With more than 42,000 restaurants
in over 100 countries, Subway has the most locations
of any fast-food chain on the planet.
And at first, that sounds like a sign
of a thriving sub giant.
However, Subway is anything but.
Subway's closed thousands of stores
in the last three years
and saw a 25% fall in business from 2012 to 2017.
So what happened?
The chain began as Pete's Super Submarines
in Bridgeport, Connecticut, in 1965.
Three years later, cofounders Fred DeLuca
and Peter Buck rebranded it to simply Subway.
Announcer: Subway's famous giant foot-long sandwiches
are made right before your eyes, the way you want 'em.
Len Van Popering: What was so compelling then
and still is today about Subway
is really an open-kitchen format.
In many ways, they really pioneered that
and the ability to customize your sandwich.
Narrator: The brand redefined fast food
with fresh ingredients that customers could see.
Compared to other fast-food chains at the time,
it felt healthy.
And it worked.
By 1981, there were 200 locations across the US,
and soon after, Subway went international.
Joel Libava: In the late '70s,
and in the '80s, and in the '90s,
everyone knew about Subway.
I mean, they were everywhere.
They're still everywhere.
Narrator: That's Joel Libava, an expert in franchising.
While each store looks and smells the same,
they're all independently owned franchises.
Libava: The format is pretty simple.
You buy a franchise, you get trained,
they help you secure a location.
They help with a grand opening,
and you're open.
You're open for business.
Follow the several-hundred-page operating manual,
do the advertising,
and customers will come in.
Narrator: Not only were Subway franchises successful,
they were, and still are,
one of the cheapest chains to franchise.
It costs between $116,000 and $263,000
to open a Subway franchise.
Compare that to opening a McDonald's,
which costs up to $2.2 million.
Because Subways were easy to open,
the number of stores skyrocketed.
Between 1990 and 1998,
store locations rose from 5,000 to 13,200.
And in that same period of time,
gross sales rose by about $2.1 billion.
Subway's success continued into the early 2000s.
At a time when obesity was rising rapidly in America,
Subway continued to market itself
as a healthy alternative to fast food.
Kate Taylor: One of their biggest successes
for sure was the Jared Fogle story.
Everyone remembers those ads,
where it's him in those huge pants
where he's showing how he lost all of this weight.
And that just made them so much money,
and it really made people think
about Subway as a really great health brand.
It was one of the biggest advertising wins
that any chain's had in recent decades.
So that was a huge, huge part of their brand.
Narrator: Subway carried Fogle's success story
for nearly a decade.
But by 2008, the world was suffering
from the effects of the Great Recession.
And for many Americans,
hunting for deals replaced the obsession with weight loss.
So Subway changed up its message.
In March 2008, it introduced a new promotion
that would come to define the chain.
♪ Five ♪
♪ Five dollar ♪
♪ Five dollar footlongs ♪
Narrator: By August 2009,
as other restaurant chains were struggling
through the Recession, the $5 footlong had pulled in
$3.8 billion in sales for Subway,
a 17% jump in US sales from the year before.
But even the best deals run their course.
♪ Five dollar ♪
♪ Five dollar footlong ♪
Narrator: Starting in 2014,
Subway's sales began steadily dropping.
Behind the scenes, many of the reasons
for Subway's success had turned on them.
Quiznos was once Subway's main competition,
but tons of sub chains, like Jimmy John's,
Firehouse, Potbelly, and Jersey Mike's,
and fast-casual chains like Panera,
were offering seemingly fresher and healthier options.
And they started stealing market share.
Taylor: They were competing against people who bring in
fresh produce every day.
A lot of Subway locations
only bring in fresh produce once or twice a week.
Narrator: On top of that, fast-food chains
that had been around as long as Subway
were coming up with healthy alternatives of their own
and getting creative with new menus.
Taylor: More and more fast-food chains really want
to have that innovation pipeline
where they're bringing something out new almost every month.
Fast-food places are looking for ways
to bring in new customers, drive traffic,
and Subway has not tried to do that
in the same way other places have.
Narrator: But other fast-food chains
weren't the only competition for Subway franchises.
With Subway's franchising model making it so easy
to open locations, stores inevitably started opening up
around the corner from each other in lucrative markets.
Take downtown Manhattan, for example.
Within a 15-minute walk in less than half a square mile,
there are 10 Subway locations.
And these locations in close proximity
began cannibalizing each others' sales.
Libava: The Subway franchise agreement, the contract,
it says they can open anywhere.
There is no protected territory.
So franchisees really have no say-so
in where the other franchisees are going to open.
It's a problem.
Narrator: And Subway corporate wasn't stopping it,
because the company benefited
from a high number of locations.
More locations meant more franchising fees
and high royalties to Subway corporate,
which diminished the effect
of falling sales from a single location.
Taylor: When franchisees' sales are kind of slipping,
as long as they're staying open,
it doesn't necessarily hurt Subway
as much as it would some other chains.
If everyone's kind of, like, chugging along, like,
opening new locations, then they can kind of
keep on keeping on, and it's not gonna be
the end of the world for the corporate office.
Narrator: Franchise owners, on the other hand,
took the hit.
In 2012, each Subway franchise generated
an average of $482,000 a year.
Four years later, that number had slipped
to $422,000 a year.
For comparison, the average annual revenue
of a McDonald's franchise in 2016
was $2.6 million.
And to make matters worse,
Subway would lose the face of its company.
In 2015, the man
who had embodied Subway's "eat fresh" mission was charged
with possession of child pornography
and having sex with minors.
Subway cut ties with Fogle,
and he was sentenced to 15 1/2 years in federal prison.
Taylor: And the Jared Fogle thing kind of basically went
from a huge positive to huge liability.
Like, the worst things possible
that your brand could be associated with.
Narrator: All of these things
created the perfect storm for Subway.
And soon, locations started to close.
In 2016, Subway closed 359 stores in the US.
It was the first year the chain closed more locations
than it opened.
In 2017, that number was over 800,
and by the end of 2018, over 1,000 locations had closed.
With all these sour ingredients,
it's hard to imagine Subway could bounce back.
But the chain is certainly trying.
In 2017, Subway launched its Fresh Forward program,
starting with remodeled stores.
The revamped locations featured new menu boards,
WiFi, USB ports, updated furniture, and music.
Libava: I will give Subway credit.
They're doing something interesting.
They are offering grants where,
if a franchisee applies and everything's in line,
they can get up to $10,000 towards remodeling.
Narrator: By the end of 2020,
over 10,000 locations will have this new restaurant design.
But Subway says food is its next priority,
and it's backing it up with an $80 million investment
in updated menu items.
Subway's partnered with the media company Tastemade
to develop hundreds of new menu ideas,
like the Green Goddess Tuna Melt
and the Southern Style French Dip.
In 2018, the chain introduced its cheesy garlic bread,
its most successful promotion in the last five years.
And in 2019, a line of ciabatta sandwiches
and Halo Top milkshakes hit stores.
Van Popering: Historically, Subway would evaluate
about six or seven new menu items per month,
but we've set up a process and invested in capabilities
where we're literally testing
at least 100 new menu items every month.
Narrator: As for whether or not all these menu items
and revamped designs will stop shuttering stores
and dropping business, only time will tell.
Taylor: They need to figure out
who they want their customer to be.
I think it's really an uphill battle for them.
But if they kind of go back to the basics,
think about what people want,
ask people what they want
and think about it a little bit more innovation,
that's kind of going to be a good start for them.