After getting kudos for its early response to the coronavirus, Subway Restaurants is now being blasted by store operators for demanding that they return to business as usual despite still-sagging sales in the midst of the pandemic.
Subway this month told its roughly 23,000 US restaurants to resume operating 84 hours a week, or an average of 12 hours a day, as they did before the pandemic, sources said. It has also demanded franchisees begin repaying royalties fees that the company graciously deferred in the early days of the health crisis after it shuttered the restaurant industry.
The demands, franchisees say, come as Subway sales continue to lag — leaving store operators unnecessarily exposed to both the coronavirus and added expenses, including higher payroll costs.
“We don’t want workers standing around and making with taxes $20 per hour. That’s a lot of money,” said a franchisee who says sales in the southern US, where he operates, were down some 30 percent for the week ending Sept. 8 over last year.
Subway’s main office, run by ex-Burger King CEO John Chidsey, stands to benefit, however, as the company takes a monthly cut of sales before expenses, franchisees say. This, combined with a little-noticed interview Chidsey gave in June, has tongues wagging that the sandwich chain founded in 1965 is hoarding cash in hopes of a sale — despite the company’s insistence that it’s not on the auction block.
In a June interview with Private Company Director Magazine, Chidsey boasted about how well-positioned Subway was to deal with the coronavirus pandemic because it “has absolutely no debt.” Later in the interview, he explained that companies without debt also tend to be “attractive [buyout] targets.”
“I always remind people that if you pile up a ton of cash, and you don’t have a lot of debt sitting on your balance sheet, you become a more attractive target for a private equity company or competitor,” Chidsey said in response to a question about companies generally — not Subway.
A Subway spokeswoman said the company is not for sale, but declined to comment further for this story.
To be sure, the criticisms come as many of Subway’s rivals have also taken steps to resume pre-COVID operating hours and demand that franchisees start repaying fees deferred in the early days of the pandemic, including McDonald’s. But those chains are also doing better than Subway, said restaurant consultant John Gordon.
“Any quick service restaurant that has a drive-thru is in a powerful position,” Gordon said. “The problem is Subway has few drive-thrus and its restaurants are often in cities.”
Chidsey in May told Forbes that only about 600 of Subway’s 23,000 US restaurants have drive-thrus. McDonald’s, by contrast, has 13,000 drive-thrus and has added a third pickup window in some stores.
Dunkin’ Brands, which also has been harder hit by the pandemic than many of its fast-food rivals, continues to be flexible with franchisees about hours of operations, a Dunkin’ spokeswoman said.
“To provide our franchisees in the hardest hit areas with added flexibility, we have offered the option to temporarily close, reduce hours of operation to provide relief to restaurant employees and allow extra time for deep cleaning in the evening, migrate to a drive-thru only model,” Dunkin’ said in a statement.
Gordon said he also agrees with franchisees’ criticisms to The Post that Subway is looking to return to its pre-COVID operating hours at the worst possible time because the winter months tend to be slow for the restaurant industry.
“You want to lengthen your hours in April and cut back in the fall,” Gordon said. “This will lead to franchisee losses.”
Increasing hours also means more Subways will be open for breakfast at a time when breakfast sales are suffering. McDonald’s has yet to see sales of its Egg McMuffins return to pre-pandemic levels, according to a Sept. 18 research note by Morgan Stanley. “A full recovery still depends on resumption of morning routines,” the report noted.
When pandemic lockdowns began in March, Chidsey got credit for acting swiftly to temporarily offset franchisees’ fees. And the chain is now being somewhat generous in its demand for repayment, which will occur interest-free over 52 weeks starting Oct. 16.
Still, the latest moves have reignited ill feelings between franchisees and the company over its inability to recover from a downward slide that kicked off in 2015.
“The current leadership is out of touch and cares nothing about the franchisee,” lamented a Great Lakes-area owner who says his sales have been down more than 20 percent compared to last year. “We really feel the company is being prepped for sale.”