Subway War With Franchises Heats Up

Subway’s management believes that among the best ways to revive flagging sales is to cut prices. This, in turn, will hurt the finances of its franchise owners. The tension between the corporation and these outlet owners has worsened again.

According to The New York Post, the Subway price cuts will occur early in 2020. They almost certainly will trigger lower margins for franchise owners, if not losses. An example of one price cut is the deep cleaving of the six-inch “Oven Roasted Chicken,” which will drop from $4.25 to a gut-churning price of $2.99.

Subway closed 1,108 stores in 2018, the last year for which solid data is available. Most experts believe it overexpanded. Others believe it came under more pressure from McDonald’s and other large fast-food chains. Either way, franchise owners in many locations face bleak futures. Subway could be among retailers closing the most stores this year.

The plan is part of the turnaround strategy of new CEO John Chidsey. He faces tension over lease requirements the company has imposed on franchise owners. The tension has heated up enough that there has been at least one lawsuit between the two sides. It is hard to imagine a worse situation than a battle between a company and those who sell its products. Subway has no stores. All of its sales come via franchises.

Chidsey is about to break one of the cardinal rules of business. It is very hard to cut costs deeply and make up the loss of margins via higher revenue.