Subway Keeps Shutting Restaurants: It Closed 3 a Day in 2018

Since Subway co-founder Fred DeLuca died in 2015, the largest (by number of stores) fast-food chain in the United States has been shedding stores. According to a report Thursday in the New York Post, the privately held company lost 1,108 U.S. stores last year, bringing its store count down to 24,798.

Unlike other fast-food operators, Subway is a 100% franchise operation and has been since 1974. Potential franchisees are required to pay an initial fee of $15,000 and start-up costs ranging from $89,550 to $328,700. The franchise term is 20 years, and franchisees do not get exclusive territories.

By comparison, McDonald’s charges franchisees an initial fee of $45,000, and start-up costs can run as high as $2.2 million. McDonald’s had 13,194 franchised locations in 2017 and systemwide sales of about $37.5 billion. While McDonald’s is one of the world’s most valuable brands, some wonder if the company is overvalued compared to its peers.

The other big difference between Subway and McDonald’s is average U.S. sales per store. A Subway store averaged about $417,000 in sales in 2017, according to QSR Magazine. A McDonald’s store averaged $2.67 million.

Based on systemwide U.S. sales, Starbucks is the second-largest fast-food chain in the country, with total 2017 sales of about $13.2 billion. Subway is third with $10.8 billion in total sales.

Even with the closing of 1,108 stores, Subway still has more U.S. store locations than any other chain. McDonald’s store count in 2017 was 14,306, with 13,194 franchised locations. Starbucks had 13,930 stores in 2017, of which 5,708 were franchised.

Of the top 25 chains, Subway’s average sales per store are the lowest, well behind second-lowest Dunkin’ Donuts, which posted an average of $733,000 per store at its 12,538 stores, all of which are franchised.

In 2015, Subway franchisees opened 145 new stores, bringing the total store count to 27,103. Franchisees closed 359 stores in 2016 and 866 in 2017, according to QSR Magazine data. In the past three years, franchisees have closed 2,333 stores. In the previous six years, nearly 4,500 stores were added.

Last June, the company’s chief executive, co-founder DeLuca’s sister Suzanne Greco, retired and the company has still not hired a full-time replacement, although Chief Development Officer Trevor Haynes has served as the interim CEO.

To turn around declining sales, lower traffic and rebellious franchisees the company unveiled a plan to remodel some stores and close others. Before she retired, Greco said store counts would continue to decline through 2020.

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