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Subway is the world's biggest sandwich chain. It overtook McDonald's as America's biggest fast-food restaurant by number of outlets in 2002, and achieved the same feat on a global scale in 2010. Growth has been generated partly by Subway's offer of a healthy alternative to burgers and fries, but also a supremely efficient franchising model organised by parent company Doctor's Associates. As a franchising machine it has few equals, voted the #1 franchise opportunity in the US an astonishing 17 times between 1985 and 2010 because of its levels of franchisee support and development and the potential for growth. The advantage to customers is the flexibility of the menu, as well as its made-before-your-eyes freshness. The privately owned business now has 45,000 restaurants worldwide, all franchised, and continues to expand with astonishing speed, opening an average of 2,000 new outlets each year.
Who handles advertising? Click here for Agency Account Assignments. In the US, Kantar (in Advertising Age) reported measured expenditure of $435m for 2016, out of an estimated total of $509m.
Subway's principal rivals in the limited service sandwich chain segment are Arby's and Jimmy John's. Panera Bread is similar but tends to be classified as a bakery/cafe. See Restaurant Sector for other companies
Doctor's Associates Inc
Subway Franchisee Advertising Fund Trust
Adbrands Weekly Update 21st Dec 2017: Subway's top marketer Karlin Linhardt is leaving after just eight months in his role, apparently as a result of what the New York Post described as a "nationwide revolt" by franchisees over his plans to re-introduce a heavily discounted price of $4.99 for foot-long sandwiches (instead of a regular price of up to $8). At that price, franchisees claim, they will be losing money on every sale. A successor is being sought.
Adbrands Weekly Update 14th Dec 2017: The week's most significant account assignment was Subway's appointment of a new dedicated entity within Dentsu Aegis Network to handle creative and media for North America, the first time, the US and Canadian accounts have been bundled as one. New unit The Franchise will draw upon McGarryBowen and Canada's DentsuBos for creative, and Carat for media, as well as other group-owned agencies. Billings are somewhere in the region of $500m annually.
Adbrands Weekly Update 20th Apr 2017: Former McDonald's and Anheuser-Busch executive Karlin Linhardt has joined Subway as SVP, North America marketing, working under CMO Joe Tripodi and chief advertising officer Chris Carroll. Most recently, Linhardt was a consultant for Accenture, working with Subway to establish its Subway Digital division. This recently launched an app to allow US customers to place order from within Facebook Messenger.
Adbrands Weekly Update 7th Jan 2016: Ads Of The Week "Founders". It's a brave new year for Subway, and here's how BBDO New York is helping the sandwich giant to put 2015's annus horribilis behind it, with a foundation story, some nice retro styling and gentle ribbing of the competitors. Jared who?
Adbrands Weekly Update 10th Dec 2015: Subway named former Coca-Cola marketer Joe Tripodi as its new chief marketing officer, filling shoes that have been empty since Tony Pace departed earlier this year. Pace's predecessor at Subway, Chris Carroll, rejoined the company in the summer, and will stay on for the time being as chief advertising officer. This appointment caps an "annus horribilis" for the sandwich giant, which suffered a sharp decline in growth, the untimely death of founder and CEO Peter DeLuca, and the disgrace of longtime brand ambassador Jared Fogle in quick succession.
Subway continues to expand with astonishing speed. As a franchising machine it has few equals, voted the #1 franchise opportunity in Entrepreneur magazine's Franchise 500 rankings 17 times between 1985 and 2010 because of the levels of franchisee support and development and the potential for growth. The advantage to customers is the flexibility of the menu, as well as its "made before your eyes" freshness. Subway offers an extensive menu of hot and cold sandwiches served in "submarine" baguettes, as well as a range of salads. All the sandwiches are made to order in front of customers. The range varies from outlet to outlet and country to country. In fact, the company claims to serve almost two million different sandwich combinations, but its most popular items are Tuna, Turkey Breast and Cold Cut Trio subs. Subway's signature sandwich is the BMT, featuring salami, pepperoni and ham on a bed of vegetables. The acronym has come to stand for Biggest, Meatiest, Tastiest, but in fact it originated in a restaurant located alongside the Brooklyn Manhattan Transit system in New York.
