Subway: The Cautionary Case Study for the Franchise Industry

Investment Strategy & Analysis, Personal Finance and Frugality

Since 2012, the franchise industry has grown by 17 percent or $552 billion, showing the potential to earn back 15 percent on return on investment (ROI). However, the recent troubles of Subway serve as a case study to examine if franchise ownership is worth the risk.

Considerations in Franchising

To even consider a franchise, people need to have approximately $50,000 to one million in cash. Then, people need to consider if they want to actively run the franchise or employ others to manage the day-to-day operations. Furthermore, investors usually need at least three locations to see a profit.

The perception of healthy eating in the fast-casual market also continues to change. While Subway used to be at the forefront, the chain has not been able to adapt to that perception. Then when negative publicity hits, like the scandal with its former spokesperson, Jared Fogel, and the Canadian TV news reporting that the majority of its chicken is not made from that, the perception continues to magnify.

However, potential franchisees may take away three key points of the issues that have plagued Subway:

Research – For any option to become successful, people will need to research the industry before deciding what to invest in. In addition to profitability, people need to carefully study the demographics in a neighborhood to see if a need exists.
Believe in the Brand – Even if you find a successful option, you need to make sure you have a passion for the brand. For some, a company like Chick-fil-A inspires with its stories of giving Sundays off to employees and its willingness to serve meals to those customers in need. That brand was able to offset the negative news related to discrimination by focusing on stories that target emotion. It also offers a reasonable franchise fee. However, if you do not support the brand or the food it serves, you are unlikely to succeed.
Avoid Fads – Too much growth will lead to a duplication of efforts and locations that cannibalize each other. Furthermore, trends change, which Subway has shown it cannot adapt to. People are willing to spend more for something they believe in, but the product needs to provide something better.

The franchise world represents a future money trend for those who want the independence of running their own business. However, without the proper resources, brand passion and ability to forecast trends, one negative remark in the press has the potential to threaten success.