🍟 3/19/2024 – Subway’s Second Act

1.Chick-fil-A to Open 1st Mobile Pickup Restaurant On March 21st

Chick-fil-A’s first mobile pickup restaurant will open March 21 on New York City’s Upper East Side. It’s one of two experimental concepts the fast-food brand announced in 2023 and plans to open this year. 

Roughly ~45% of orders are done digitally, and it may reach up to 60-70% over the next few years (according to foodindustry.com).

ALSO – while we’re talking about Chick-Fil-A….it’s no secret that their revenue per store is monstrous. 

The average freestanding CFA does $8.2 million in annual revenue. To put that into perspective, here’s how many units of other concepts you’d need to own to hit that mark:

In order to achieve the sales of a single Chick-Fil-A restaurant, you would need to own:

• 4.2x Wendy’s
• 4.5x Popeyes
• 6.3x Domino’s
• 2.9x Chipotles
• 5.1x Taco Bells
• 2.2x McDonald’s
• 5.5x Burger Kings

Absolutely insane!

2. Subway’s 2nd Act

Acquired by PE firm Roark Capital this past August, Subway is gearing up for its 2nd act.

Once the biggest restaurant in the world by store count, franchisees have paid the price in recent years for massive over expansion.

Here’s how Subway stacks up:

Revenue per store –

🥪 Subway: ~$450k
🥪 Jimmy John’s: ~$905k
🥪 Jersey Mike’s: ~$1.2M
🥪 Firehouse Subs: ~$900k

Royalties + marketing fees (as a percentage of top line revenue) –

🥪 Subway: 12.5%
🥪 Jimmy John’s: 10.5%
🥪 Jersey Mike’s: 11.5%
🥪 Firehouse Subs: 11%

The combination has meant single store operators have been reduced to taking home just $40k-$50k a year at best.

It’s not surprising Subway had 6 years of negative store growth from 2016-2022, including closing ~4,400 shops in the latter half of that span.

The poor economics over the last decade have been in conjunction with PR disasters such as:

🥪 Subway tuna accused of not being tuna
🥪 Subway bread accused of not being…bread?
🥪 Brand ambassador Jared Fogle being convicted on child porn charges

Given the above, it’s no surprise Subway franchisees have wanted out of the system. 

This has earned the brand the unenviable position of being the most litigated franchisor in the country.

All this to say…Roark Capital has their work cut out for them! 

The work has already begun to infuse new life into the brand, and franchisees.

Subway is pushing for big franchisees to join the system, and existing multi-unit owners to buy out smaller operators.

Consolidating store ownership to those with deeper pockets and better operating chops is a win for those franchisees and the franchisor.

On the consumer front, franchisees are remodeling their shops with modern decor, as well as giving the menu a major facelift –

Subway now offers “freshly sliced” meats, and menu items such as “Subway Sidekicks” – including a footlong Cinnabon churro, and footlong Auntie Anne’s pretzel.

The Sidekicks offering show how Roark Capital is already integrating other brands they own to begin boosting their investment in Subway.

Beyond Subway, Auntie Anne’s, and Cinnabon, Roark Capital also owns giants like Sonic, Dunkin, Jimmy John’s, and Arby’s.

Time will tell if Subway can enter a new (positive) era, but if anyone can turn things around…it’s Roark Capital.

3. McDonald’s Throwback

Shamrock shake season officially came to a close on Sunday. 

Every year, I remember this classic marketing stunt by McDonald’s in 2010, with a  “spilled shamrock shake” by the Chicago River in 2010.

This one is a hall of fame effort from the golden arches.
Anyone else think that anything mint chip flavored tastes like toothpaste? Is it just me or…?

Texas Judge Blocks Joint Employer Rule
A federal judge struck down the National Labor Relations Board’s new joint employer rule, halting the standard before it could take effect Monday, March 11. Why does this matter? 

Because if this rule had been implemented, a franchisor would have shared the liability for labor law violations with franchisees, and would have a legal obligation to be involved with labor union negotiations. Thankfully they came to their senses and realized franchisees are their own business owners!

Franchise Launches With…Zero Locations!
An example of what NOT to do as a franchisor. Launching a brand that has ZERO units means you are looking for a cash grab, and aren’t providing individuals with any form of a proven playbook to run the business.

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