This article is based on a video originally recorded on Visa Franchise Youtube Channel.
Today, we will be giving a quick summary on our analysis of the Subway franchise investment opportunity. This is for many of our clients from around the world that have inquired about Subway franchise cost and profitability. We will discuss whether it’s a good or a bad franchise investment, and whether it is something that’ll qualify them for an E-2, or L-1, or EB-5 investor visa.
Contents
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Subway Franchise Profitability
Our opinion is quite definitively: it is a bad investment decision, a bad franchise to invest in the U.S. at this time. And there’s a number of reasons for this.
A brief synopsis is that Subway was founded in 1965 in Bridgeport, Connecticut, by Fred DeLuca and Peter Buck. Since then, Subway has become one of the largest franchises in the world, in terms of the number of units with over 44,000 units worldwide.
Subway Franchise Cost: How much is a Subway Franchise?
When purchasing your first Subway franchise, the initial non-refundable franchise fee is $15,000.
The total initial investment necessary to begin the operation of a Subway franchise ranges from $207,050 to $476,900 for a traditional location and from $167,600 to $343,900 for a non-traditional location. This includes an estimated $22,370 to $44,830 that must be paid to the franchisor.
Below is the breakdown of the franchise cost:
System-wide Outlet Summary for years 2018 to 2020
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| 1. U.S. Franchised | 2018 | 25,906 | 24,798 | -1,108 |
| 2019 | 24,798 | 23,802 | -996 | |
| 2020 | 23,802 | 22,201 | -1,601 | |
| 2. U.S. Company-Owned | 2018 | 0 | 0 | 0 |
| 2019 | 0 | 0 | 0 | |
| 2020 | 0 | 0 | 0 | |
| U.S. Total Outlets | 2018 | 25,906 | 24,798 | -1,108 |
| 2019 | 24,798 | 23,802 | -996 | |
| 2020 | 23,802 | 22,201 | -1,601 |
Subway Franchise Profit: How Much Do Owners Make?
Subway does not make representations about a franchisee’s future or past financial performance of company-owned or franchised outlets. However, if you are purchasing an existing outlet, they may provide you with the actual records of that particular outlet.
Through our analysis of the Franchisor’s income statement, we can estimate sales figures from the income statement line item “Royalty Revenues”. This is because they are calculated as a percentage of the total gross sales of all franchised outlets.
From the income statement, we see that the franchisor made $634,329,000 in franchise royalties in 2020 and $ 834,117,000 in 2019. With an 8% royalty fee, we can calculate the estimated average gross sales for the 22,201 franchised outlets that were open in 2020.
From the calculation, the estimated average net sales are about $357,151 in 2020 and $438,049 in 2019.
Subway franchise is one of the most valuable privately held franchises in the world. A lot of people see that it’s everywhere. They’re familiar with the brand, and think it’s something they want to invest in. But we found a number of issues after doing our research as we’ve had a number of clients ask about this opportunity.
Subway Is Problematic to Invest in: Why?
First, Subway had a very flawed development program. They’ve opened up way too many units, and they didn’t have territory protection. That’s why sometimes you can see one Subway franchise located on one corner and then down the block, you have another Subway franchise. This is a big issue for franchisees because this leads to sales cannibalization, where one store negatively impacts the sales of another store. And this decreases the sales for both stores, making the Subway franchise profitability decrease..
As an owner or operator, Subways can require many hours for the individual. You’ve read that a number of operators are working 50, 60, 70, 80 plus hours just to break even. Being an investor that is looking to do a franchise investment, you don’t want to own a franchise that’s just buying yourself a job. You want to do something that you can scale up, that you can eventually get to a level of sales. Where you can hire a manager and work fewer hours so you can enjoy your free time doing other activities or just being with your family.
High Employee Turnover
Another difficulty with the Subway operator or Subway franchisee is that there is a high employee turnover. Like many other food services and food businesses, there is a lot of employee turnover. They work for a short period of time and then they leave. And then, as an owner or operator, you have to keep hiring people and constantly train them.
And one of the biggest problems for someone looking to make an investment in a Subway franchise is if they are a foreign national seeking and holding an E-2 , L-1 or EB-5 investor visa . Subway does not allow foreign nationals as franchisees in the U.S. The person must be a green card holder or be a U.S. citizen. I hope you found this insightful.
