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Anyone interested in buying a franchise will at some point look into opening a Subway restaurant. The proven profit potential of a Subway franchise is simply too difficult to ignore. I too am a prospective Subway franchisee — and why not?
Subway is the largest franchisor of fast food restaurants in the world, with more North American and global locations than any other single restaurant brand. Its sheer size brings a lot of advantages to its current franchisees, but also makes it very challenging for prospective owners to enter the system.
These are my thoughts on what makes the Subway franchise so attractive, and why its popularity makes it so difficult to open a new location:
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1. Popular Brand with National and Global Reach – With over 34,000 global locations (over 24,000 in the US alone), most people are already very familiar with the brand and its product line. New store owners benefit from this powerful brand equity because they have a large built-in customer base right out of the gate.
Since each store contributes to the national and regional marketing campaigns, every dollar spent by the individual franchisee goes so much further because of the network effect. This further solidifies Subway’s enviable position in the marketplace, at a fraction of the cost to the individual franchisee.
2. Product Line Taps into Healthier Eating Trend – Subway offers the fast food customer a healthier alternative to burgers and fries. With the abundance of fresh vegetable toppings and lean protein options, a customer can create a sandwich that is both healthy and filling. The unlimited sandwich varieties makes this a viable and convenient daily lunch option.
3. Streamlined Operations, Easy to Run – Compared to other fast food franchises, running a Subway restaurant appears to be much simpler. Most of the sandwich fillings require no cooking, and baking the bread and cookies from prepared dough does not seem too difficult.
4. Low Initial Investment for a Fast Food Franchise – Opening a new Subway franchise costs a lot less money than opening most other fast food restaurants. The franchise fee in the US and Canada is only $15,000 and the total investment to open a new store ranges from $92.000 (for a non-traditional location) to $315,000+ on the high-end. The royalty fee of 8% of gross sales is a bit high, but given the high margins and high volumes, it’s a price worth paying.
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Why is it so difficult to open a new Subway franchise?
Current Franchisees Get Priority When it Comes to Opening New Stores – According to Subway, about 70% of new locations are opened by existing franchisees.
I spoke with Subway’s franchise development representative in Western Canada and I learned that before any new location is opened, Subway conducts a study on the potential impact of the new location on existing ones within the area.
Given that there are so many existing stores, chances are high that any new location will encroach on the business of an existing franchisee. That’s the reason why current owners are given priority when it comes to opening these new locations.
One way to get around this challenge is to purchase an existing store and enter the Subway system that way. This strategy is more expensive because the buyer would have to pay a price that is typically several times the store’s annual revenue or net income — versus merely spending for the build out when opening a brand new store (which tends to be much less).
Considering there are so many prospective franchisees vying over a limited number of stores available to new owners, the purchase of an existing store may be the easiest and quickest option, although it’s definitely not the cheapest one.
Click here to read my review of Jimmy John’s Gourmet Sandwiches.
Are you a current franchisee of Subway? Is your Subway franchise profitable? Do you work for the Subway franchise organization? Can you share anything about the profit potential of the Subway franchise?