More than 100 Subway franchisees slam executives and demand lower fees in open letter to 'multi-billionaire' owner
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- Dozens of Subway franchisees penned a letter to owner Elisabeth DeLuca asking for lower royalties.
- The franchisees also called Subway's response to an earlier open letter "canned."
- Franchisees say they are struggling, as rumors of Subway attempting to sell itself swirl.
- See more stories on Insider's business page.
Some Subway franchisees are taking a stand against the chain's executives.
On Wednesday, a group of Subway franchisees published an open letter to Elisabeth DeLuca, the wife of cofounder Fred DeLuca and one of the chain's owners. The franchisees called out Subway's "canned" response to an earlier letter they wrote, and demanded the company cut back royalties, or fees they must pay to the corporate office.
Currently, Subway franchisees pay the corporate office 8% of gross sales every week in royalties - one of the highest royalty fees in the restaurant industry. For comparison, McDonald's royalties are 4% of gross sales.
"In the middle of a pandemic, we were denied relief from our royalty payments to you, a multi-billionaire who owns Subway with no debt," the letter reads.
Franchisees are asking Subway to reduce the royalty to 4.5%, which they said would be equal to the royalty fee set by Subway CEO John Chidsey when he was at the helm of Burger King. The letter said the lower royalty would allow franchisees to reinvest in stores, hire more workers, and run more seasonal promotions, like the $5 footlong.
Subway did not immediately respond to Insider's request for comment.
Franchisees slam 'out-of-touch' executives
Franchisees published their first open letter to DeLuca in mid-April. Franchisees said that the corporate office denied requests for higher-quality ingredients, allowed new stores to cannibalize sales, and expected franchisees to use federal loans to subsidize the controversial $5 footlong deal.
A Subway representative told Insider at the time that the letter was not representative of most franchisees' opinions. DeLuca herself has not responded, publicly or to franchisees, a franchisee who helped write both letters told Insider.
"What we received was a stale template message from a Subway spokesperson that has probably been used in the past and will be reused in the future," Wednesday's letter reads. "However canned that statement was, we did find it revealing, as it showed how out of touch your corporate executives are."
In an internal message viewed by Insider, Trevor Haynes, Subway's president of North America, responded internally to "one-sided and misleading news articles" later in April.
"Unfortunately, at times, inaccurate and sensationalized news is published," Haynes wrote.
Haynes also addressed rumors that the company was attempting to sell itself, writing: "Subway is not for sale. For more than 50 years, Subway has operated as a privately-owned company with owners who are committed to the brand and our franchisees' long-term success."
A franchisee who helped write Wednesday's letter said that Subway executives' denial that the company is for sale has done little to convince insiders. With Subway closing more than 1,600 locations in 2020, the franchisee said, there is evidence that many of the franchisees who own the chain's roughly 24,798 domestic locations are struggling.
"One fourth of the franchisees are gone already," since Subway's peak of 27,103 locations in 2015, said the franchisee, who asked to remain anonymous to speak frankly about the situation, but whose identity was verified by Insider.
"One quarter are on their way out," the franchisee continued. "They're waiting for their leases to end so they can get out. And everything is good? Everything is right? What is wrong with you, Elisabeth?"
Insider reported in April that rumors of a potential sale have been swirling amongst Subway insiders. In franchisees' first letter to DeLuca, they requested a royalty rebate of 8% of any sale "as a sign of good faith for all of the turmoil, and heartache that we have endured."
"What is confirmed through chitchat in the restaurant industry is that both RBI - Restaurant Brands International - and also Inspire, in the last year to year and a half, have done due diligence looking at Subway," John Gordon, a chain-restaurant analyst with Pacific Management Consulting Group, told Insider in April.
- Read more:
- Subway moves jobs from Connecticut headquarters to Miami, where the sandwich chain's CEO owns a home
- Insiders are buzzing about Subway's attempts to sell itself to Arby's or Burger King's parent companies
- Rumors are flying that Subway is up for sale as the distressed sandwich chain lays off hundreds to cut costs and abandons franchisees
- More than 100 Subway franchisees call on the chain's 'multi-billionaire' owner to fix the 'nightmare' business