A major factor in the rapid growth of Subway, especially since 2002, has been a general perception by the public that the chain's range of made-for-you sandwiches and salads are healthier than traditional burgers and fries. These brand values have been strongly supported by Subway's marketing campaigns, which for several years featured real-life consumer Jared Fogle, an American college student who claimed to have lost 245 pounds in weight by eating only Subway sandwiches for a year in a diet program of his own design (combined with lots of walking). That relationship was abruptly suspended in 2015 after Fogle's home was raided by the FBI in connection with child pornography charges brought against the former head of his charitable foundation. His endorsement contract was terminated in August 2015, and later that same year he was jailed for 16 years after pleading guilty to possession of child pronography and sex with underage girls.
Other brand endorsement partners have included Olympian swimmer Michael Phelps and Brazilian football legend Pele. Even former First Lady Michelle Obama gave the chain an implicit endorsement when it teamed up with her Partnership for a Healthier America campaign. In 2007, the group launched a new FreshFit menu, at the same time as it also began selling pizzas in more than half of its US locations. In 2012, it was the first quick-serve restaurant to win the American Heart Association's Heart Check Certification on a number of menu items and meals, and it regularly tops customer surveys for perceived quality, health and value for money.
By mid-2016, the Subway system comprised almost 44,760 shops in 110 countries ranging from Afghanistan to Zambia. (McDonald's has a little over 34,000). However, revenues per outlet are low by comparison with McD, averaging just $425,000 per year in each US Subway in 2014 (compared to $2.5m per year for each McDonald's and $1.3bn or Starbucks). All outlets are franchised. The only company-owned store, which operated mainly as a research and development site, was sold to a franchisee in 2005. The main corporate entity which controls the brand, menu and marketing and oversees operations and quality is Doctor's Associates Inc (named after the qualifications of its founders). Total global systemwide sales are expected to top $20bn in 2015, of which more than a third is generated outside North America. Doctor's Associates takes an annual royalty of 8% from each outlet, equivalent to $1.6bn in 2015.
The US is the biggest market by far, with 26,933 outlets by mid-2016, down slightly on the year before as a result of selective closures. Local systemwide sales were $12.2bn in 2013, but that represented the group's slowest growth rate for several years: just 0.4%. As a result it was replaced as the #2 US restaurant chain behind McDonald's by Starbucks. Since then, Subway's US system sales have fallen back, settling in 2015 at $11.5bn. The biggest international territory is Canada with over 3,266 outlets by the end of 2015, followed by the UK, now more than 2,300. Other important markets are Brazil (2,160 outlets), Australia (1,429), Mexico (1,041), Germany (649), Russia (613), India (602) and China (579). All other markets were under 500 stores. However, further international expansion is high on Subway's list of priorities, with the company promising to have more foreign than US outlets by 2020. The company has been especially active in the "non-traditional" sector of the market, opening stores in more unusual locations including college campuses and schools, athletic clubs, hospitals, airports and department stores. The most non-traditional outlets of all are located in a car dealership in California and a church in Buffalo, New York. An outpost inside the Pentagon in Washington claims to be the most secure fast food outlet in the world. An outlet opened inside Walmart's corporate HQ in Bentonville during 2016. However plans to open outlets on Amtrak passenger trains in New York were cancelled in 2005 after objections from railway unions. The group has also pushed aggressively into digital markets, to match similar development by rivals. Subway Digital is a partnership with consultancy Accenture to build ecommerce business. That division launched ordering in the US via the Facebook Messenger app in Spring 2017.
Despite its massive footprint, the company is almost entirely decentralised. Some critics have argued that the Subway brand is now more about pyramid-selling than sandwich making. Doctor's Associates Inc, which controls the Subway trademark, awards franchising sales rights for individual territories to a network of unconnected development agents. They in turn select and manage the actual franchisees, often outlet by outlet. Central roles such as purchasing and advertising are managed by committees elected by franchisees, while Doctor's Associates simply sets down general guidelines for the store management and marketing, and of course collects a healthy royalty payment. Advertising is managed the Subway Franchisee Advertising Fund Trust. The group also manages a number of sports sponsorships including NASCAR driver Carl Edwards.
