Going off track: Subway franchisees decry deep discounts as hospital-bound CEO struggles to right course
Subway founder Fred DeLuca is trying to revitalize his brand with $4 lunches and $5 footlongs — but some franchisees have no appetite for them.
This summer wasn’t the best time for Subway sandwich shops — the world’s largest restaurant chain — to stumble.
Founder and owner Fred DeLuca — the driving force and vision behind the Milford, Conn., chain’s growth into a 40,000-unit chain — is in a Connecticut hospital getting treatment for leukemia and, he has told associates, is awaiting a bone marrow transplant.
Still, the 65-year-old billionaire businessman is directing the chain’s operations from a hospital bed.
The hands-on owner is still in daily contact with regional managers trying to find new ways to reverse the sales decline, a Subway development agent told The Post
AFP/Getty Images
Subway founder Fred DeLuca is trying to revitalize his brand with $4 lunches and $5 footlongs — but some franchisees have no appetite for them.
Same-store sales at the closely held company dipped 2 percent last month and are down over the last several months — the first declines in recent memory, sources close to the company tell The Post.
Faced with the business setback, DeLuca is not letting his hospital stay stop him from continuing a recent discount marketing blitz aimed at igniting revenue growth, the sources said.
DeLuca in June launched a $4 lunch special — a six-inch sub, beverage and chips — and plans the re-introduction next month of its popular $5 footlong campaign.
But the plans are not going down well with many of its franchisees.
At that price, franchisees complain, they just barely cover their costs.
DeLuca, sources said, feels these multiple promotions are necessary to reverse the recent declines at the 48-year-old chain.
John Gordon, who runs the Pacific Management Consulting Group, said Subway’s 2 percent same-store sales decline came as McDonald’s and Wendy’s saw slight increases.
For the moment, Brooklyn-born DeLuca is ignoring the pushback from the franchisees.
“There are not any subway owners who like it,” a franchisee who owns thee stores told The Post. “Everybody is pissed off.”
Margins at a typical store, where revenues are about $400,000 a year, are now between 8 percent and 10 percent, the franchisee said.
That is because of the price cuts.
Just a few years ago, margins were 12 percent, the franchisee said.
In mid-July, as whispers started to circulate around the fast-food chain about the founder’s health, Subway announced that DeLuca, who started the chain in 1965 to earn money for college, was battling leukemia.
DeLuca’s condition hasn’t slowed expansion yet — subway has opened nearly 1,800 locations this year.
In February, DeLuca said he hoped to reached 50,000 stores in four years.
Rival McDonald’s is the No. 2 fast food chain with about 35,000 locations.
“He’s working every day from his bed,” said the development agent, who participated a few days ago in a conference call with his boss.
“He tells us he fully expects to be back at work in a year.”
DeLuca, married with one son, has no successor and a very small corporate structure. His founding partner, Peter Buck, is involved in the day-to-day running of the business.
DeLuca who splits his time between homes in Fort Lauderdale, Fla., and Milford, is one of the most low-key billionaires in the business world.
He is known for not wearing suits, and driving old cars.
For example, several years ago he drove from Florida to Subway’s Milford headquarters, making surprise trips at Subways along the way.
Without a clear succession plan, if DeLuca were forced to step aside from running the chain, it is likely it would be sold, sources said.
The privately held chain does not report results and profits, and total revenue could not be learned.
Gordon of Pacific Management said the chain generates about $400 million in earnings before interest and taxes.
Subway did not return calls.
jkosman@nypost.com
Subway founder Fred DeLuca is trying to revitalize his brand with $4 lunches and $5 footlongs — but some franchisees have no appetite for them.
This summer wasn’t the best time for Subway sandwich shops — the world’s largest restaurant chain — to stumble.
Founder and owner Fred DeLuca — the driving force and vision behind the Milford, Conn., chain’s growth into a 40,000-unit chain — is in a Connecticut hospital getting treatment for leukemia and, he has told associates, is awaiting a bone marrow transplant.
Still, the 65-year-old billionaire businessman is directing the chain’s operations from a hospital bed.
The hands-on owner is still in daily contact with regional managers trying to find new ways to reverse the sales decline, a Subway development agent told The Post
AFP/Getty Images
Subway founder Fred DeLuca is trying to revitalize his brand with $4 lunches and $5 footlongs — but some franchisees have no appetite for them.
Same-store sales at the closely held company dipped 2 percent last month and are down over the last several months — the first declines in recent memory, sources close to the company tell The Post.
Faced with the business setback, DeLuca is not letting his hospital stay stop him from continuing a recent discount marketing blitz aimed at igniting revenue growth, the sources said.
DeLuca in June launched a $4 lunch special — a six-inch sub, beverage and chips — and plans the re-introduction next month of its popular $5 footlong campaign.
But the plans are not going down well with many of its franchisees.
At that price, franchisees complain, they just barely cover their costs.
DeLuca, sources said, feels these multiple promotions are necessary to reverse the recent declines at the 48-year-old chain.
John Gordon, who runs the Pacific Management Consulting Group, said Subway’s 2 percent same-store sales decline came as McDonald’s and Wendy’s saw slight increases.
For the moment, Brooklyn-born DeLuca is ignoring the pushback from the franchisees.
“There are not any subway owners who like it,” a franchisee who owns thee stores told The Post. “Everybody is pissed off.”
Margins at a typical store, where revenues are about $400,000 a year, are now between 8 percent and 10 percent, the franchisee said.
That is because of the price cuts.
Just a few years ago, margins were 12 percent, the franchisee said.
In mid-July, as whispers started to circulate around the fast-food chain about the founder’s health, Subway announced that DeLuca, who started the chain in 1965 to earn money for college, was battling leukemia.
DeLuca’s condition hasn’t slowed expansion yet — subway has opened nearly 1,800 locations this year.
In February, DeLuca said he hoped to reached 50,000 stores in four years.
Rival McDonald’s is the No. 2 fast food chain with about 35,000 locations.
“He’s working every day from his bed,” said the development agent, who participated a few days ago in a conference call with his boss.
“He tells us he fully expects to be back at work in a year.”
DeLuca, married with one son, has no successor and a very small corporate structure. His founding partner, Peter Buck, is involved in the day-to-day running of the business.
DeLuca who splits his time between homes in Fort Lauderdale, Fla., and Milford, is one of the most low-key billionaires in the business world.
He is known for not wearing suits, and driving old cars.
For example, several years ago he drove from Florida to Subway’s Milford headquarters, making surprise trips at Subways along the way.
Without a clear succession plan, if DeLuca were forced to step aside from running the chain, it is likely it would be sold, sources said.
The privately held chain does not report results and profits, and total revenue could not be learned.
Gordon of Pacific Management said the chain generates about $400 million in earnings before interest and taxes.
Subway did not return calls.
jkosman@nypost.com
