5 Reasons to NOT Buy a Subway Franchise (2019)



you are listening sooo franscheiss it c FS awaits a bi franchise today's video we'll explore the investment required to invest in a Subway franchise as well as whether investing in a subway is such a great idea we'll get five reasons why it may not be your top choice so your total investment to open a new Subway franchise will range between about a hundred and fifty thousand to three hundred and twenty eight thousand be prepared for two hundred thousand plus as an average your payments to Subway are going to include eight percent of your total gross sales as well as four point five percent of your gross sales that goes towards advertising now there's other fees including your local rent license fee equipment leases software maintenance call us for details specifically on those now as franchise brokers and consultants we are in a unique position that we have access to every franchise disclosure document including the financials of every franchisee out there we see the failure rates the transfers the average unit volumes we see how much an average subway store generates in revenue we see their bankruptcies we see the lawsuits and many other criteria and that's why it makes a lot of sense to call a broker when you're exploring franchises as we have all this information available and we can provide it to you now we also speak regularly with existing Subway franchise owners who are selling their locations and we often hear the inside reasons behind why they are selling now one of our partners here also at franchise city he was a multi-unit subway owner for a number of years before ultimately selling his stores so we're not strangers with subway so we're gonna start off with what I say when clients ask me Robert should I buy a subway franchise so the first question I ask them is why do you want to invest in a subway vast majority the time people suggest well it's busy when I go at lunchtime or they make pretty good sauce which may possibly be the worst reasons to drop a couple of hundred thousand an investment some say they're getting a deal on a resale location and I'd be very wary of those if you're inexperienced and another popular reason is because they are the most successful franchise they have more locations than anyone else but what kind of success is that really what that means is they have thousands of locations and what does that mean to you as an individual franchise owner is that you're going to have a competing Subway store in close proximity to your own shop is that a good thing not really then I'll ask if they have previous food service experience and most do not they have these visions of traveling the world on luxury cruises while they're subway franchisee back home earns millions of dollars on auto-pilot I hate to do it but allow me to pop that bubble if you want your subway store to do well you have to work in it it's a business like any other it's not a magical ticket to wealth and single locations actually don't make anywhere near as much money as you would expect in fact right on their website when asked how much money can you make with the Subway franchise subway suggests speaking with multi-unit owners to see how much you can earn with a subway location they don't want you speaking with single store owners because the numbers are quite unimpressive we're going to look at those specifically in a minute so we all know that good points about Subway very strong brand recognition established systems and processes decent subs in this video we're gonna look at the five reasons against subway the first reason is massive competition we spoke to this earlier if you live in a major city you've got a desire for a sub you're not going to drive very far before seeing another subway franchise it's convenient for you as a consumer but for franchisees it is not such a great deal when you combine the fact that your store is competing with many other Subway's with the very low margins that are seen on promotions like the $5 sub you have a recipe for working hard for a little payback now way under pressure from the franchisees finally allowed stores to make the decision on their own at the store level whether to sell $5 subs for the longest time franchisees were forced to participate in those promotions but ask yourself this if the store down the street is selling $5 subs and you do not where are your customers going to go number two is store closures and corporate decline now subway had about 357 store closures in 2016 first time they had closures ever 864 stores closed in 2017 for the past six years we've been cautioning subway investors and what appeared to be a potentially oversaturated and overheated market now despite all these red flags people still lining up to buy it because it's a big name and it's an interesting phenomenon you see this type of behavior and real estate speculation cryptocurrency and stock market investing right before the decline at the height of public popularity there's a massive influx of investors they throw their money at this supposedly incredible opportunity but the opportunity only looks incredible because everyone else is doing it typical herd mentality type of investing now once it hits bottom people learn their lesson the hard way and you can't blame investors in this case because they see all these franchises everywhere and they assume that that equates to a success when all it really means is intense competition number three is the low unit sale so in their FTD subway no longer even lists store revenues which is a bit of a red flag we'd like to see at least some guidance in terms of financials but if we visit the qsr are 50 and we sort the results by earnings the average unit volumes for Subway are the second lowest on the entire list for the 50 biggest qsr are restaurants an average subway will generate only four hundred and sixteen thousand dollars annually and to put that in perspective an average chick-fil-a generates ten times that amount over four million dollars per year now chick-fil-a is a complete the different model it's more of a manager model it's very difficult to be selected by them but that's a different story back in 2012 subway ATVs were 482,000 so we're seeing a decline in per unit revenues year-to-date almost $70,000 per store so stores just a few years later are earning almost seventy thousand dollars less than they did back in 2012 now they're down to this four hundred and sixteen thousand dark dollar mark now four hundred and sixteen thousand in revenue may sound like a lot of money to an inexperienced business owner but remember subway takes 12.5% right off the top then you were rent your employee salaries your insurance your ingredients your taxes all of this comes out of that number and don't forget if you have low margins to begin with that can be really troubling now we typically like to see 1 million minimum in a UVs for restaurants and there are franchises in that investment range that do that amount number four is disgruntled owners and we here at first hand from people who want to sell their franchise and if you do some googling it's not hard to find owners who are angry at Subway for many reasons including the low margins these overly aggressive aggressive expansion policies regional manager creating problems and much more now I found it a bit funny how the FDD speaks to the lawsuits involving subway and they say other than these hundred and thirteen actions and the 955 franchisor initiated actions no other litigation is required to be disclosed of course there are Subway franchise owners who are happy as well but most of those are the people who invested a long time ago often those who's getting early with an emergent brand are going to see the most success as always make sure you invest at the right side of the growth curve when it's going up not when it starts to come down and that brings us to our last point number five which is territory of the ability now the first investors in subway did very well subway was an emerging brand a growing brand there was lots of territory availability possibilities for area development and multi-unit ownership any territories that are remaining today are obviously leftovers from the past few decades all the great territories are mostly spoken for and this is one of the reasons that we like emerging brands you have a lot of expansion potential as well as the opportunity to start at the beginning of the growth curve and to ride that wave now of course there are many variables involved in making these decisions including your business goals your budget your local demographic your exit strategy market demand and a lot more now some subway locations as I say do very well but we feel the overall trend is now downward now if you're exploring franchises and you'd like to compare subway with others give the experts a call at franchise city you can learn more by clicking the link above there's no charge for our service please like and subscribe and hit that Bell for updates thanks very much for watching