As with any such business, some franchisees, attracted by the powerful sales message, have struggled to make a profit from their patch but have found it just as hard to surrender their franchise. This led to some negative press coverage and a few lawsuits between 2000 and 2008. On the other hand, other franchise-holders have down very well out of the system, and the company claims that 70% of new outlets are opened by existing franchisees. Nevertheless rows between the sides break out on a reasonably regular basis. In summer 2006, the trust which manages advertising on behalf of franchisees sued Doctor's Associates over the introduction of a new contract which effectively gave the trademark-owner power to redirect advertising dollars away from the central trust and into a new vehicle controlled directly by Doctor's Associates.
Founder Fred DeLuca was CEO of Doctor's Associates until his untimely death in 2015. His sister Suzanne Greco succeeded him as president & CEO. DeLuca's longtime business partner Peter Buck remains a director; the two men had been joint owners of the company. Forbes estimated the net worth of each at $2.6bn in 2015. Joe Chaves is director of operations. Don Fertman is chief development officer.
Tony Pace, SVP & chief marketing officer for the Subway Franchisee Advertising Fund Trust (SFAFT), announced his resignation in July 2015, a few months after the departure of VP, global marketing Jeff Larson. Pace's predecessor Chris Carroll returned to oversee marketing with the role of chief advertising officer. Former Coca-Cola marketer Joe Tripodi was named as chief marketing officer, working alongside Carroll, in Dec 2015. Karlin Linhardt was appointed as SVP, North America marketing in 2017, only to depart suddenly later the same year as a result of what was described as a "nationwide revolt" by franchisees over proposed promotional items. Other marketers include Carissa Ganelli (chief digital officer), Sonja Tilki (VP, brand voice) and Steve Micolo (director of marketing development).
Subway Restaurants was founded in 1965. Fred DeLuca was then a 17-year-old college freshman, intending to train as a doctor. The problem was how he was going to pay for tuition fees. Family friend Peter Buck, himself a qualified doctor of nuclear physics, suggested DeLuca pay his way through medical school by opening a sandwich bar, and offered him $1,000 of seed capital. The first restaurant opened in Bridgeport, Connecticut in August 1965 and was called Pete's Super Submarines. Unfortunately it lost money, but Buck and DeLuca became partners, opening several additional outlets in an attempt to grow profits through volume. In the mean time, DeLuca graduated with a degree in psychology from University of Bridgeport. Finally, with their fifth restaurant, the business began to turn a profit. The name Subway (originally Pete's Subway) was adopted in 1968, and by 1974 there were 16 outlets in and around the state of Connecticut.
However the financial rewards were still smaller than DeLuca and Buck had anticipated. So in 1974, they changed strategy, opening Subway up to franchisees. This proved enormously successful, allowing the brand to take advantage of volume purchasing and marketing, without exposing its owners to the cost of running individual shops. Gradually they closed down their own outlets to concentrate on marketing the Subway brand to the franchise sector. As a result, the number of outlets soared over the following few years and in 1978 the system set up the Subway Franchisee Advertising Fund Trust (SFAFT), pooling a share of revenues to pay for national advertising.
By 1981 there were 200 restaurants in the US; a year later the number had grown to 300. The first international outlet opened in 1984 in, of all places, the Middle Eastern state of Bahrain. Other territories followed including Puerto Rico (1985), Canada (1986), Australia (1988) and Mexico (1990). The pace of expansion ramped up in 1995 and 1996, as the chain entered more than 30 new markets. The group opened its 20,000th outlet in October 2003 when 20 restaurants opened on the same day in locations as far apart as the US, China, Australia and England. In 2004, the group opened its first outlets in new territories Chile, Grenada and Hungary. Subway broke through the 30,000 outlets barrier in October 2008, and through 40,000 in August 2013.
Last full revision 19th April 2017
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