(Bloomberg) -- After winning the competition for Subway, Roark Capital Group gets a company that has made recent strides in turning its business around. But it’s inheriting a stubborn problem: the sandwich chain’s massive US footprint.
Subway’s restaurant count currently stands at nearly 37,000 worldwide, with around 20,000 in the US. That’s even after the company aggressively pared back in recent years amid fierce competition and locations in close proximity to each other that cannibalized sales and squeezed franchisees. Management shuttered more than 6,500 US locations between 2015 and 2022, according to food-service research firm Technomic. But per-store sales still trail rivals’, the data show.
“Subway still has over 7,000 more domestic locations than McDonalds,” said Kevin Schimpf, director of industry research and insights at Technomic. “I’d expect them to keep chiseling away at their store network until they can boost their average unit volumes to a level that is more attractive to stakeholders.”
Alicia Miller, co-founder of consulting firm Catalyst Insight Group, said that Subway still has room to grow abroad but has too many domestic locations. Subway plans to open an additional 23,000 restaurants globally in the next few years, according to a statement, although most of that growth will be outside the US.
A Subway spokeswoman told Bloomberg News that management will remain the same under the new owners. The company on Aug. 16 announced some changes to senior positions, including a new head of North America.
Subway, which doesn’t operate the restaurants itself, spent decades saturating the US with sandwich shops, in part by making it relatively easy for franchisees to buy in. This sparked rapid expansion, but also attracted smaller owners with limited capital.
The company experienced revenue growth for some time, but then the cannibalization began. And while longstanding deals like the $5 footlong subs brought customers in the door, they eventually weren’t profitable for operators. Increased competition and negative press also took a toll.
Chief Executive Officer John Chidsey, who took over in 2019, has helped to turn things around. Under his leadership, Subway revamped its menu, added nationwide delivery and started slicing its own cold cuts. It tapped athletes including Steph Curry to lead an ad campaign. That’s sparked sales growth in recent quarters — although revenue remains below where it was a decade ago, according to Technomic data.
Lately, the company has been focused on attracting larger operators with more resources. These well-capitalized franchisees have an easier time investing to modernize store designs and installing new technology. Subway signed five such agreements in April.
But Subway has yet to attract the most salient industry players, according to Catalysts’ Miller, a sign the turnaround isn’t quite done. This means the company will likely have to continue closing underperforming locations as it seeks to clinch new deals with wealthier franchisees.
Subway’s restaurant count currently stands at nearly 37,000 worldwide, with around 20,000 in the US. That’s even after the company aggressively pared back in recent years amid fierce competition and locations in close proximity to each other that cannibalized sales and squeezed franchisees. Management shuttered more than 6,500 US locations between 2015 and 2022, according to food-service research firm Technomic. But per-store sales still trail rivals’, the data show.
“Subway still has over 7,000 more domestic locations than McDonalds,” said Kevin Schimpf, director of industry research and insights at Technomic. “I’d expect them to keep chiseling away at their store network until they can boost their average unit volumes to a level that is more attractive to stakeholders.”
Alicia Miller, co-founder of consulting firm Catalyst Insight Group, said that Subway still has room to grow abroad but has too many domestic locations. Subway plans to open an additional 23,000 restaurants globally in the next few years, according to a statement, although most of that growth will be outside the US.
A Subway spokeswoman told Bloomberg News that management will remain the same under the new owners. The company on Aug. 16 announced some changes to senior positions, including a new head of North America.
Subway, which doesn’t operate the restaurants itself, spent decades saturating the US with sandwich shops, in part by making it relatively easy for franchisees to buy in. This sparked rapid expansion, but also attracted smaller owners with limited capital.
The company experienced revenue growth for some time, but then the cannibalization began. And while longstanding deals like the $5 footlong subs brought customers in the door, they eventually weren’t profitable for operators. Increased competition and negative press also took a toll.
Chief Executive Officer John Chidsey, who took over in 2019, has helped to turn things around. Under his leadership, Subway revamped its menu, added nationwide delivery and started slicing its own cold cuts. It tapped athletes including Steph Curry to lead an ad campaign. That’s sparked sales growth in recent quarters — although revenue remains below where it was a decade ago, according to Technomic data.
Lately, the company has been focused on attracting larger operators with more resources. These well-capitalized franchisees have an easier time investing to modernize store designs and installing new technology. Subway signed five such agreements in April.
But Subway has yet to attract the most salient industry players, according to Catalysts’ Miller, a sign the turnaround isn’t quite done. This means the company will likely have to continue closing underperforming locations as it seeks to clinch new deals with wealthier franchisees.
