Subway Kills The $5 Footlong — And Franchisees Stand To Gain

Food & Drink

“My thoughts on price-oriented promotions in the restaurant industry are that they are a double-edged sword. For most restaurant franchisees, the obligations placed upon them by their franchisors seems endless. However, the area that remained off limits for franchisors was “setting the price.” That is until the Subway franchise made the practice famous with the Five Dollar Footlong. It seemed anywhere I went the looming five-fingered hand announcing the fast food giant’s promotion was in my face.

As most of us have come to learn, very few companies sell products at the Manufacturers Suggested Retail Price (MSRP). Franchised restaurants are no different. Quick Service Restaurants (QSR’s) have always used price as a way to entice guests into their restaurants by creating a compelling reason to use them. Many franchise restaurant companies do expect their franchisees to participate in special promotions, but usually, there is an opt-out such as “at participating locations only.” Subway’s fast food prix fixe equates to what we in the QSR business refer to as an LTO’ (Limited Time Only) promotion, however in the case of Subway’s five dollar footlong the promotion seemed to go on forever until it was finally ended only to be reintroduced last year. Besides, the company’s relentless advertising campaign made it extremely difficult for some franchisees to avoid participation without disappointing their customers and running the risk of basically sending their customers to the Subway down the street offering the five dollar special.

Slicing Into Profits

Franchisees are challenged today to be profitable. Considering high rent, escalating food cost and increasing mandatory labor costs in addition to royalties and advertising fees; the five dollar footlong sliced into those profits. Higher volume may have meant higher royalties for the franchisor, but more work and labor cost for the franchisee may have amounted to more trouble than it’s worth.

According to USA TODAY , Trevor Haynes, the current CEO of the Milford, Connecticut, company, starting this month, the franchisees can decide for themselves if they want to offer the select subs for five dollars.

Haynes went on to add: “How do we help our franchises with more of a regional value message, so they’re able to (have) a value proposition that fits with their economic model,” Haynes said. “If you look at California, there’s a very different cost of business than in Arkansas.”

Customers will need to find other reasons

While all this may make sense to franchisees, on the customer side, it’s a different story. For many workers, students and other budget-conscious folks the value (and fun) of picking as many veggie toppings and sauces created sandwiches that were more than a single meal. Here in the NYC area, anything for five dollars is a bargain. I believe the loyal Subway guest will miss the five dollar promotion but will continue to see the value in Subway given it’s “made fresh” branding message and convenience of locations.

Staying On Top

Lisa Oak, Founder of Oak Advisory Service, LLC who worked directly with Fred DeLuca, Cofounder and CEO of SUBWAY Restaurants for twenty-nine years, said: “Subway’s $5-foot-long campaign was unique, ingenious, and groundbreaking!

Several years ago, it caused a remarkable sales boost which has since run its course. Now I am sure the company leadership and Subway franchisees are ready to launch new cutting-edge initiatives to address the company’s current needs.”

As Subway continues to roll down the tracks without its iconic leader Fred DeLuca, I’m sure we’ll see more adjustments to the brand that has become the largest fast-food chain on the planet.

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