#160 The Subway System in Austria
After a golden age of expansion in the 1980s, 1990s, and early 2000s, the last decade hasn’t exactly been the best for sandwich chain Subway. A few years ago, Subway had approximately 42,000 restaurants in 111 countries globally, and proudly proclaimed itself the world’s largest fast food chain. In recent years, Subway experienced challenges in many countries and shrunk both in numbers of restaurants and countries. In the United States, the company suffered from serious fallout over its spokesperson Jared Fogle’s conviction as a sex offender, its sales declined, and it had to shut down hundreds of stores year after year. In 2018, the number of store closures even exceeded 1,000. In overseas markets, the picture was a bit more mixed. Subway downsized and withdrew from some, but expanded in other markets. While only a drop in the global bucket for Subway, Germany, for instance, proved to be more favorable territory. Between 2015 and 2019, Subway expanded from 610 to more than 700 stores, and sales increased by about 10 percent to just under EUR 300 million. And what about Subway in neighboring Austria? With less than ten restaurants hardly a major market, Subway seems to be trying hard to be of even less significance. In a market where rival McDonald charges a total of 5 percent in combined franchise and marketing fees, Subway takes more than double from its franchisees – a whopping 12.5 percent. Plus, Subway does not guarantee territorial exclusivity, which sometimes puts franchisees into tough competition with each other – franchisees lose while Subway wins. When one of its Austrian franchisees left Subway in 2019 because of these unfavorable conditions and started an independent sandwich shop, Subway tried to shut its former franchisee’s new operation down via the courts. The action immediately drew the attention of the media, and Subways image – which wasn’t favorable to begin with – suffered even more. At the time of this article, the outcome of the lawsuit was still uncertain, but in Germany, a court had already ruled against Subway in a similar case, and similar outcome was to be expected in Austria.
April 2, 2020 @ 5:24 am
For many years, Subway has been criticized by its franchisees, not only for its outrageously high fees, but also for the accusations of excessively concentrating franchises outrageously close to each other. Massive numbers of lawsuits were filed, because of this, and Subway’s reputation is rumored to have been severely affected.
Then comes the lawsuit alleging that the “foot long” sandwich is not really a full 12 inches (as highlighted by a young Subway customer from Australia). The company was accused of quickly settling (in 2015), to simply make the lawsuit go away, but the agreement was tossed out in 2017 by the 7th US circuit court of appeals, which called the settlement “worthless, and stated, “A class action that seeks only worthless benefits for the class and yields only fees for class counsel is no better than a racket and should be dismissed out of hand,” Circuit Judge Diane Sykes wrote for a three-judge panel. “That’s an apt description of this case.”
More bruises (and ongoing battles) for the chain. “Do you want your (less than foot long) bread toasted? Or should we simply continue to ‘grill’ the customers and franchisees?”
April 28, 2020 @ 9:16 pm
Are questionable contract terms the right way to gain the trust of customers and franchise partners?
Once you study the contract details of Subway franchisees, you get the impression that some details in the contract are different from others and also questionable. Aa few examples: As stated above, Subway takes more than double from its franchisees than Mc Donald´s for instance which is 12,5 percent.
Also, there is no territorial protection for franchise partners. This means that whoever opens up a Subway restaurant cannot be sure that Subway doesn´t open up a second branch just around the corner. This would be a major disadvantage for the franchisee, not for Subway as it doesn´t really make a difference if sales are divided into two branches.
It seems that the main method to make franchisees stay is to drag them to court and threaten them with unaffordable fines.
Franchisees are also not allowed, according to the contract, to open up a food business that could be a competitor for Subway even after termination of the contract. Their method of pushing this through? Court.
Franchisees complain that Subway doesn´t care about its locations and that they don´t receive support from the parent company. Their accusation: Subway just cares about the commission.
Seems like the relationship between Subway and their franchisees is broken and maybe this is something that Subway should work on in first place in order to gain back customers trust.
April 29, 2020 @ 7:03 am
Dear Gerhard,
thanks for the very interesting article about subway and its franchise system.
Generally, I’m not so surprised about their non-success in Austria.
The Austrian market isn’t well known for the success of international fast food chains. TGI Friday? Had a restaurant in Vienna but closed it after a few years. KFC? A handful restaurants, but a non-factor in Austria. Dunkin’ Donuts? Less than half a year ago, the next DD store in Vienna is facing insolvency. With the exception of Mc Donalds (and with deductions Burger King) Austria is looking like a pretty difficult new market for expanding fast food chains.
In my mind, there are different reasons for this. We do have a tradition an mentality for Guest houses (not to be compared with pure restaurants) and fine bakeries. As well as the typical Austrian likes to stay for an hour at his favorite coffee shop a read his daily newspaper. A not just to grab a coffee-to-go and a bagel.
Austria is Austria. Always a bit different then its big neighbor, always very special.