29 thoughts on “5 Reasons to NOT Buy a Subway Franchise (2019)

  1. When looking to purchase a pre-existing business it should be treated as a red flag when the seller is trying to hype up how great the business is doing. I've never known someone that sold a successful business unless it was a situation where they were "bought out" by a competitor for a really great price or they were about to be sued and figured they will loose the business anyway. Sale reasons usually revolve around poor performance, but poor upkeep of the building/facility and/or crime can also be contributing factors. Do your homework before shelling out money!!

  2. Some newbie started a subway franchise in my tiny town (pop. 300) and it failed fast. I bet the grocery store closes too.

  3. Kind of like Lyft….market is oversaturated.
    Or you could buy several in close proximity to each other?

  4. https://www.eater.com/2019/6/28/19154221/subway-restaurant-owners-allege-franchise-agents-conflict-of-interest

  5. You also have to worry about regional managers stealing your location: https://www.nytimes.com/2019/06/28/business/subway-franchisees.html

  6. Ever do a video on Little Caesars pizzeria? I like the product and would like to hear about it. In Albany, NY there are only two in the area.

  7. I would name ONE reason NOT TO buy a SUBWAY for every SANDWICH on their menu. And I think it'll be more than 5. 😂

  8. How can anyone make money on a $5.00 sub after paying all of the royalties and other expenses ? Even if the customer buy other things it still doesn't make any sense.

  9. thank you very much for this video, very informative as usual. at 7:20 what are the other franchise stores you mentioned?

  10. This explains why I only get meager portions of toppings on my sub..a few shreds of lettuce, a few olive slices, 2 triangles of cheese for a foot long.. Gotta make up those margins somehow!

  11. My home town of Columbus Nebraska has a population of 20,000 people and they have 3 subway franchises it’s kinda ridiculous lol

  12. I love how he always tells people NOT to invest in franchises! 😂 I know he’s giving us the raw truth, reality and the downsides of it all but I mean c’mon! You gotta have some faith in them! I prefer investing long term in growth index funds, blue chip stocks, bonds and rental properties. I don’t invest in anything I don’t understand. I still don’t quite get franchises (which is why I’m hesitant to ever own one) but I do find these videos to be very informative, honest and entertaining.

  13. Chic fila uses the addictive msg laden food product backed by a strong social marketing campaign formula for its success.

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