Subway, the sandwich giant, is holding a crucial meeting with its UK franchisees this week, following reports of declining sales and profits. The meeting, described as "emergency" by some franchisees, comes as the company attempts to regain market share and reverse a concerning sales trend.
The meeting, scheduled for Thursday, will include a comprehensive review of promotional offers currently being trialled at restaurants. A Subway spokesperson confirmed the meeting, stating that the company regularly communicates with franchisees to share business updates and plans. However, some franchisees have voiced concerns over the "emergency" nature of the meeting, particularly the short notice provided.
One franchisee, operating almost 20 stores, has reported a 5-10% decline in same-store sales compared to last year. They attribute this drop to recent price promotions, claiming these have led to decreased customer traffic. The franchisee expressed dissatisfaction with the chain's aggressive discounting strategy, lamenting the impact on profit margins.
"They are doing crazy coupons," the franchisee said. "Our gross sales are not even at 2012 levels, and profit then was five times what it is today."
The franchisee highlighted specific promotional offers, including a "Buy any foot-long in the app and get one free" deal, where a £6.99 footlong is offered despite a regular price of £11. These promotions, while attracting customers, are eroding profit margins and leaving franchises struggling to break even.
Independent data from an Eastern US region, representing about 1,000 Subway stores, supports the franchisee's concerns. Between June 25th and July 16th, average weekly same-store sales in this region fell by 8.7% year-on-year.
Restaurant consultant John Gordon, who has observed similar sales declines in West Coast and East Coast regions, described the meeting as "very unusual". He noted that same-store sales in Los Angeles and San Diego were down 8% for the week ending August 6th, while Southern California suburbs saw a 2-5% decline. These figures are starkly contrasted with Subway's 2023 boasts of a 5.9% rise in North American same-store sales.
The introduction of new $3 foot-long hot dipper snacks in June was intended to boost sales, but has fallen short of expectations. Despite initial success with Sidekicks - foot-long cookies, pretzels and churros - the buzz surrounding that offering has waned.
Following its sale to Roark Capital earlier this year, Subway now faces the challenge of managing interest payments on new debt. With declining earnings, the company can ill afford to continue the current trend.
Discounting is a common strategy across the fast-food industry, with chains like White Castle slashing prices to attract budget-conscious customers. However, while some chains have seen modest improvements in traffic, overall same-store sales remain under pressure.
Data from Bank of America credit and debit card transactions indicates a 2.9% decline in same-store sales for fast-food restaurants excluding pizza joints in July, compared to a 1.9% decline in June. While Taco Bell saw a 5% increase in sales, Wendyâs and Burger King remained flat in the second quarter.
McDonald's, despite extending its £5 value meal until October, reported a 0.7% drop in same-store sales in the second quarter, the first decline in four years.
"This shows the discounting wars are not working in total but are improving traffic a bit," said Gordon.
Subway's "emergency" meeting signals a clear need for a strategic shift to address declining sales and profit margins. The success of their upcoming plan will hinge on finding a balance between attracting price-sensitive customers and safeguarding the profitability of their franchisees.
