Subway CEO Tells Franchisees To Remodel Or Get Out

If you're a Subway franchisee then you better get with the times or find yourself a new business to run. Restaurant Business reports that Subway CEO John Chidsey recently told franchisees at a company conference that they should remodel their restaurants or part ways with the company entirely.

Several franchise operators who attended the convention told Restaurant Business that Chidsey even advised franchise owners who had already remodeled their stores to put pressure on their peers to do the same. Chidsey noted to these franchisees that outdated restaurants hurt the brand as a whole.

Some franchisees defended the CEO's comments, noting that Subway simply wants operators to see the benefits that come with a modernized location. Subway is currently trying to get more franchisees to invest in the brand, but this has proven difficult, as the company has put new mandates in place that shrink franchisees' potential profits.

Regardless of the pushback from some operators, Subway sees remodels as the way forward.

"You can't continue in this restaurant world and have stores look like they're 20 years old," Bill Mathis, chairman of the North American Association of Subway Franchisees (NAASF), said on a recent podcast with Restaurant Business. "People will stop coming."

Subway's leadership informed franchisees that around 10,000 of its U.S locations have already undergone renovations. Subway believes that inconsistency among how its various restaurants look could drive away customers and impede overall growth for the business.

Subway has had a tumultuous relationship with its franchisees for years now, often imposing certain mandates that franchisees contest. Most recently, Subway installed new on-site meat slicers in all of its restaurants in an effort to improve the quality of what is served to customers. Unfortunately, many restaurant operators are not fans of the new machines, claiming they only create more work for employees and increase food waste.

Prior to that, Subway mandated that all locations must honor all coupons and $5 footlong deals even if honoring those deals loses the restaurant money. The chain's franchisees had long rebelled against the Subway's famous $5 footlong deal because its slim profit margins hurt the individual locations and franchisees more than the company as whole.

In 2021, Subway added a clause into all of its new 20-year franchise contracts stipulating that all locations opened under these agreements must stay open year round or risk being taken over by corporate. The language of the contracts make it so that, barring strictly defined Acts of God or permission given by corporate, these Subway locations must remain open every single day, no matter the conditions.

Although some franchisees do agree that remodels are necessary to improve business, Chidsey's ultimatum and the sheer cost of the remodel could prevent many operators from moving forward. Restaurant Business reports a remodel can cost anywhere between $60,000 to $80,000 or even more, and it disrupts regular business, digging into profits further.

As Restaurant Business notes, Subway has shrunk by about 7,000 locations in the past 10 years.