September 3, 2013
By Bob Coleman
Editor, Coleman Report
1) Subway is buying market share at the expense of its bottom line with their $4 and $5 meal promotions that simply break-even.
2) The franchisor is pushing the promotion against the wishes of the franchisees. “Everyone is pissed off.” Poor relations between the franchisor and franchisee will result in decrease franchise values as future buyers will not want to wade into this mess.
3) There is no succession plan for the franchisor founder. The New York Post speculates the privately held company would probably be sold if the 65 year-old founder, currently undergoing treatment in a hospital for leukemia, can no longer run the company.
4) Finally the red flag of huge expansion plans. Subway plans to grow from 40,000 to 50,000 stores in four years. (McDonalds is second to subway with 35,000 stores.) Aggressive expansion could harm existing stores, furthering exacerbating tensions between franchisor and the franchisees.
Small business loan underwriters must evaluate if a franchisor is only interested in generating fees from the franchise, or committed to franchisee success. Subway franchise underwriting may no longer be the slam dunk it once was.