another franchisee said development agents are speculating about additional closings. All the sources were anonymous.

Last week, Subway’s marketing leader for North America, Karlin Linhardt, a former McDonald’s employee who spent 10 years with the fast-foot giant, resigned on the heels of a story claiming franchisees were unhappy with the January revival of the $4.99 footlong.

Reportedly, more than 400 franchisees have signed a petition protesting the chain’s promotion. According to The New York Post, Subway was hosting town hall meetings with regional franchisees to explain how the deal would boost profits.

In a December 6 letter from Virginia franchisee Mitesh Raval, reported by The New York Post, Raval complained that, “The national promotional focus over the past five years … has decimated [us] and left many franchisees unprofitable and even insolvent.”

A Subway spokeswoman told The New York Post that most franchisees support the footlong promotion. The New York Post also cited a November 30 memo to franchisees, which said the company promised $25 million to boost marketing.

“The erosion of baseline traffic and related profitability decline is the overwhelming primary issue for our brand,” Subway said in the memo, according to The New York Post.

Additionally, Subway has dealt with public relations issues in recent years. A lawsuit claiming that the brand’s footlong sandwiches only measured 11 inches was only recently dismissed, and there were also claims that Subway’s bread contained a chemical found in yoga mats. A Canadian TV report said that the brand’s chicken was only 50-percent real chicken. Subway said the claim is untrue. And then there was Jared Fogle’s arrest for child pornography and sex with minors. Subway severed its relationship with the spokesman in 2015, who was sentenced to nearly 16 years in prison.

Subway is in the midst of a multi-year process to reshape the brand. "Our goal is to strengthen the Subway brand in every market around the world to give Subway franchisees the greatest opportunity to successfully grow their businesses," a representative told Business Insider.

At the core of these changes is Subway’s Fresh Forward design. As of November, there were more than 40 updated locations in the U.S. It’s the culmination of two years of working designing a concept built around the customer experience.

There’s a new S Choice Mark logo as well as Energy-efficient LED lighting. Other changes include: wall art visualizing the brand's quality ingredients. Wall coverings made with 34 percent recycled content and water-based inks. New floor coverings. There's a new seating package that includes updated tables, colors, and chairs. Curated music created exclusively for Subway. Wall-hugging cushioned benches and USB charging ports. In an effort to increase capacity, Subway added a make station in the back for any kiosk, remote, or catering orders. There’s also a fresh vegetable display case behind the sandwich line.

Read more about the changes and CEO Suzanne Greco’s vision for the brand here.

Globally, Subway's store count is down 471 locations. The chain has 44,014 restaurants around the world worldwide, down from 44,485 stores in 2016