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Subway: Refreshed Menu, Refreshed Franchisee Base

RJ Hottovy
Jul 8, 2022
Subway: Refreshed Menu, Refreshed Franchisee Base

Subway made quite a bit of noise this week when it announced that it was undergoing one of the most extensive menu overhauls in the company’s almost 60-year history. Like many other QSR chains, the company has streamlined its menu to emphasize 12 sandwiches dubbed its “Subway Series” to better streamline its operations and improve throughput. Sandwiches can be ordered by new names or numbers, but customers still have the ability to build and customize these and other sandwiches.

  • We’ve written about Subway’s turnaround efforts in the past, including the company posting a 7.5% increase in comparable store sales in 2021 compared to 2019 (which was more likely a byproduct of price hikes, as visits per location were down slightly compared to 2021, as we show below) and its highest average unit volumes since 2014 in 2021 (which we estimated to be around $400K). While price hikes may have helped in 2021, 2Q22 marked the second straight quarter of visit per location growth for the chain, which suggests that previous menu refresh efforts were helping to drive a positive impact on visitation trends even before this week’s announcement.
  • Subway’s menu changes are grabbing the headlines, but its store-based optimization efforts may be bearing the most fruit. According to CNN and other media sources, Subway has almost 21,000 U.S. locations at present, down from more than 27,000 locations in 2015. As we’ve noted in the past, Subway CEO John Chidsey has noted that the company doesn't "really see a lot of growth in the U.S. other than on the nontraditional side...I don't think we'll close a lot more restaurants—maybe a handful around the edges—but I think the U.S. is sort of in a steady state, and all the growth will really be international." Clearly, a reduction in the number of units has benefitted Subway, similar to many of the other brands we recently called out in our brand rightsizing whitepaper. However, we believe many existing restaurants are likely to change hands in the future and end up in the hands of experienced franchisee operators, which could also improve throughput and operational efficiency metrics in the future.

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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