Subway Shifts From Speed to Quality, Seeking Franchisees With Multi-Unit Capabilities

This is an English adaptation of a FoodBud historical article originally published on May 31, 2022.

Subway is pursuing a strategic shift it had wanted to make for years: moving away from a model centered on rapid unit expansion and toward one focused on stronger store experience, portfolio quality, and remodels.

Steve Rafferty, Subway's senior vice president, said the brand was built with a rapid-expansion mindset, which helped make it one of the world's largest quick-service restaurant chains. The new strategy, he said, puts store quality ahead of store count and aims to place franchise rights with more mature operators that can run multiple locations and deliver a more consistent consumer experience.

U.S. Store Base: Fewer Units, Higher Quality

Subway has been reducing its U.S. store count over the past several years. In 2021, the brand had 21,147 U.S. stores, a net decrease of 3,650 versus 2019. Even after that reduction, Subway remained the largest restaurant chain in the U.S. by number of locations, ahead of Starbucks and McDonald's.

To improve the quality of store growth, Subway is working with franchisees and using data-driven methods to ensure locations better match specific market needs.

The company is also continuing to remodel stores under its "Fresh Forward" design program, including updated visual identity and store decor. Future layout improvements are expected to include dedicated pickup areas for digital orders. As of the article date, nearly 9,000 Subway locations had committed to store remodel plans.

Consolidating Toward Stronger Franchise Operators

To accelerate the upgrade of its franchised-store image, Subway was actively seeking to acquire stores from owners interested in selling.

Rafferty said Subway's franchisee base had historically been made up largely of individual owner-operators, often first-time entrepreneurs or operators in the early stages of their careers. That group had been an important part of Subway's growth strategy. But to keep the brand competitive in the coming years, Subway was expanding the share of franchisees with stronger multi-unit operating capabilities, professional management, and deeper capital resources.

Sales Momentum After Menu Update

The strategy followed Subway's largest menu update, launched in July 2021.

As a result of the strategic adjustment, Subway's 2021 U.S. sales were estimated to approach $1.4 billion, while average annual sales per store were expected to reach their highest level since 2014.

About three-quarters of Subway's U.S. stores, nearly 15,000 locations, reported 2021 same-store sales growth of 7.5% versus 2019. In the first quarter of 2022, those same stores grew same-store sales by 8.2% versus 2019.

International Expansion Continues

Outside the U.S., Subway was accelerating expansion. Over the prior 10 months, the company had signed eight master franchise agreements across Asia Pacific, the Middle East, Africa, Latin America, and the Caribbean, covering nearly 5,000 stores.

In October 2021, Subway signed a new master franchise agreement with Malaysia-based Pegacorn Sdn Bhd to support expansion in Indonesia and Thailand. Since 2019, Pegacorn Sdn Bhd had also committed to opening 500 new Subway stores in Malaysia over the following 10 years.

In November 2021, Subway focused on expansion in South Asia, including India, Sri Lanka, and Bangladesh, and signed its largest-ever master franchise agreement with private equity firm Everstone Group. Everstone Group committed to opening more than 2,000 Subway stores in India and other South Asian markets over the next 10 years.

Subway was also seeking highly capable and professional partners in Asia Pacific, with the goal of increasing its regional store base from more than 3,000 locations to more than 6,000 over the following five years. At the time, Subway had 661 stores in China.

Note: forward-looking expansion targets, sales estimates, and capital-related references are historical figures from the 2022 source article.