One of the most prolific all-franchise chains, Subway has more than 26,000 franchises in the U.S. and over 17,700 international franchises, with an average of two new Subway restaurants opening each day. In the 2016 Top Franchises from Entrepreneur’s Franchise 500 List, Subway ranked fifth, nevertheless, opening a Subway franchise has both pros and cons.
Opening a subway franchise is inexpensive compared to other fast food chains, however, the ongoing franchise fees are on the high end of the scale, while annual sales high and the annual sales are about 50 percent less than other major fast food chains.
Pro: Low Startup Costs
You can open a Subway franchise for between $116,600 and $263,150, while it would cost you $1.2 million to $2.5 million to open a Taco Bell franchise and at least $2 million to open a Wendy’s. Potential Subway franchisees must have a net worth of $80,000 to $310,000 with at least $30,000 in liquid assets. Subway also requires a $15,000 initial franchise fee.
Con: High Franchise Fees
Subway franchisees pay a royalty fee of eight percent of their gross sales, in addition to an advertising fee of four and one-half percent of their gross sales for a total of twelve and one-half percent of all gross sales going back to Subway, while Wendy’s royalty fee is eight percent and KFC’s is nine percent.
Con: Lower Annual Sales
On average, a subway restaurant generates only $490,000 in annual sales, compared to $1.5 million in average annual revenue for Wendy’s restaurants and $1.2 million for a Burger King location.
The location you choose for your Subway franchise will determine the number of customers that visit your restaurant.
Pro: You can open a Subway restaurant with a minimum of 350 square feet, which allows for non-traditional locations. There is a Subway in a Goodwill store, one in a car dealership and a few other creative locations.
Con: Subway does not offer protected territories; a rival Subway could open near your location at any time.
Other factors, including the amount of work the franchisee puts into the business, help determine whether the venture is successful. Subway has several other pros and cons, including:
- Worldwide brand recognition
- Extensive training at Subway’s corporate headquarters in Florida
- Lower than average turnover rate
- Veterans receive a 50 percent discount on the $15,000 franchise fee
- Complaints from franchisees about aggressive royalty audits
- The Jared Fogle scandal of 2015
- Declining sales due to increased competition from other healthy fast food chains
A happy franchisee is one who investigates each opportunity carefully, considers what existing franchisees say about their experience and one who has a franchise attorney review the contract before signing.