Subway struggles to get big new franchisees to buy its U.S. sandwich shops

NEW YORK — Subway is seeking big new franchisees in the United States in a push to revamp its ownership model, but low restaurant profits and outdated stores are making it a tough sell for the global sandwich chain.

Several multi-unit operators — the more sophisticated, financially sound franchisees that Subway desires — examined the possibility of entering the chain’s system by buying swaths of restaurants but walked away after seeing how little money they made, according to two of their advisers.

Lawyer Justin Klein and consultant John Gordon said their clients were deterred by low margins and the prospect of making necessary renovations.

Subway, which has closed thousands of U.S. locations since 2016, said a year ago that it wants to shift away from its current base of small franchisees that own just one or two shops, which tend to be family-run and sometimes barely scrape by.

In April, the company hosted its first-ever meeting day for multi-unit owners, bringing to Miami more than 15 such franchisees who were actively evaluating ways to grow.

That month, it announced five new agreements with multi-unit operators to condense and transfer more than 230 existing restaurants.

Only two of those agreements involved new owners buying in to the chain for the first time.

“There is strong interest in growth opportunities with Subway from multi-unit operators,” Subway said in a statement to Reuters for this story. “All five multiunit owner agreements were significant investments that demonstrate the confidence that both existing and new operators have in our brand and future.”

Even so, some large operators are concerned about Subway’s

store-level margins, said one source with knowledge of the chain’s unit economics and the criteria used by big multi-unit franchisees looking to expand, who did not want to speak on the record because the information is confidential.

Subway has not revealed the average annual sales volume for its U.S. restaurants, but industry experts and insiders put the figure at less than US$500,000, which would make it one of the lowest in the industry.