Subway Sandwich franchisees protest against the latest “$5.00 foot-long” promotion saying it is tired and old.
Franchise investors agree to abide by the terms of the franchise agreement. The franchise agreement is a legally-binding contract between the franchisee and the franchisor and covers the core categories of a franchisee’s operation. A few of the main categories the contract spells out are where a franchisee can purchase inventory, the company training program for the franchisee and his or her employees, and also the marketing of the franchisee’s products or services. Nine times out of ten the marketing and promotions of the business are done on a national basis with the best minds in the field of advertising and marketing designing Madison Avenue-quality advertising campaigns and field-tested promotions that the franchisee would never be able to produce or afford if left on their own. Franchisees trust the brand that they are buying into and also the marketing expertise of the franchisor and for that expertise, they pay a premium advertising fee agreed to in advance. Subway Sandwich franchise charges a royalty fee of 8% of gross sales, and advertising royalty fee of 4.5% of gross sales annually. In exchange for paying these fees, the franchisee agrees to do no advertising or promotions on their own and to comply with the promotional wishes of the franchisor.
When business is good and franchisees are making money, franchisees are happy with the arrangement and the advertising and promotions lead to increased sales and profits. But when the business cycle turns on an industry, demand and profits fall, and franchisees can experience down quarters and even lose money. When that is the case, being asked to spend money or lower already too low prices can seem like a formula for disaster and such is the case currently at the famous Subway Sandwich franchise chain.
Subway Sandwich franchisees are being told that they must lower the price of their widely popular, “foot-long” sub sandwich to $5.00 in order to compete with other fast food restaurants, increase sales, and win back market share. Subway franchisees, more than 400 of them, have signed a petition opposing the promotion saying that since they are barely staying afloat as it is, offering such a discount on their product will put them out of business. The franchisor counters with asking franchisees to stay focused on the big picture and that they are in competition with the likes of McDonald’s and other fast-food giants that have stepped up their offerings of Subway-like sandwiches at discount prices. In addition to not being willing to go along with the promotion, disgruntled franchises are urging the Subway corporate executive to revitalize what the franchisees feel is a stagnant and stale menu offering little in the way of change or innovation and that the $5 foot-long promotion is simply more of the same and it will not succeed.