Subway's Latest Deal Great For Customers, Potentially Disastrous For Franchise Owners

Two years ago, Subway discontinued its $5 footlong promotion after years of complaints from its franchisees, who claimed that the low profit margins on the sandwiches was causing their stores to hemorrhage money, forcing many to close their doors for good. (In the past two years, more than 1,100 Subway locations have gone out of business.) And now, once again, Subway's corporate overlords have planned a promotion that, while great for customers, will be disastrous for store owners.

Starting on March 5th, Subways will begin offering a buy one, get one free deal on all footlong sandwiches for customers who order online or use the company's mobile app. Currently, online and mobile business makes up only 1.4% of the company's sales, a number Subway's hoping to increase to 5%. The problem, the New York Post reports, is that the cost of these free sandwiches will be covered not by the company, but by their franchisees.

"Is there going to be any compensation from Subway to the franchisees for the loss they are going to incur with this promotion—after all the franchisee is giving a footlong free for every footlong?" Nayanika Barker, chair of the National Association of Subway Franchisees, asked on the association's website.

"No, similar to other offers, there is no additional compensation," Subway responded.

In November, Subway tapped former Burger King CEO John Chidsey to turn the company's fortunes around. Chidsey became infamous after forcing a $1 double cheeseburger promotion on Burger King franchisees, which sold the item at a loss. Franchisees voted to reject the promotion twice; Chidsey overrode their decision. This led to a lawsuit that was settled after Burger King was purchased by private equity group 3G capital in 2010.